China Cracks Down on Illegal USDT Transactions Worth 6.5 Billion Yuan

The Shanghai Pudong New Area People's Court recently revealed a significant case involving illegal cross-border foreign exchange transactions facilitated through stablecoins. The case, adjudicated in March, involved individuals named Yang and Xu, who orchestrated a scheme using domestic shell companies to provide stablecoin services to unspecified overseas clients. The stablecoin used in these transactions was the Tether (USDT), with a total transaction volume exceeding 6.5 billion yuan over three years. Yang was responsible for client acquisition and foreign exchange fund allocation overseas, while Xu managed 17 domestic shell company accounts, handling daily transactions that exceeded 10 million yuan. The collaboration between Yang and Xu was highly organized and efficient.

The court documents detailed how the criminal network operated. In late 2023, a Shanghai resident, Ms. Chen, needed to transfer funds to her daughter abroad. Due to China's annual foreign exchange limit of $50,000 per person, she sought alternative methods. She was directed to a foreign exchange company controlled by Yang and his associates, which operated through a domestic shell company. Ms. Chen transferred her funds to the company's account, and her daughter received the equivalent amount in foreign currency. The company charged a service fee for this transaction. Over time, the criminal group provided illegal foreign exchange services to clients with both foreign currency and renminbi exchange needs, using the "agent collection and payment" method to facilitate cross-border transactions.

This event signifies robust enforcement actions against unauthorized stablecoin use in China, highlighting potential regulatory shifts impacting future cross-border transactions. The crackdown has caused unease among potential illegitimate operators, yet the USDT market remains steady without disrupting wider liquidity flows. The case underscores China's tightening control over crypto activities. The enforcement actions may influence regulatory policies, prompting compliance reviews across the industry. This reflects China's ongoing clampdown on illegal crypto exchanges and stablecoin misuse.

No alterations in major cryptocurrency prices like BTC or ETH have been reported. Importantly, the USDT market cap remains unaffected despite the legal proceedings against the illicit network. This situation could influence regulatory approaches to stablecoin regulation worldwide. Historical data shows similar crackdowns can alter regional regulatory landscapes, enhancing compliance protocols and regulatory transparency.

Gao Yongfeng, Senior Partner at Shanghai Jinli Law Firm, noted, "This illegal exchange mechanism splits what should be a single, regulated forex transaction into two separate operations, thereby evading regulatory oversight." The case highlights the risks of unapproved stablecoin use and evade regulatory oversight through separate transactions. The court's decision underscores the importance of compliance with foreign exchange regulations and the potential legal consequences of engaging in illegal financial activities. The disclosure of this case serves as a reminder to individuals and businesses about the legal and financial risks involved in unregulated stablecoin transactions.