China's crypto ban and USDT: how underground banks launder billions

Crypto is banned in China, yet USDT has become the bridge for underground banks. Recent enforcement cases, sentences and the central bank's stablecoin warning.

2026-10-12

Cryptocurrency trading has been illegal in mainland China since 2021. Yet Chinese courts keep hearing cases in which the stablecoin USDT sits at the center of illegal foreign exchange schemes and money laundering. The pattern is consistent: clients pay yuan domestically, the network converts it into USDT, and the value reappears abroad in another currency, bypassing China's capital controls.

The legal framework

2021 notice: the People's Bank of China (PBOC) and nine other departments issued the Notice on Further Preventing and Resolving the Risks of Virtual Currency Trading and Speculation, classifying related business activities as illegal financial activities.
Anti-Money Laundering Law (revised): adopted in November 2024 and in force since January 1, 2025, it replaced the 2007 law with 65 articles and a risk-based approach.
Foreign exchange rules: moving money across the border outside official channels exposes operators to criminal liability, as the cases below show, with SAFE (the State Administration of Foreign Exchange) monitoring suspicious flows.

November 2025: the ban reaffirmed

On November 28, 2025, the PBOC convened a meeting with 12 other bodies, including the Ministry of Public Security, the Supreme People's Court and Procuratorate, the CAC, SAFE, the NFRA and the CSRC. According to the PBOC's official statement:

virtual currencies are not legal tender and related activities are illegal financial activities;
stablecoins are a form of virtual currency and cannot adequately meet customer identification and AML requirements;
they carry risks of use in money laundering, fundraising fraud and illicit cross-border transfers;
the prohibitive stance will be maintained.

Enforcement cases

Case	Amount	Outcome
Chengdu underground bank (announced May 2024)	at least 13.8 billion yuan (~$1.9 billion)	193 arrests; ~149 million yuan frozen
Beijing, Haidian court (judgment March 2025)	1.182 billion yuan (~$166 million)	5 sentenced to 2–4 years
Shanghai, Jing'an prosecutors (reported July 2026)	more than 200 million yuan (~$29 million)	5 sentenced to 2.5–6 years; fines up to 1.5 million yuan

Chengdu: USDT as an FX desk

Police in Chengdu, Sichuan, said a group led by people surnamed Lin, Weng and Chen had used USDT for currency exchange since January 2021, mainly for people smuggling medicine and cosmetics or buying assets abroad, The Block reported.

Beijing: the stablecoin "bridge"

In the Haidian case, presented at the 2025 Financial Street Forum, clients' yuan were converted to USDT on trading platform accounts and moved across borders through bank accounts in the defendants' names between January and August 2023. Prosecutors described USDT as a "bridge" for disguised foreign exchange trading.

Shanghai: wealthy clients, three years

The Shanghai network helped wealthy clients move money abroad to buy property, emigrate or pay for study. SAFE flagged unusual transactions in July 2024; nine people were arrested. One client manager alone handled more than 170 million yuan before setting up her own currency conversion business.

Why USDT

Prosecutors in Shanghai said the anonymity of on-chain transactions made the money harder to trace. Stablecoins also hold a steady dollar value, settle in minutes and can be bought and sold peer to peer without a licensed exchange. For someone trying to bypass China's capital controls, that combination makes USDT a practical tool. The PBOC's November 2025 statement concluded that stablecoins cannot adequately meet customer identification and AML requirements.

The global dimension

The same infrastructure serves international criminals. Chainalysis estimated that Chinese-language money laundering networks processed about $16.1 billion in illicit crypto in 2025, roughly $44 million a day and almost 20% of the $82 billion in on-chain laundering it tracked. It found flows into these networks grew far faster than flows to centralized exchanges since 2020, and named guarantee marketplaces such as Huione and Xinbi as key venues. Experts quoted in the report say these networks have shifted from traditional informal value transfer, such as fei qian, to crypto.

That overlap explains why the US Treasury cut Cambodia's Huione Group off from the US financial system in 2025, and why Chinese police target the "financiers" behind scam compounds.

Where the money goes

The clients in these cases were not only criminals. Chengdu's network served smugglers of medicine and cosmetics but also people buying assets abroad; Shanghai's served families paying for overseas property, emigration and study. That mix makes underground banks hard to eradicate: demand comes from ordinary wealth flight as well as from fraud and gambling proceeds, and the same channels serve both.

What compliance teams should watch

Customers moving funds to or from mainland China via P2P crypto trades or OTC desks.
Many personal accounts receiving yuan or foreign currency from unrelated parties, a classic underground bank pattern.
Use of USDT on Tron or Ethereum by clients with no clear business reason.
Links to guarantee marketplaces on Telegram and to sanctioned entities such as Huione.
Payments for overseas property, tuition or emigration without visible official FX conversion.

For individuals

Selling USDT to a stranger or lending a bank account can make you part of a laundering chain. In China, that can lead to prison; elsewhere, accounts get frozen and criminal liability follows. Never rent out accounts or accept crypto conversions for people you don't know.