- A Chinese court sentenced three people to prison terms ranging from 7 to 16 months and fines for laundering 200,000 yuan in digital currency over four days
- The gang members recruited merchants to receive digital yuan from an overseas superior and exchange it for cash, taking commissions
- The digital yuan offers “controllable anonymity” necessary for crime prevention, but such fraud cases exploiting its privacy features are rare but not unknown
China has been aggressively rolling out its central bank digital currency (CBDC), the digital yuan. However, the pseudo-anonymity of the digital yuan has enabled some criminal activity. Recently, a Chinese court sentenced members of a gang to prison for money laundering using the digital yuan.
The Shaoxing Money Laundering Gang
A court in China’s Zhejiang Province sentenced three people to jail for laundering 200,000 yuan ($27,580) in digital currency over four days in September 2022. The three individuals, identified only by their family names Yuan, Zhang, and Kuo, offered merchants in multiple cities commissions of 1-15% to receive digital yuan from them and exchange it for cash.
Exploiting the Digital Yuan’s Privacy Features
The digital yuan was designed to offer controllable anonymity. Overseas criminal groups have taken advantage of this feature. Yuan recruited Zhang and Kuo after seeing an ad at his hotel offering commissions for exchanging digital yuan. The gang used niche overseas chat tools to communicate anonymously with their “superior” who provided the digital yuan.
Cracking Down on Digital Yuan Crime
Reports of fraud using the digital yuan are still rare. This appears to be one of the first cases involving a coordinated money laundering scheme. The illicit activities were uncovered when bank staff reported abnormal digital yuan transfers between merchants. While anonymity is a key feature of the digital yuan, it seems officials are keeping a close eye out for criminal abuse.
Conclusion
As China continues expanding the use of its CBDC, it will need to strike a balance between privacy and preventing criminal activity. This case highlights how pseudonymity in payments can be exploited. It remains to be seen whether the digital yuan’s “controllable anonymity” will stand up to mass adoption. For now, the authorities seem to be cracking down swiftly when nefarious usage appears.
