China Police Said to Detain Crypto OTC Traders Amid Money Laundering Crackdown

Chinese police are stepping up efforts in cracking down on illegal economic activities, which now leads to crypto over-the-counter (OTC) traders being detained to assist investigations.

AccessTimeIconJul 2, 2020 at 4:01 p.m. UTC
Updated May 9, 2023 at 3:09 a.m. UTC

As Chinese police step up efforts to crack down on illegal economic activities, crypto over-the-counter (OTC) traders are being detained to assist investigations. 

In another sign Chinese law enforcement are targeting cryptocurrency trading, Zhao Dong – a prominent Chinese crypto OTC trader and the co-founder of crypto lending platform RenrenBit – has been held up by police in the city of Hangzhou. A rumor that Zhao had been taken away first emerged on WeChat on Thursday, after a screen capture describing his detention began circulating within the local community and was later reported by local news outlets.

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  • As the rumor drew wider attention given Zhao's prominent status, a representative of RenrenBit said in a statement on the social media platform Weibo that one unnamed OTC trading desk in Beijing had its whole team taken away by police late last month. It does not appear that any of the OTC traders were outright arrested.

    RenrenBit said Zhao, who has invested in the OTC team but was not involved in day-to-day trades, returned to China from Japan in early June and is now "actively" assisting local police in anti-fraud and anti-money laundering investigations.

    In 2017, the Chinese government prohibited local crypto exchanges from allowing trades between cryptocurrency and Chinese yuan. Many traders turned to OTC platforms as a result, which essentially enable peer-to-peer trading by connecting buyers and sellers. Individual users in China have been relying on OTC desks to buy or sell USDT or bitcoin with Chinese yuan to participate in crypto-to-crypto trading. 

    A person with direct knowledge of the issue, requesting anonymity due to the sensitivity of the case, told CoinDesk that Zhao is currently being held by police but added this is systematic effort, not an isolated incident. The issue has also sparked some fear among other OTC desks in China, the person said.

    The person said law enforcement agencies across Chinese provinces have increased their scrutiny over crypto OTC desks since mid-June, and have taken away more than one trading desk to assist on investigations related to money-laundering activities. But the news about Zhao has drawn wider attention since he is well-known as one of the largest OTC traders in China, and has been a member of China's crypto community since 2013.

    Although the recent investigations do not necessarily suggest buying or selling cryptocurrency through OTC is illegal, a more systematic target could have a larger ripple effect on OTC desk operations in China, which remain a significant part of local crypto trade.

    The latest action by Chinese police follows a wide bank account freeze reported in early June, where more than 1,000 people were estimated to have been affected. At the time, a wide range of OTC desks and users in China had their bank accounts frozen by law enforcement after being suspected of either knowingly or unknowingly facilitating illegal activity, such as telecom frauds or ponzi schemes, to launder proceeds via crypto OTC trading. 

    Cryptocurrencies, especially the dollar-pegged USDT, have been a popular method for Ponzi schemes or fraud organizers to launder money in China, which would then contaminate the fiat money and cryptocurrencies that are circulating in the Chinese OTC market. 

    Law enforcement’s investigations of these illegal schemes are a way to track the flow of contaminated fiat money and crypto assets. Users or OTC desks who even unknowingly touch these questionable assets might have their bank accounts frozen. 


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