Shanghai police have recently dismantled two major criminal rings involved in illegal foreign exchange operations, utilizing virtual currencies and virtual credit cards. The operations, which have been under investigation since January, have led to the arrest of 28 suspects and uncovered a total illicit transaction volume exceeding 20 billion yuan (approximately $2.8 billion USD).
Virtual Currency Forex Ring Uncovered
The first case emerged in January when Shanghai’s economic investigation department detected promotional activities for foreign exchange services on online platforms. Investigations revealed that a group led by a suspect identified as Liu had been operating an illegal foreign exchange business since August 2023. Unsanctioned by regulatory authorities, the group used virtual currency as a settlement vehicle, facilitating transactions between virtual currency and domestic/international funds to convert RMB to foreign currency.
According to Zhou Jun, Deputy Captain of the First Detachment of the Shanghai Public Security Bureau’s Economic Investigation Corps, the group’s modus operandi involved converting RMB into virtual currency, transferring it overseas for sale, and then forwarding the foreign currency to designated overseas bank accounts specified by clients. The criminal syndicate maintained a clear division of labor: Liu was responsible for client communication, coordinating with virtual currency traders, and issuing transfer instructions. Suspects Xu and Gao were tasked with recruiting individuals to open numerous bank accounts for pooling and transferring conversion funds, while Wang specialized in operating the accounts and managing client fund transfers. The group profited by charging a service fee based on a percentage of the transaction value.
Following the accumulation of substantial evidence, Shanghai police launched multiple sweeps starting in April, apprehending 19 suspects. The preliminary estimated value of the transactions involved in this ring alone was close to 20 billion yuan. Currently, five key suspects, including Liu, Xu, Gao, and Wang, have been arrested by the procuratorate on charges of illegal business operations and aiding information network criminal activities. The remaining suspects are under mandatory criminal measures imposed by the police.
Virtual Credit Card and Cross-Border Settlement Ring Dismantled
In a separate operation, Shanghai police cracked down on another criminal group that had established a trading platform offering services such as virtual currency top-ups, multi-currency cross-border exchange, and virtual credit card issuance. This group was engaged in illegal foreign exchange trading and money laundering through cross-border fund settlement, with the total amount involved exceeding 200 million yuan (approximately $28 million USD).
Investigations found that suspects led by Li had, for illicit profit, created two platforms on the internet under the guise of a technology company: one for “cross-border fund remittance” and another for “virtual credit card issuance and settlement.” These platforms facilitated illegal virtual currency and cross-border fund exchange and settlement services. On the “cross-border fund remittance” platform, the group would receive virtual currency from clients overseas, convert it into foreign currency to form a “fund pool,” and then engage in cross-border foreign exchange settlements by fabricating false reasons, thereby completing the conversion and transfer between virtual currency and RMB.
Li Yang, Deputy Captain of the Second Brigade of the Economic Investigation Detachment of the Shanghai Public Security Bureau’s Hongkou Branch, explained that users could directly deposit virtual currency into their wallets, with backend operations handling the currency exchange. The group’s “virtual credit card issuance and settlement” platform allowed users to conduct illicit fund settlements using virtual credit cards issued overseas, which could then be used for domestic and international consumption. Users were able to complete operations such as virtual currency deposits, cross-border exchanges, virtual credit card applications, and repayments through these platforms. The syndicate generated revenue from transaction fees, service charges, and card issuance fees.
In July, Shanghai police executed a crackdown operation, arresting nine suspects including Li. Currently, five key suspects, including Li, have been arrested by the procuratorate for illegal business operations, while the other four are facing mandatory criminal measures from the police.
Police Warning and Further Actions
Law enforcement officials have issued a stern warning to individuals who engage in illegal foreign exchange through underground money channels. They cautioned that such activities carry a significant risk of fund loss. Relevant leads concerning these clients will be handed over to the foreign exchange administration departments for further handling, with potential administrative penalties including the confiscation of all illicit gains, though typically the penalty ratio is within 30%.
The investigations into both cases are ongoing. This coordinated effort highlights the increasing sophistication of financial crimes involving digital assets and the determination of authorities to combat them.
