Wu Shuo Author | Tan Shu

Editor of this issue | Colin Wu

Previously, China CITIC Bank was fined 28.9 million yuan by the central bank for anti-money laundering issues. In fact, due to rampant money laundering activities, most banks around the world are not friendly to cryptocurrencies.

Recently, the official website of China CITIC Bank, a large state-owned joint-stock bank, released an announcement, the content of which is as follows:

Statement on the prohibition of using our bank accounts for Bitcoin transactions

In order to protect the property rights and interests of the public, maintain the legal tender status of RMB, and prevent money laundering risks, from now on, no institution or individual may use our bank account for trading funds recharge and withdrawal of Bitcoin, Litecoin, etc., purchase and sell related trading recharge codes, etc., and may not transfer related trading funds through our bank account. Once discovered, our bank has the right to take measures such as suspending the relevant account transactions and canceling the relevant account.

If the public discovers the above-mentioned behavior, they can report it to our bank.

Hereby declare

China CITIC Bank Corporation Limited

April 22, 2021

Soon, some netizens pointed out that similar announcements had appeared on the websites of other major banks such as ICBC, BOC, and Ping An Bank as early as 2014. Although the content of the announcements is similar, the attitude of banks towards cryptocurrency transactions is now very different from before.

1 Early cryptocurrency trading methods

In 2014, the development of cryptocurrency was still in its early stages. At that time, the three major domestic exchanges were Huobi, OKCOIN and BTCCHINA. These exchanges all provided fiat currency deposit and withdrawal services, that is, users could complete fiat currency recharges directly by transferring money to the exchange.

However, due to the anonymous nature of cryptocurrencies, they are naturally easy to be used for money laundering. In an era when exchanges accept fiat currency deposits, criminals can directly deposit the money obtained from fraud into exchanges, buy Bitcoins and withdraw them to complete the money laundering. In 2017, Xinhua News Agency once made the following report (1):

According to the Civil Judgment No. 274 of the Heilongjiang Provincial Higher People's Court (2016), in July 2014, the criminals recharged 2 million yuan obtained from telecommunications fraud into an account registered on the OKCoin trading platform, purchased a total of 553 bitcoins in batches, withdrew the money at the same time, transferred the bitcoins to the bitcoin wallet, and finally sold the bitcoins in an underground bank in Macau to complete the money laundering activities.

It can be seen that in the early stages of cryptocurrency trading, money laundering was already rampant, but because exchanges accepted legal tender at the time, they also "absorbed" a large amount of black money. In contrast, the over-the-counter market for Bitcoin did not develop, and users were rarely troubled by black money.

2 Situation after 9.4

After September 4, all exchanges could no longer accept fiat currency deposits, and transactions involving fiat currency could only be conducted over-the-counter. As a result, a large number of users had to directly come into contact with black money.

Since then, the phenomenon of "frozen cards" has occurred frequently, and cryptocurrency users who have participated in multiple fiat currency transactions often have the experience of frozen cards. As cryptocurrency has developed a decentralized money laundering method called "running points" and black industries such as buying and selling bank card sets, it has become increasingly difficult to distinguish black money, and the phenomenon of frozen cards has become more and more frequent.

Naturally, some normal bank accounts will be "inadvertently affected" by the card freezing operation, but considering the rampant telecommunications fraud and the difficulty in recovering the stolen money, it is conceivable that the "card freezing" situation will continue for a long time.

3 Banks also suffer from money laundering

China CITIC Bank, which issued the ban on Bitcoin transactions, was issued its first fine by the central bank this year. The specific reason was that it was fined 28.9 million yuan for four anti-money laundering violations, including failure to fulfill its customer identity identification obligations in accordance with regulations. 14 relevant persons in charge were also fined. (2) According to media reports, China CITIC Bank has been punished for multiple violations and ranks first in the industry in terms of fines, and has received fines of more than 20 million yuan for four consecutive years.

Although Bitcoin transactions were not listed in the fine, many of the reasons for the penalties, such as "unidentified customers" and "large suspicious transactions", just meet some of the characteristics of cryptocurrency over-the-counter transactions. Since the cost of identifying normal Bitcoin transactions is too high, it is not difficult to understand why China CITIC Bank has chosen to "ban cryptocurrency transactions" across the board.

Due to rampant money laundering, most foreign banks, except for a few, are not friendly to cryptocurrencies. Some banks are even very aggressive. For example, HSBC, which is also troubled by money laundering, banned its users from trading cryptocurrencies a few years ago. Not long ago, it further banned customers from buying and selling shares of MicroStrategy, which holds Bitcoin (3). Another example is China Merchants Bank, which is the most severe in freezing cards involving cryptocurrencies. The British commercial bank NatWest issued an announcement at about the same time as CITIC Bank, prohibiting customers from using the bank's services to trade cryptocurrencies (4).

Since the emergence of cryptocurrency, transactions with legal currencies have become increasingly troublesome, and this situation will probably change only when cryptocurrency is no longer widely used for money laundering. But from another perspective, if banks conduct risk control first, users can still withdraw their money. If the public security authorities freeze the card due to passive involvement in money laundering, it will be even more troublesome for investors. Many industry insiders actually strongly support strengthening reasonable risk control on the bank side.

In addition, lawyers Li Zemin and Han Wubin from Guangdong Guangqiang Law Firm stated that CITIC’s blocking was just a routine operation and not an official ban on the trading of cryptocurrencies such as Bitcoin.

He said that the official announcement of CITIC Bank is a normalized operation to further fulfill its anti-money laundering obligations, and it does not represent nor has the ability to represent the official ban on the trading of cryptocurrencies such as Bitcoin. Previously, at the Boao Forum for Asia Digital Currency Forum, Li Bo, the current deputy governor of the central bank, said that cryptocurrencies are encrypted assets and can be used as investment tools or alternative investments. Therefore, CITIC's official announcement does not mean blocking cryptocurrency transactions.

However, it is worth noting that the fiat currency transactions of cryptocurrencies and the "brick-moving" of currency acceptors will be subject to stricter supervision. Measures such as suspension of account transactions and cancellation of related accounts may become the norm. Providing bank cards for fiat currency transactions will still involve criminal risks.

For more information on what to do if your bank card is frozen, please refer to Huo Xiaolu's article: Virtual Currency || What to do if your bank card is frozen?

[1]:https://www.sohu.com/a/157987465_267106

[2]:http://finance.sina.com.cn/stock/relnews/cn/2021-02-07/doc-ikftpnny5550981.shtml

[3]:https://www.reuters.com/business/finance/hsbc-bans-customers-buying-bitcoin-backer-microstrategy-shares-2021-04-12/

[4]: https://www.theguardian.com/technology/2021/apr/21/natwest-will-refuse-to-serve-business-customers-who-accept-cryptocurrencies

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