The adoption of China’s digital yuan (e-CNY) has raised concerns about money laundering risks and the need for stronger regulations. Despite its touted security and anonymity features, the digital yuan has inadvertently become a tool for illicit activities and scams, with numerous cases of fraud and money laundering cropping up across different regions.
In Shanghai, the first-ever case of run-score fraud involving the digital yuan was recently exposed. Criminals exploited the digital yuan’s exchange function to quickly empty an ATM within two hours. This alarming incident highlights the urgent need to revisit and strengthen the regulatory framework surrounding the digital yuan to curb potential money laundering risks and enhance supervisory measures.
One of the leaders behind this criminal operation used over ten mobile phone numbers to register digital currency accounts. In just two hours, they executed 30 transactions totaling 123,000 yuan, effectively draining the ATM. This individual was part of a syndicate engaged in run-score operations, which involved exploiting digital yuan accounts for various illicit purposes.
Between May and June 2023, this syndicate managed to siphon over 10 million yuan from more than 900 digital yuan accounts. A significant portion of this sum, 800,000 yuan, came from victims of telecom network fraud.
In addition to these cases, criminals have been taking advantage of the public’s enthusiasm for digital yuan trials to devise fraudulent schemes for personal information and fund theft. Several regions have reported instances of money laundering related to the digital yuan, including the use of the digital currency to buy gift cards in a remote fraudster money laundering scheme in Kunming.
Experts argue that strengthening anti-money laundering regulations for digital yuan transactions is crucial. Current regulatory mechanisms, customer identification protocols, and reporting systems are insufficient in effectively combating money laundering. Recommendations include defining obligations and responsibilities for operating institutions and partners in anti-money laundering efforts, enhancing monitoring capabilities for suspicious transactions, and utilizing technology solutions like smart contracts for improved security and auditing.
While the digital yuan presents opportunities for illicit activities, its adoption rate remains strong. By June 2023, total transactions reached 950 million with a cumulative value of 1.8 trillion yuan. Moreover, 120 million wallets have been opened, signaling the potential for global adoption and the challenge it poses to the supremacy of the US dollar.
However, not everyone agrees that adoption rates are as strong as they seem. According to PointPay CEO Vladimir Kardapoltsev, there is still room for growth.
Despite its growing pains, the digital yuan has ambitious goals, including countering Western sanctions, expanding overseas adoption of the Chinese currency, and gradually diminishing the dominance of the US dollar.
In conclusion, the recent digital yuan scam and subsequent money laundering cases have shed light on the need for stronger regulations to mitigate risks. As the adoption of the digital yuan continues to expand, it is essential to address these challenges and ensure the security and integrity of the digital currency system.
