Thousands of OTC Bank Accounts Frozen in China

Chinese Authorities Freezing OTC

Chinese authorities have frozen thousands of OTC traders’ bank accounts who own digital currencies, cash, as well as the commonly used Tether stablecoin, in a major move against illegal activities including money laundering.  

The government has frozen around 4,000 bank accounts since June 4. The police are suspecting that some of these accounts have been used to convert “grey earnings” through open markets.  A former employee at Chinese crypto startup Bixin, Sun Xiaoxiao, said his account has been frozen and it’s not the only one. In the post on Weibo, Sun wrote the accounts of “several thousand people” have been affected.

The police in the Guangdong Province are conducting further investigations, but no specific case was mentioned. According to Sun’s online post, the logical reasons for account freezes include Ponzi schemes, telecom frauds, as well as casino operations.  

Sun doubts that the accounts have been frozen over contaminated digital currency. 

In the past, Chinese authorities performed similar actions when someone would attempt to convert cryptocurrencies into Chinese Yuan with no evidence that the fiat currency was legitimately obtained. There are suspicions that further police investigation might link some of the frozen funds to money-laundering. 

“Now there are also OTC merchants who had their bank accounts frozen because of questions over the source of the coins they bought. That means, besides ‘dirty money,’ there are also ‘dirty coins‘ circulating,” Sun said.

Sun added that there are more and more people utilizing blockchain networks to transfer high-risk funds. Bitcoin was the first blockchain used for such activities, but now the stablecoin Tether has become the number one choice.

Consequently, “police are also catching up on their knowledge of blockchain. More and more criminal cases have started using the on-chain analysis to trace blockchain assets,” Sun wrote.

Back in 2017, The People’s Bank of China (PBoC) prohibited initial coin offerings (ICO) and barred Chinese exchanges from directly accessing fiat currency deposits and withdrawals. As a result, P2P peer-to-peer transactions via over-the-counter market makers are the only way Chinese citizens can purchase cryptocurrencies with yuan or exchange coins for cash.