Chinese Police Crack Down on $1.9B Smuggling Ring Involving USDT

The police highlighted two prominent cases, one of which involved a smuggling network that masqueraded as a bank in the Sichuan region.

Police in Sichuan province have successfully dismantled a large-scale underground banking scheme involved in smuggling operations valued at 13.8 billion yuan, equivalent to around $1.9 billion. According to a local news report, the illicit network engaged in various illegal activities, including the use of Tether’s stablecoin USDT to facilitate the smuggling of pharmaceuticals, cosmetics, and the purchase of prohibited goods overseas.

The crackdown coincides with China’s nationwide observance of “May 15” Publicity Day for Combating and Preventing Economic Crimes.

The Dark Side of Sichuan’s Economy

During the event held at the Chengdu Tianfu International Financial Center, the police highlighted two prominent cases, one of which involved a smuggling network that masqueraded as a bank in the Sichuan region.

Sichuan was once renowned for hosting the largest Bitcoin mining centers before China implemented a blanket ban on crypto in 2021. Per the report, the perpetrators used the USDT stablecoin to circumvent foreign exchange regulations, providing illicit channels for foreign exchange settlements across 26 provinces, municipalities, and autonomous regions in China.

The criminals also offered services to customers needing to transfer funds abroad using USDT. Additionally, the underground banking scheme fraudulently obtained a tax refund from the government using fake reports. These illegal activities contributed to a surge in crime across China, including financial fraud, employment-related crimes, interference with drug regulations, smuggling of prohibited goods, and tampering with credit card systems.

According to the report, these activities have inflicted significant harm on society, severely disrupting market and financial regulatory frameworks. The network operated between 2021 and 2023, initially starting as an import and export business.

Police Arrest 196 Suspects Involved in the Crime

As a result of these crimes, police have arrested 193 suspects nationwide, including in Shanghai, Changsha, Nanjing, Shenzhen, Fuzhou, and Jinhua. The apprehended suspects include ring leaders Lin, Weng, Chen, and other unnamed individuals.

The arrests were made last year with the assistance of a joint task force involving other law enforcement agencies in China such as the Economic Investigation Bureau of the Ministry of Public Security and the Economic Investigation Corps of the Sichuan Provincial Public Security Department.

During the arrests, authorities confiscated 149 million yuan belonging to the criminals, including bank cards, U-shields, and other payment instruments used in facilitating the crimes.

In November of last year, the case was transferred to the Chengdu Municipal People’s Procuratorate for review and prosecution.

Tax Fraud Exposed

The second case mentioned during the event involved tax fraud. The criminals utilized counterfeit invoices to deceive the state and fraudulently obtained over 137 million yuan in tax refund funds.

Police began investigating the scheme in 2022 and found that the gang, led by Zhao Mouwei and Zhao Moutao, operated through various enterprises under their control, including raw material acquisition firms, biotechnology companies, and import-export trading entities.

These fronts were used to falsely claim processing and export activities. The criminals issued around 17,765 fraudulent value-added tax invoices across all levels, amounting to a total value of 1.908 billion yuan.

Additionally, the gang manipulated foreign exchange transactions through underground banks, enticing other enterprises to participate as investors and export platforms, thereby illicitly obtaining over 137 million yuan in export tax refunds. Authorities have since recovered the majority of the defrauded taxes, and the criminals were arrested last year.

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