Cryptocurrency helps ship 1 trillion yuan out of China to casinos, gambling every year
- Cryptocurrencies are used to surreptitiously collect and transfer funds, making it difficult to trace the source
- Authorities point to loopholes and gaps in the supervision of payment services providers, third-party institutions and e-commerce platforms
At least 1 trillion yuan (US$145.5 billion) worth of funds flows out of China into gambling activities every year, aggravating the country’s economic and financial security risks, according to a senior official at the Ministry of Public Security.
Gangs running illegal gambling operations use digital currencies to collect and transfer funds, making it difficult to trace the source and adding significant challenges to investigations, said Liao Jinrong, the director general of the International Cooperation Department under the Ministry of Public Security.
Liao, speaking at an event on payment and clearing in Beijing on Thursday, did not give specific details on the outflows but said that such operations could undermine China’s economic security because of the potential collusion between gambling operators and “foreign powers”.
Gambling and casinos are illegal in mainland China.
“There are so many casinos overseas, and details of the assets of many domestic entrepreneurs, individuals and related parties would have been investigated thoroughly [by foreign operators conducting background checks]. This is very unsafe for us,” Liao was quoted by The Beijing News as saying.
Liao’s comments came on the back of a broader effort by Beijing to stamp out fund outflows. He said there are loopholes and gaps in the supervision of payment service providers, third-party institutions, merchants and e-commerce platforms.
Zhu Min, head of the National Institute of Financial Research at Tsinghua University, was quoted by the official People’s Daily mouthpiece this week as saying China needs to raise the cost of short-term, cross-border money flows to buffer its financial markets from speculative capital.
“The volume and speed of cross-border capital flows are unprecedented,” Zhu told the newspaper. “This will not only result in sustained fluctuations in major world currencies, but will also lead to higher volatility in global financial markets. Therefore, we must be prepared for potential risks.”
In August, China’s exchange regulator, the State Administration of Foreign Exchange (SAFE), said it would strengthen its supervision of the foreign exchange market and crack down on crimes such as “underground banks” and cross-border gambling.
Meanwhile, Chinese gamblers, including high rollers, are an important source of revenue for casinos in the region. Macau, the casino hub under China’s administration, relies on gaming and tourism as its main source of revenue – and it is a popular tourism destination for mainlanders.
American credit rating agency Fitch estimated that Macau’s gaming revenue would be down nearly 80 per cent in the third quarter this year compared with the same period in 2019, as a result of travel restrictions between mainland China and Hong Kong to contain the spread of Covid-19. Macau is located about 60km (37.3 miles) from Hong Kong.
However, even with the easing of some travel restrictions, Fitch said last week that Macau’s recovery trajectory remains “opaque” because “travel restrictions remain in Hong Kong, with a potential for a reversal of mainland Chinese policy if there is an increase in coronavirus cases”.
Meanwhile, the development of internet technology has also lured Chinese to online gambling run by overseas operators, and this often involves irregular fund transfers.
According to Liao, the lack of strict inspections and checks on the opening of payment services at banks is problematic. He also pointed to inadequate supervision of suspicious transactions and risk control by payment service providers, and he said there is collaboration between payment industry practitioners and criminal organisations because the business is so lucrative.
Increasing the cost of opening payment accounts at non-financial institutions, identifying unusual transactions, and requiring account holders to use their real names are among the measures that have boosted China’s crackdown efforts on fund outflows into cross-border gambling, Liao said.
