Highlights

  • China's central bank and police jointly dismantled a nationwide underground banking network that used stolen credit cards and crypto to launder criminal proceeds.
  • The scheme lured victims with promises of “free credit card repayment,” then cashed out their cards through fictitious merchant transactions.
  • Authorities traced funds through currency dealers who converted them into crypto and moved them to overseas wallet addresses, seizing roughly ¥130 million ($18 million).
  • The crackdown followed a February 2026 notice from eight Chinese regulators, including the PBOC, warning that virtual currencies fail to meet anti-money-laundering standards.

China's central bank and public security agencies jointly dismantled a nationwide underground banking network that used stolen credit cards and cryptocurrency to launder criminal proceeds, according to a state broadcaster report. The scheme operated under the guise of “free credit card repayment,” recruiting agents across multiple provinces to collect victims' identification documents and credit cards, which operators then ran through fictitious merchant transactions to cash out. The stolen funds were passed to currency dealers, converted into cryptocurrency, and moved to designated overseas wallet addresses to launder proceeds for offshore gambling and telecom-fraud operations. Investigators say they used big-data models and on-chain analysis to trace the flows, ultimately identifying close to a thousand suspect accounts and dismantling more than ten operational dens.

The operation echoes a case reported earlier this year out of Baotou, Inner Mongolia, where a family-run network that had operated since October 2023 recruited nationwide agents under an identical “free credit card repayment” pitch, funneling laundered funds through currency dealers into crypto bound for overseas addresses. Seven members of that group were ultimately convicted of operating an illegal business and sentenced to between 14 and 30 months in prison plus fines — a comparatively light outcome given the scale of the fund flows involved, and one that illustrates the gap between the scope of these networks and the criminal penalties currently available against them. In the case authorities detailed this week, the joint investigation confiscated roughly ¥130 million (about $18 million) in illicit proceeds and led to the takedown of more than ten separate operational sites, spanning what officials described as several provinces.

The action follows a formal warning issued in February 2026 by eight Chinese regulators, including the People's Bank of China, the Ministry of Public Security and the securities regulator, which stated plainly that virtual currencies fail to meet basic customer-identification and anti-money-laundering standards and carry risks of enabling investment fraud and illegal cross-border transfers.

Part of a Larger Underground System

The case reinforces a pattern regulators and blockchain analytics firms have flagged repeatedly this year: crypto's role in China's underground financial system is less about direct exchange trading — which has been illegal since 2021 — and more about serving as a settlement layer for money that has already been stolen or diverted through other means, such as credit-card fraud, telecom scams or offshore gambling. A separate underground banking ring dismantled by Shanghai police earlier this year moved $2.8 billion through a comparable network of OTC brokers and merchant intermediaries, suggesting the credit-card scheme broken up this week is one node in a much larger informal financial system rather than an isolated operation.

Related: First-Ever Bitcoin RICO Case Nears Close as Ringleader Pleads Guilty

For Chinese authorities, the emphasis on “full-chain governance” — tracing funds from the initial fraud through the currency dealers to the final overseas wallet — marks a shift from prosecuting individual scam operators toward dismantling the laundering infrastructure that lets stolen money exit the country at all. That approach mirrors Beijing's parallel push to expand its state-backed digital yuan network, which officials have positioned as a controlled, traceable alternative to the informal crypto rails these laundering networks depend on.

What Comes Next

Beijing has framed 2026 as the start of a three-year campaign against illegal financial activity, with explicit language calling for “high-pressure strict enforcement” and “strike immediately at any sign” against similar schemes — meaning this case is likely to be one of several publicized this year rather than a one-off. Watch for whether prosecutors pursue sentences closer to the top end of China's illegal-business-enterprise statute, given the comparatively light 14-to-30-month terms handed down in the earlier Baotou case relative to the hundreds of millions of yuan involved. Also worth tracking: whether the near-1,000 suspect accounts identified through this investigation's big-data tracing lead to further arrests upstream, closer to the offshore gambling and telecom-fraud operators the laundering network ultimately served.

FAQ

How did the credit-card crypto laundering scheme work?
Operators lured victims with promises of “free credit card repayment,” collected their cards and IDs, cashed the cards out through fictitious merchant transactions, then funneled proceeds through currency dealers into crypto sent to overseas wallets.

How much money was seized in the crackdown?
Chinese authorities confiscated roughly ¥130 million (about $18 million) in illicit proceeds and dismantled more than ten operational dens tied to the network.

Is cryptocurrency trading legal in China?
No — China has banned crypto exchange trading since 2021, and a February 2026 notice from eight regulators, including the PBOC, reaffirmed that virtual currencies fail to meet anti-money-laundering standards.

What happened in the similar Baotou, Inner Mongolia case?
Seven members of a family-run network operating since October 2023 under an identical “free credit card repayment” scheme were convicted of operating an illegal business and sentenced to 14 to 30 months in prison.