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China Issues Stark Warning Over Crypto Tied to 'Anti-State Activities'

A Chinese citizen faces legal consequences for $10,000 cryptocurrency purchase from an anti-China organization.

On May 12, 2025, China’s Ministry of State Security (MSS) disclosed three cases involving national security risks, emphasizing how virtual currencies were misused to finance activities threatening China’s interests. In one of the cases, Wang, a salesperson at a medical equipment company, was lured by high-return investment promises in videos posted by an overseas anti-China organization. Wang joined the group and purchased $10,000 worth of its virtual currency, an action classified as funding anti-China activities and violating national security laws. The MSS imposed penalties on Wang, emphasizing the severe legal consequences of such behavior.

According to MSS, the anti-China organization used its virtual currency to raise funds for activities opposing China’s interests. The ministry urged citizens to exercise caution with virtual currency transactions and avoid profit-driven actions that could endanger national security. This case underscores China’s ongoing concerns about cryptocurrencies facilitating illicit activities, amid its stringent ban on crypto trading and efforts to manage seized digital assets.

Cryptocurrencies and Illicit Activities: A Persistent Challenge

Since their inception, cryptocurrencies have been exploited by criminals due to their anonymity and ease of cross-border transactions. The infamous darknet marketplace Silk Road, shut down in 2013, exemplified this, enabling money laundering, smuggling, and drug trafficking through Bitcoin. In 2015, Silk Road founder Ross Ulbricht was convicted by U.S. authorities on charges of money laundering, computer hacking, conspiracy to traffic narcotics, and procuring false identity documents. In May 2015, he was sentenced to double life imprisonment without parole for 40 years. Ulbricht received a pardon in 2025 under U.S. President Donald Trump, whose administration has advocated for crypto-friendly policies.

Despite crackdowns, crypto-related illegal activities persist. A Bitrace report revealed that high-risk activities by illicit entities accounted for 5.14% of stablecoin transaction volumes in 2024. Online gambling platforms and their payment processors handled $217.8 billion in 2024, a 17.5% increase from 2023. On Ethereum and TRON networks, addresses linked to illicit transactions received over $278.1 billion in 2024, slightly up from 2023 and significantly higher than 2021 and 2022. Stablecoin inflows to fraud-linked blockchain addresses surged to $52.5 billion in 2024, exceeding the combined total from 2021 to 2023, according to Bitrace.

Global and Domestic Responses to Crypto Crime

Governments worldwide maintain a zero-tolerance stance on crypto-related crime. In addition to enforcement actions, countries are imposing stricter Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements on cryptocurrency exchanges to curb illicit transactions. For instance, the U.S. Financial Crimes Enforcement Network (FinCEN) has proposed enhanced AML regulations for crypto platforms, while the European Union’s Markets in Crypto-Assets (MiCA) framework, effective in 2024, mandates rigorous compliance for exchanges operating in member states.

In China, authorities continue to crack down on illegal crypto activities. The MSS’s warning aligns with efforts to prevent cryptocurrencies from funding anti-state operations, with seized crypto assets often auctioned or converted to fiat under strict oversight, as reported by Reuters.

According to blockchain security firm SAFEIS, funds linked to crypto-related crimes surged tenfold in 2023, reaching 430.7 billion yuan ($59 billion). China’s top prosecutor reported that 3,032 individuals were prosecuted for crypto-related money laundering last year. Official public budget data shows a corresponding spike in cracked crypto crime cases, aligning with a record 378 billion yuan in fines and confiscations by local governments in 2023, a 65% increase over five years.

Implications for Investors and the Crypto Ecosystem

The MSS case highlights the risks ordinary investors face when engaging with virtual currencies, particularly those tied to unregulated or dubious projects. Wang’s purchase, driven by promises of quick profits, serves as a cautionary tale about the legal perils of participating in transactions linked to illicit groups. Investors are advised to conduct thorough due diligence, verify the legitimacy of crypto projects, and use regulated platforms with robust KYC/AML protocols to avoid legal repercussions.

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