China Supreme Court Steps Up Crackdown on Crypto Money‑Laundering and Underground Banks

Published: 2026-02-26 08:05:42 |

China’s Supreme People’s Court said it will intensify prosecutions of telecom and cross‑border fraud, explicitly naming money‑laundering via virtual currencies and underground banks as enforcement priorities. The court (Criminal Tribunal No.3) will target ringleaders and core members of crime groups, financial backers (“money masters”) of telecom fraud, human‑smuggling organizers, groups that provide armed protection for cross‑border scams, and violent offenders within fraud networks. Authorities will increase use of property penalties, restitution and asset recovery; refusal to return illicit gains will draw harsher sentences. The statement singled out virtual asset transfers — notably stablecoins such as USDT — and underground exchangers as major laundering channels. Since 2024 judicial guidance listed virtual‑asset transactions as a method of money‑laundering, courts have pursued thousands of crypto‑related laundering cases. For crypto traders: expect heightened enforcement and scrutiny of on‑chain laundering routes, P2P OTC desks and crypto‑to‑fiat rails tied to China‑origin fraud. This could raise regulatory and de‑risking pressure on services and addresses linked to illicit flows and create short‑term volatility for privacy‑focused tokens, stablecoin flows and OTC markets. The announcement does not introduce new legislation or specific blacklists but signals stronger judicial coordination and more aggressive asset recovery efforts going forward.

Bearish

The court announcement increases enforcement risk for coins and services used as laundering conduits. Direct mentions of virtual assets and stablecoins (notably USDT) as primary laundering channels raise the likelihood of stronger scrutiny, delisting, banking de‑risking and on‑chain address tainting for assets and services tied to China‑origin fraud. Short term: expect elevated volatility and downward pressure on privacy tokens, OTC liquidity and stablecoin flows as counterparties and platforms tighten controls or freeze rails. Market participants may pull liquidity from P2P and noncustodial on‑ramps, widening spreads and stressing smaller tokens. Long term: while legitimate demand for major liquid assets (e.g., large-cap coins) should remain, persistent enforcement will compress risky use‑cases and push illicit flows to more sophisticated/fragmented channels. That raises compliance costs and may reduce utility for privacy‑oriented or offshore remittance tokens, keeping structural downside risk for affected coins and services. The announcement is enforcement‑focused rather than legislative, so impacts will unfold through prosecutions, asset seizures and private‑sector de‑risking rather than immediate bans — producing sustained negative sentiment for tokens and platforms implicated in laundering.