China’s state media has warned that some corrupt officials are using cold storage methods to smuggle cryptocurrencies out of the country, amid a nationwide crackdown on illicit financial flows.
Cold storage refers to taking cryptocurrency keys offline and storing them on devices that are not connected to the internet, such as hard drives, network disks or paper wallets. This makes them more secure from hacking, but also harder to trace by authorities.
2,000 Bitcoins Smuggled by an Official
According to a report by the People’s Daily, the official newspaper of the Communist Party of China, some officials have used cold storage to carry cryptocurrencies across borders for transfer, transaction and redemption, in violation of the country’s foreign exchange regulations and anti-money laundering laws.
The report cited a case in which a former official of the Ministry of Public Security was found to have transferred more than 2,000 bitcoins, worth about $120 million at current prices, to an overseas account using a network disk. The official was arrested and sentenced to 15 years in prison.
Punishing New Types of Corruption and Hidden Corruption
The report also warned that some criminals have used cold storage to extort or launder money from victims of online fraud, gambling or drug trafficking. It urged the public to be vigilant and report any suspicious activities involving cryptocurrencies.
Legal Daily, a Chinese newspaper stated concerning the matter:
“At the recently held 2023 annual meeting of the China Integrity and Legal Research Association, punishing new types of corruption and hidden corruption has become one of the main topics of the participating experts.” It added that,
Experts attending the meeting believed that new payment methods such as virtual currencies and electronic gift cards that emerged in the Internet era have provided new hidden channels and methods of benefit transmission for bribery crimes, and have given rise to a large number of new types of corruption and hidden corruption.”
Expanding the Scope of Bribery Crimes
The country is seeking to improve its scientific and technical level of anti-corruption fight to control “new type of corruption.” It also seeks to “to improve the legal and regulatory system for punishing new types of corruption, expand the scope of bribery crimes from property and property interests to new types of corruption that seek other illegitimate benefits, and strengthen supervision information in areas where new types of corruption are prone to occur.”
China has been tightening its grip on the crypto industry in recent years, banning initial coin offerings, shutting down local exchanges and mining operations, and blocking access to foreign platforms. The government has also launched a digital yuan project, which aims to create a state-backed digital currency that can compete with cryptocurrencies and enhance its monetary sovereignty.