China targets crypto in expanded AML crackdown

TLDR

China is tightening anti money laundering enforcement with a specific focus on virtual currency laundering and cross border crypto crime.

1. Authorities outlined a new five year AML strategy that explicitly targets virtual currency laundering, underground banks, and cross border fund flows.
2. Crypto trading and related financial products remain illegal in China, and regulators have extended restrictions to offshore renminbi stablecoins and tokenized real world assets.
3. The main impact is likely on OTC channels, cross border schemes, and offshore platforms serving Chinese users, rather than on global spot markets immediately.

Deep Dive

1. What China Is Changing

Chinas central bank and other agencies have set a new AML agenda that singles out virtual currency related crime and cross border laundering as priority threats, alongside telecom fraud and online gambling.

A recent policy review describes a move into a new AML development stage built on a revised Anti Money Laundering Law effective 2025, which formally adopts a risk based approach and requires monitoring of new technologies like virtual assets and emerging sectors such as DeFi and tokenized assets.

Authorities report over 2,000 money laundering convictions in 2025 and emphasize a dual investigation strategy that targets both the predicate crimes and the laundering networks that move the proceeds using underground banks, nominee accounts, offsetting transactions, and virtual currencies.

2. How Crypto Is Treated In Practice

China reiterates that cryptocurrencies such as Bitcoin (BTC), Ether (ETH), and Tether (USDT) do not have legal status and cannot circulate as money domestically, while crypto trading, token issuance, and related financial products are classified as illegal financial activity and civil acts involving crypto investments are deemed invalid under the revised AML and financial rules.

In February, regulators extended restrictions to offshore renminbi pegged stablecoins and tokenized real world assets, signaling that even offshore products linked to Chinese currency or assets fall within the enforcement perimeter for AML and capital control reasons.

AML supervision has also broadened beyond banks to cover lawyers, notaries, accountants, real estate, precious metals and gemstone traders, and company formation agents, all of whom can be used to layer or integrate crypto related proceeds through shell entities and property transactions.

3. Who Is Most Affected And What To Watch

The immediate pressure is on Chinese facing OTC brokers, underground banks, and offshore platforms that facilitate capital flight or fraud proceeds into and out of China via crypto, rather than on compliant exchanges in other regions.

China is putting more weight on international cooperation, including beneficial ownership reporting and cross border asset recovery, which raises the odds that foreign exchanges, mixers, and service providers handling suspicious China linked flows will see more information requests or joint actions.

Key things to watch include further clarity on how offshore RMB stablecoins are treated, whether major exchanges tighten controls on China facing P2P and OTC channels, and how global standard setters like FATF fold Chinas stance into broader rules on stablecoins and DeFi.

Conclusion

Chinas expanded AML crackdown does not introduce a new onshore trading ban, but it does sharpen enforcement against virtual currency laundering, cross border flows, and RMB linked crypto instruments. The main effect is to increase legal and operational risk for intermediaries that move Chinese funds through crypto, which could gradually reshape OTC liquidity and cross border routes even if headline spot markets see only indirect impact.