How Chinese internet gambling launders $150 billion

In the first nine months of 2020, authorities raided 1,700 internet gambling sites and 1,400 underground banks, seizing almost $1 trillion in cash.

A migrant worker from Baoding in northern China “lent” three credit cards to pals to pay off 2,500 yuan ($380) in debt. He never dreamed he’d be arrested for selling stolen credit cards used to launder money for online gambling.

This arrest was made as part of the Chinese government’s countrywide “Card Breaking Campaign” to fight telecommunications fraud and cross-border internet gambling. The effort tries to break off linkages between non-registered cardholders and mobile phone SIM cards. Online payment accounts like WeChat Pay and Alipay are also featured.

According to a Ministry of Public Security official, this new sort of crime has developed an illegal sector employing 5 million to 6 million individuals in information technology, money settlements, and operations. A migrant worker in Baoding, for example, lends or leases banking credentials to offshore criminal gangs, who subsequently assist illicit gamblers conceal money from authorities, typically using Tether’s USDT cryptocurrency.

According to the Ministry of Public Security, authorities raided 1,700 internet gambling sites and 1,400 underground banks in the first nine months of 2020, netting almost $1 trillion. In 2019, there were 7,200 online gambling cases worth 18 billion yuan.

Mobile payments are becoming more essential in the global online gaming chain. China, the global leader in mobile payments, has actively promoted payments using QR codes, a sort of bar code. Even street food vendors in China have their own QR code for smartphone purchases. The simplicity of mobile payments has attracted gambling gangs.

Platforms for running

Because all kinds of gambling are outlawed in China, the first hurdle for Chinese citizens utilizing offshore internet gambling sites is funding their accounts. These activities often leverage prominent e-commerce platforms and delivery firms to hide huge financial transfers.

For example, a Caixin reporter attempted to transfer $100 using internet banking to DreamGaming. The money went to an Alipay account connected to a supermarket. The gaming site is no longer accessible due to “illegal content.”

Online casinos often employ “running points platforms” to disguise player cash as legal payments. Payment links on sites connected to running points platforms allow users to deposit monies. This platform is like a taxi service. A platform user will “grab orders” and “upload funds” using another’s bought or borrowed bank account. Money is then sent to an overseas gaming site. According to the cops, the platforms earn 2.5-4 percent on each transaction and the users receive 1-2 percent.

Chinese social media like WeChat and Weibo often promote part-time jobs. Bank USB shield is a security instrument that appears like a flash disk and functions as a shield to safeguard a user’s money in online banking. If additional information is given, such as a company license, seal, bank account, and USB shield, the price might rise to 1,500-2,000 yuan.

Some young unemployed individuals from smaller towns and rural regions are enticed to lease their bank accounts or QR codes for 1,000 yuan, according to a payment processing firm insider. And the more transactions they handle, the more commissions they may earn. Of course, they risk being arrested for engaging in criminal activity.

In June, authorities in Guangxi smashed a $30 billion cross-border internet gambling organization using running points systems.

Mobile phone credit refills are another way to deposit money into online gaming sites. Payments to gambling sites are camouflaged as standard credit increases to mobile phone accounts.

Bitcoin money laundering

How does money come to gaming operators once running points systems acquire it from gamblers? Underground banks promote illicit foreign exchange and cross-border transactions. Unlawful underground banks have long operated in China to enable Chinese nationals acquire property overseas.

A new method uses Tether’s USDT, a cryptocurrency pegged to the dollar. The cryptocurrency was created to address the issue of excessive value fluctuation. In terms of volume, USDT overtook Bitcoin in 2019.

Several blockchain executives informed Caixin that USDT is commonly utilized in money laundering and gambling. In October, a People’s Bank of China branch in Huizhou, southern China, made major arrests relating to cross-border internet gambling, the first such crackdown. The central bank said 77 people were detained for using USDT to launder about 120 million yuan in gaming winnings.

Leo Li, a Tsinghua University alumnus and former Oracle engineer, launched Huobi, a Seychelles-based bitcoin exchange. According to Huizhou authorities, online gambling companies utilize players’ money to acquire USDT on Huobi and then sell it, thus “washing” the funds.

China’s public security officials ordered Huobi and other USDT exchange platforms to beef up their anti-money laundering efforts by requiring video identification during transactions. But the exchanges didn’t.

An official at Huobi told Caixin that the business upgraded its anti-money laundering risk management systems in August.

Li and OKEx founder Xu Mingxing allegedly helped authorities investigate money laundering for internet gaming.

According to Huizhou cops, operating points platforms and cryptocurrency exchanges host their servers abroad, complicating investigations.

Difficulty locating

Determining whether accounts are truly operating points platforms is difficult for online payment systems like WeChat Pay and Alipay. According to Guo Qianting, general manager of Ant Group’s anti-money laundering center, the quantity of transactions on accounts used by operating points platforms is generally minimal. Finding normal users’ running points platforms is like finding a needle in a haystack.

Gig-job platforms supply contractors and payroll services to businesses in the food delivery, ride-hailing, and e-commerce industries. Since 2018, China has seen almost 10,000 such sites. Some of them work for genuine businesses like Meituan Dianping and Didi Chuxing. However, many others are exploited to fund internet gaming.

Suspicious transactions at a gig-job human resources supplier were noticed by an Agricultural Bank of China branch in Xiangtan in May. In only a dozen days, the firm handled almost 200 million yuan in cash, much of it at odd hours. The firm allegedly laundered funds for telecom fraud rings.

Money laundering was examined last month against another gig-job site owned by Ant Group, China’s largest online payment service provider. Beijing Bujiao Technology is accused of issuing bogus VAT invoices worth over 1.3 billion yuan. Caixin found that the corporation used cross-border gaming to launder money.

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