Author: Zhang Yin, ACAMS Anti-Financial Crime Compliance Strategy Consultant, Beosin

I. Introduction

In the context of rapid globalization and the development of the digital economy, virtual currencies have gradually become an important channel for laundering criminal funds globally due to their unique cross-border convenience and anonymity. The relationship and interaction between mainland China and Southeast Asia in virtual currency money laundering activities are complex. The Chinese government places great importance on the risks posed by virtual currencies, and in 2021, issued documents clearly stating that "virtual currency speculation disrupts financial order and breeds illegal activities such as fraud and money laundering." Although mainland China strictly prohibits virtual currency trading, the massive "proceeds of crime" generated from online fraud, telecom fraud, and other crimes are still transferred overseas using virtual currencies.

Currently, research on cross-border money laundering involving virtual currencies is gradually increasing in academia and practice, but systematic studies focusing on the specific region of mainland China and Southeast Asia are still relatively lacking. This article aims to present an in-depth analysis of cross-border money laundering routes and the current regulatory framework through classification, on-chain analysis, and case studies, providing more targeted research results and practical references for related fields.

II. Sources and Transfer Routes of Criminal Funds in Mainland China

(A) Sources of Criminal Funds

In mainland China, new types of telecom network fraud, online gambling, illegal sale of citizen information, pyramid schemes, and gambling are the main sources of illegal funds. For example, CCTV once reported a case of personal information trafficking on the "dark web," where a criminal gang laundered over 2 billion RMB within a year using virtual currencies. The proceeds from these upstream crimes initially exist in the form of cash or digital currencies, and criminals gather funds through domestic bank accounts and third-party payment tools, laying the groundwork for subsequent transfers.

(B) Fund Transfer Routes

1. Fund Generation and Gathering:

The proceeds from upstream crimes, whether in cash or digital currency, need to be concentrated through certain channels. In cash form, criminals may deposit funds into multiple bank accounts to evade large transaction monitoring by banks; for digital currencies, they use wallet accounts to gather funds in preparation for subsequent exchanges and transfers.

2. Exchange and Diversification:

To convert RMB cash into virtual currencies suitable for cross-border transfer, criminals typically rely on underground banks, cross-border exchange channels, etc. Through these illegal channels, RMB cash is quickly exchanged for stablecoins (such as USDT) or cryptocurrencies like Bitcoin. Additionally, to evade regulation and tracking, suspects open multiple bank accounts and wallet accounts, frequently exchanging virtual currencies in a "quick in and out" manner, making the flow of funds more dispersed and complex.

3. Virtual Currency Exchanges and P2P Trading:

Decentralized exchanges and peer-to-peer (P2P) trading platforms have become important venues for criminals to convert currencies. After exchanging RMB for USDT, BTC, or other digital assets, they use external channels to transfer funds to overseas platforms. In this process, the cross-border fund flow characteristics of exchanges and the relative anonymity of P2P trading facilitate the transfer of criminal funds.

4. Mixers and Anonymity Services:

Some criminals use mixers (such as Tornado Cash) or cross-chain bridge protocols to further increase the difficulty of tracking funds. These technologies can mix criminal funds with other funds, altering the flow and characteristics of the funds, making it difficult for regulatory agencies and law enforcement to trace the true source of the funds.

5. In summary, the basic path of virtual currency money laundering can be summarized as:

Criminal Proceeds → RMB Accounts → Cryptocurrency Exchange (including stablecoins) → International Transfer

This process involves multiple links and various means, with each link having the potential to evade regulation, requiring further on-chain tracking analysis to reveal typical patterns.

III. The Role and Usage Patterns of Stablecoins in the Money Laundering Process

(A) Advantages of Stablecoins

Stablecoins (such as USDT) play a key role in cross-border money laundering due to their unique advantages. First, stablecoins are pegged to the US dollar or fiat currencies, achieving relative stability in value, which allows illegal funds to avoid the risks of severe price fluctuations in cryptocurrencies during cross-border exchanges and value preservation, making it easier for criminals to operate funds. Second, stablecoins have strong liquidity and global acceptance, enabling instant cross-border transfers through blockchain networks without going through traditional financial systems like banks, significantly improving the efficiency of fund transfers.

(B) Usage Patterns

1. Domestic Exchange and Transfer:

Criminals in China typically first exchange RMB for stablecoins in the domestic OTC (over-the-counter) market or exchanges. This exchange method is relatively convenient, and the trading entities in the OTC market are more dispersed, making regulation more difficult. After the exchange, stablecoins are transferred to overseas wallet addresses via blockchain networks, preparing for subsequent cross-border operations.

2. Cross-Border Cashing and Swapping:

Overseas, criminals transfer stablecoins like USDT to trading platforms in Singapore, Thailand, etc., cashing them out for foreign currencies (such as USD, THB, etc.), achieving the legalization of funds. Additionally, stablecoins can be swapped with other cryptocurrencies (such as Bitcoin, Ethereum) on virtual asset platforms, further obfuscating the source and destination of funds through multiple exchanges and transfers, increasing the difficulty of tracking.

(C) Typical Cases and Regulatory Perspectives

From a regulatory practice perspective, different countries have varying attitudes and regulatory measures regarding stablecoins. In March 2025, Thailand's securities regulatory agency officially allowed USDT and USDC for trading, recognizing the role of stablecoins in payments and transactions. Meanwhile, Myanmar's regulatory authorities disclosed the seizure of multiple illegal cases using USDT for underground bank exchanges, reflecting the actual use of USDT in Southeast Asia's money laundering chain. These characteristics of stablecoins make them important tools widely used by criminal networks for domestic fund outflows and international money laundering operations, a feature further validated in subsequent on-chain case analyses.

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IV. On-Chain Analysis and Empirical Evidence from Typical Cases

(A) On-Chain Analysis Tools

Blockchain security platforms like Beosin play an important role in on-chain analysis of virtual currency money laundering. These platforms collect public blockchain data, marking suspicious addresses and analyzing fund flows, enabling the identification of frequent inflows and outflows of funds, as well as abnormal behaviors such as participating in exchange deposits and withdrawals. Additionally, with powerful data processing, analytical capabilities, and artificial intelligence technology, they have established a comprehensive address profiling system. These capabilities have been widely applied in anti-money laundering investigations, asset tracking, and crypto crime intelligence support, providing important data support and technical assurance for the empirical analysis in this report, and becoming an indispensable technical means in anti-money laundering work.

(B) Analysis of Typical Cases

Case 1: Flight Information Trafficking Using Yibifu for Money Laundering

Case Background:

In the first half of 2024, there were frequent telecom fraud cases targeting airline passengers in China. Fraud groups used illegally obtained passenger information to impersonate airline staff or insurance claim personnel, luring passengers to download fake apps, fill in bank card information, or directly transfer money under the pretext of "compensation for flight delays."

By searching for information leak sources through multiple channels, a certain TG merchant was found selling flight information by the piece. After obtaining the seller's payment address from the TG group and analyzing their fund situation, it was discovered that part of their funds entered Yibifu (a virtual currency payment institution located in Southeast Asia that provides exchange services between fiat and virtual currencies, claiming to have tens of millions of users, and is an important channel for illegal money laundering in China), using Yibifu's centralized accounting and fiat exchange services for money laundering.

Analysis of Fund Flow Model:

【Figure 1: Analysis of Money Laundering Fund Path Involving Yibifu】

1. The buyer's address, which is the fraudster, contacts the passenger using the passenger's reserved contact information after purchasing the passenger's flight information, committing fraud against the passenger.

2. After receiving the buyer's funds, the seller transfers the profit, part of which is transferred to Yibifu. From Yibifu's fund model, it can be inferred that the Yibifu user address in the figure corresponds to the seller's private account opened in Yibifu.

3. Once the funds enter Yibifu, due to the large number of Yibifu users, the sources and destinations of funds become complex and difficult to trace, achieving a mixing effect. The seller can manipulate their account** to withdraw funds to other on-chain wallets or directly cash out through Yibifu's fiat exchange services, achieving the purpose of money laundering.**

The following diagram is a simplified model of fund flow in Yibifu:

【Figure 2: Simplified Model of Fund Flow in Yibifu】

Case 2: Money Laundering Crimes Using Guarantee Platforms

Case Background:

In recent years, the types of crimes involving virtual currencies have become increasingly diverse and complex, with previous illegal activities involving fiat currencies, such as "pig butchering + false investment," "online live streaming seduction scams," "illegal information trading," "human trafficking," and "gambling," now almost all adopting online virtual currency collection and settlement methods. The channels for fund transfers have become intertwined and concealed, with more and more illegal activities using a "online contact + in-person exchange" model to transfer criminal funds. Guarantee platforms represented by Haowang Guarantee operate primarily through Telegram, providing one-stop, comprehensive services for online fraud and other gray industries by forming groups and related channels. Haowang Guarantee's parent company, "Huiwang Group," was listed on May 1, 2025, under the U.S. Special Measures: FinCEN 9714 and the U.S. Patriot Act 311.

Analysis of Transaction Model:

1. The leading party (merchant) creates a public group on the guarantee platform, setting group names, rules, business personnel, advertisements, and other information, continuously conducting business. The guarantee platform charges a monthly fee for transaction reporting and accounting services.

2. Customers browse supply and demand information in the guarantee public group, and after selecting a transaction target, they contact the "public group business personnel" to arrange a guarantee transaction, or both parties clarify the transaction content, goods, and prices, and after negotiating, contact "guarantee customer service" to arrange a transaction group for transaction guarantees.

3. After both parties confirm the transaction online, the merchant arranges offline personnel (commonly known as 'runners') to meet with the customer at a designated location for face-to-face transactions (usually in high-traffic areas like shopping malls, stations, office buildings to avoid monitoring). After the transaction is completed, the funds are laundered through the disconnection of online and offline methods.

4. The following diagram shows a real case of a merchant receiving cash for U, tracking its main sources of funds reveals that a large amount of money was received from Huiwang Entertainment. This portion of the funds may be illegal proceeds that have already been mixed through gambling platforms, and the flow of these funds is complex, directly or indirectly flowing to multiple merchant addresses. Due to the wide range of sources for the related addresses, the mixing makes tracking the funds significantly more difficult.

【Figure 3: Simplified On-Chain Fund Flow Analysis for Cash Collection】

V. Analysis of Involved Countries and Regions

(A) Mainland China

Mainland China has a strict prohibition policy on virtual currency trading. Therefore, to achieve cross-border transfer of illegal funds generated domestically, it first needs to be exchanged for crypto assets through underground banks or OTC markets, and then flow overseas. Regulatory authorities focus on combating illegal fundraising, money laundering activities, and illegal institutions providing services for virtual currency trading, while vigorously promoting the digital RMB to standardize the currency circulation system and fundamentally reduce the possibility of virtual currency money laundering.

(B) Hong Kong Special Administrative Region

As an international financial center, Hong Kong attracts a large amount of cross-border capital. To strengthen the regulation of virtual assets, Hong Kong implemented a VASP (Virtual Asset Service Provider) licensing system in 2023, requiring any institution providing virtual asset services to obtain a license from the Securities and Futures Commission. Despite stricter regulations, some criminals still use Hong Kong exchanges and family offices for money laundering activities, as some funds in the Singapore case flowed through Hong Kong. This indicates that Hong Kong needs to further strengthen the regulation of financial institutions and related service providers to prevent illegal exploitation.

(C) Singapore

As a global financial center, Singapore has implemented strict regulatory measures for virtual assets. In 2023, a licensing system for exchanges was implemented, and several platforms have been licensed and required to strengthen KYC/AML (Know Your Customer/Anti-Money Laundering) measures. A large amount of cross-border capital is converted and settled in Singapore, and several local cases show that money laundering gangs use the local financial system and virtual asset platforms to hide assets. Singapore's regulatory focus is on strengthening oversight of licensed institutions to ensure strict compliance with anti-money laundering regulations while leveraging its robust financial infrastructure to enhance monitoring of cross-border capital flows.

(D) Thailand

Thailand's regulation is relatively open, with the SEC (Securities and Exchange Commission of Thailand) including USDT and USDC as tradable assets. The Thai Banking Payment Act also covers digital asset services, allowing stablecoins for domestic clearing. In money laundering cases, criminals in the region often exchange USDT for Thai Baht or US dollars through Thai exchanges before transferring funds. Thailand needs to strengthen regulation of exchanges and other institutions while promoting innovation to improve anti-money laundering measures and prevent the misuse of stablecoins.

(E) Philippines

The Central Bank of the Philippines (BSP) is actively exploring stablecoin regulation and has approved Coins.ph to test the peso-pegged stablecoin PHPC within a regulatory sandbox. The country's regulatory framework encourages innovation and plans to design regulatory safeguards for VASPs and financial institutions issuing stablecoins. In terms of money laundering regulation, the Philippines has previously launched strict actions against illegal crypto OTC trading. The regulatory model in the Philippines attempts to find a balance between innovation and risk control by establishing mechanisms like regulatory sandboxes to guide the compliant development of stablecoins while combating illegal trading.

(F) Cambodia

In 2025, the Central Bank of Cambodia issued rules allowing banks to hold "qualified stablecoins," but prohibits banks from engaging in self-operated cryptocurrencies and payment activities. This policy may allow underground channels to exploit Cambodia's stablecoin market advantages for cross-border exchanges, while formal payment and exchange channels are restricted. Cambodia needs to strengthen its crackdown on underground channels while encouraging the reasonable application of stablecoins and improving its regulatory framework to prevent stablecoins from being used for illegal money laundering activities.

(G) Myanmar

The Myanmar government strictly prohibits digital currency trading and strengthens law enforcement. The Central Bank of Myanmar has explicitly banned unauthorized cryptocurrency trading and has cracked down on underground banks using USDT (tilleke.com, n.d.). However, due to frequent border trading with neighboring countries and the existence of gray operational spaces like online channels, criminals may still exploit these channels for virtual currency money laundering activities, posing significant challenges for Myanmar's regulatory efforts.

In summary, mainland China is the primary source of funds, while Southeast Asian countries often serve as transit or settlement locations for money laundering. The differences in regulatory policies among countries provide criminals with opportunities for "regulatory arbitrage," influencing their choices of criminal pathways and constructing a complex map of money laundering networks across regions.

VI. Regulatory Policies and Legal Framework for Virtual Assets and Stablecoins

(A) Mainland China

Official documents from China clearly classify virtual currency trading as illegal financial activity (People's Republic of China Central People's Government, 2021). Laws and regulations such as the "People's Bank Law" prohibit financial institutions from providing services for cryptocurrency trading. Currently, regulatory efforts are primarily focused on combating telecom fraud, underground banks, and non-bank financial institutions providing virtual asset services, while vigorously promoting the digital RMB to replace some applications of virtual currencies, fundamentally reducing the soil for virtual currency money laundering.

(B) Hong Kong Special Administrative Region

Hong Kong has passed amendments to the "Anti-Money Laundering Ordinance" and the VASP licensing system, imposing strict regulations on virtual asset service providers. In May 2025, the Hong Kong Legislative Council passed the "Stablecoin Issuer Ordinance Draft," establishing a regulatory framework for the issuance of fiat-backed stablecoins: all issuers of fiat stablecoins pegged to the Hong Kong dollar or foreign currencies must obtain a license and meet requirements for reserve asset management, redemption guarantees, asset segregation, and AML/CFT (Anti-Money Laundering/Counter-Terrorist Financing) (hkma.gov.hk, 2025). This initiative marks an important step for Hong Kong in regulating stablecoins, aiming to standardize the issuance and circulation of stablecoins and prevent financial risks such as money laundering.

(C) Singapore

Singapore's "Payment Services Act" requires digital token providers to register and fulfill AML obligations. The MAS (Monetary Authority of Singapore) has launched a framework for single fiat stablecoins (SCS), regulating the issuance and circulation of stablecoins pegged to the Singapore dollar and major G10 currencies. The MAS views stablecoins as part of the payment system infrastructure and has set strict requirements for their value stability and backing reserves, ensuring that the issuance and operation of stablecoins comply with financial regulatory standards and maintain market stability.

(D) Thailand

Thailand's "Digital Asset Business Act" covers crypto assets and requires exchanges and wallet service providers to register. The SEC approved the use of stablecoins like USDT and USDC on exchanges in 2025 (coindesk.com, 2025). The Central Bank of Thailand supports innovative pilots but requires strict compliance for payment-type stablecoins. Thailand's regulatory policy emphasizes preventing money laundering risks associated with stablecoins while encouraging digital asset innovation through registration systems and compliance requirements.

(E) Philippines

The Central Bank of the Philippines has issued the "Digital Asset Regulation," stipulating that VASPs must operate with a license and can test fiat stablecoins (such as the peso stablecoin PHPC) in a regulatory sandbox (elliptic.co, n.d.). The country encourages banks and payment institutions to participate in virtual asset regulation and innovation, attempting to balance innovation and risk control through the establishment of licensing systems and regulatory sandboxes while effectively managing money laundering risks.

(F) Cambodia

The Central Bank of Cambodia (NBC) implements classified regulation of crypto assets, categorizing qualified stablecoins as "Group 1" and explicitly prohibiting their use for domestic payments. Banks must be approved to engage in stablecoin-related businesses. Cambodia's regulatory policy allows for the reasonable existence of stablecoins to some extent but imposes strict restrictions on their usage scope and banking operations to prevent stablecoins from disrupting domestic financial order and reducing illegal activities such as money laundering.

(G) Myanmar

The Central Bank of Myanmar has repeatedly reiterated that virtual currency trading is illegal, and in 2024, further warned against individuals participating in any unregulated digital currency trading and exchange activities. Currently, Myanmar lacks a formal regulatory system for crypto assets, relying mainly on administrative orders and strict prohibitions, which somewhat limits the legitimate application of virtual currencies but also makes it difficult to completely eradicate underground trading activities.

Overall, there are differences in the regulatory intensity regarding virtual assets: the Hong Kong Special Administrative Region and Singapore are accelerating institutional development to build comprehensive regulatory frameworks, while many Southeast Asian countries are strengthening control over payments and stablecoins. The overall trend in regulation is to follow the principle of "same activities, same risks, same regulation," enhancing KYC/AML measures and cross-border law enforcement cooperation to address financial risks such as virtual currency money laundering.

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VII. Challenges and Policy Recommendations

(A) Challenges Faced

1. High Law Enforcement Difficulty:

The strong cross-border liquidity and prominent anonymity of virtual currencies make tracking and locating criminal funds difficult. The decentralized nature of blockchain technology also increases the difficulty for regulatory agencies to obtain complete information on fund flows, posing significant challenges for traditional law enforcement methods in the face of virtual currency money laundering.

2. Insufficient Regulatory Coordination:

There are differences among countries and regions in regulatory rules, standards, and practices for virtual currencies, which criminals may exploit for "regulatory arbitrage," choosing regions with looser regulations for money laundering activities. Additionally, cross-border law enforcement cooperation mechanisms have not been fully established, and information sharing is not smooth, leading to low efficiency in combating transnational money laundering cases.

3. Special Risks of Stablecoins:

Stablecoins are large in scale and have significant payment attributes, with their value stability and issuance mechanisms directly affecting the stability of financial markets. If stablecoin issuers have insufficient capital reserves, weak asset backing, or flawed redemption mechanisms, it may trigger financial risks. At the same time, the widespread use of stablecoins also facilitates illegal activities such as money laundering, requiring regulatory authorities to find a balance between innovation and risk.

(B) Policy Recommendations

1. Strengthen International Intelligence Sharing and Technical Cooperation:

Establish and improve international intelligence sharing mechanisms, enhancing cooperation and communication between regulatory agencies and law enforcement departments in various countries. Jointly develop and promote blockchain analysis technologies to improve tracking and monitoring capabilities for virtual currency fund flows. For example, countries can share information on suspicious wallet addresses, transaction patterns, etc., forming a global anti-money laundering network.

2. Promote Regional Regulatory Coordination and Standardization:

Following the recommendations of international organizations such as the FATF (Financial Action Task Force), promote the unification of travel rules, suspicious transaction reporting standards, and other regulatory requirements among countries and regions. Strengthen regulatory coordination among regions to reduce "regulatory arbitrage" opportunities and form a unified regulatory force. Consider establishing a regional virtual currency regulatory coordination agency to hold regular meetings to coordinate regulatory policies and actions.

3 Strengthening Regulation and Risk Control of Stablecoins:

Implement strict capital reserve, auditing, and information disclosure requirements for stablecoin issuers to ensure the authenticity and stability of their asset backing, safeguarding investors' redemption rights. Enhance regulation of stablecoin trading platforms and usage scenarios, requiring relevant institutions to strictly enforce KYC/AML measures and to monitor and report abnormal transactions in real-time. At the same time, research the establishment of a risk warning mechanism for stablecoins to timely identify and address potential financial risks.

4 Utilizing Technological Means to Assist Law Enforcement and Regulation:

Encourage regulatory agencies to collaborate with professional on-chain analysis companies to introduce advanced on-chain tracking technologies and tools for real-time monitoring and analysis of suspicious fund flows. Utilize big data, artificial intelligence, and other technologies to mine and analyze vast amounts of blockchain data, identifying potential money laundering patterns and abnormal transaction behaviors, thereby improving regulatory efficiency and accuracy.

5 Strengthening Compliance Constraints and Public Education:

Increase penalties for unlicensed VASPs, trading platforms, and underground banks, raising the cost of violations to create a strong legal deterrent. Improve cross-border asset recovery mechanisms and strengthen efforts to recover and return criminal funds. At the same time, enhance public education to raise awareness of illegal activities such as virtual currency money laundering and risk awareness, guiding the public to consciously comply with laws and regulations and to refrain from participating in illegal virtual asset activities.

VIII. Conclusion

Research indicates that despite the strict ban on crypto assets in mainland China, money laundering chains can still be completed through underground banks, domestic and foreign trading platforms, and stablecoin networks. The Hong Kong Special Administrative Region, Singapore, and other areas have strengthened regulation of VASPs and stablecoins, while some Southeast Asian countries are continuously improving regulations or enhancing law enforcement. However, current challenges in virtual currency money laundering still include high law enforcement difficulty, insufficient regulatory coordination, and special risks associated with stablecoins.

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