A Chinese police force is investigating what could be the first scam and money laundering case involving the country’s new digital yuan — the e-CNY — and has arrested 11 suspects.
The police in Xinmi, a county-level city in central China’s Henan province, revealed on Tuesday that the victim, surnamed Qu, in September received a phone call from a suspect who claimed there was a quality issue with an item that Qu ordered online and that they would compensate Qu with money three times the value of the item.
Prompted by the requests of the suspect to “verify identification,” Qu transferred over 200,000 yuan, via multiple transactions, to the accounts provided by the suspect, but Qu later became suspicious.
During the investigation, the local police found the money flowed to a specific electronic wallet, but the wallet’s transaction model was different from traditional online payment. After multiple visits to banks and third-party payment companies, the investigators discovered the digital wallet contained e-CNY and belonged to a 26-year-old suspect surnamed Lin from the southeastern province of Fujian.
The police subsequently arrested 11 suspects, on suspicion of facilitating money laundering through the e-CNY for a fraud ring based in Cambodia.
The case could be the country’s first scam and money laundering case involving the highly-anticipated digital yuan, the police said.
China is pioneering the world’s first major central bank digital currency. The e-CNY, alternately called the digital renminbi or e-RMB, is issued by the People’s Bank of China (PBOC). Many expect the digital currency to be formally launched in time for the Beijing Winter Olympics in February.
In a white paper released in July, the PBOC noted the e-CNY is not a 100% anonymous system, but supports “managed anonymity” with tiers of complexity based on know-your-customer needs.
The PBOC wrote in the white paper: “It is necessary to guard against the misuse of e-CNY in illegal and criminal activities, such as tele-fraud, internet gambling, money laundering, and tax evasion by making sure that transactions comply with [anti-money laundering/combating of financing of terrorism] requirements.”
Specifically, the PBOC said the e-CNY system collects less transaction information than traditional electronic payment and does not provide information to third parties or other government agencies “unless stipulated otherwise in laws and regulations.”
Mu Changchun, director-general of the PBOC’s digital currency institute, said Wednesday at Hong Kong Fintech Week that there are four types of digital wallets depending on how much personal information is required as well as transaction caps.
The least-privileged wallet can be opened with just a phone number and is “fully anonymous even to the PBOC and authorized operators because — according to the Personal Information Protection Law — the telecom operators are forbidden to provide any ID information to other third parties, such as the PBOC and other authorized operators,” Mu said.
As pointed out in the white paper, users can open least-privileged anonymous wallets by default and upgrade them to higher-level real-name ones as needed.
However, such “managed anonymity” design has raised eyebrows internationally. For example, in July, three United States senators wrote to the country’s Olympic and Paralympic Committee to urge it to “forbid American athletes from receiving or using digital yuan during the Beijing Olympics,” due to privacy concerns.
In the joint letter, senators Marsha Blackburn, Roger Wicker and Cynthia Lummis wrote: “The digital yuan is entirely controlled by the [People’s Bank of China],” adding that the details of what and where someone used the currency could be tracked and traced by the central bank.
Set up in 2016, the PBOC’s digital currency institute started to launch e-CNY pilots in late 2019 in several major cities and areas across the country, according to Mu.
Mu said that as of October, about 140 million individuals have opened their wallets, and 10 million corporate wallets have been created. Meanwhile, the e-CNY transaction value amounted to 62 billion yuan (US$9.7 billion), and 1.55 million merchants now accept e-CNY payment, including utilities, catering services, transportation, shopping and government services, Mu added.
There was no official launch date yet for the digital currency, the PBOC official said.
However, the nation has appeared to speed up its digital yuan trials as the Beijing Winter Olympics approaches. In September, Fan Yifei, a deputy governor of the PBOC, said the infrastructure construction for e-CNY use during the Winter Olympics has entered a “sprint stage,” according to a PBOC statement.
Shanghai has also outlined its plan to expand digital yuan pilot programs into the city’s five-year plan, in a recently released policy statement, “Shanghai’s Five-Year Plan of Comprehensive Promotion of Urban Digital Transformation.”