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Prevalence of Chinese crypto fraud is increasing, says study


Cryptocurrency fraud is on the rise in the Chinese capital of Beijing, a recent study has found.

The study found that over 800 people were arrested in 2017 for illegal fundraising activities. There were 428 separate cases of illegal fundraising in 2017, and a number of these scams used cryptocurrency-related terminology such as blockchain in their materials.

The figures show that this sort of crime is on the rise. Compared to 2016, the number of people taken into custody on illegal fundraising charges has increased by 26.63%. The study also discovered that there were 1,342 arrests made in Beijing alone during 2017 as part of wider financial crime cases.

The findings were published in a recent white paper released by the Beijing Municipal People’s Procuratorate, which is the local body responsible for the prosecution and investigation of crime in the city. Jiang Shuzhen, a director at the Procuratorate, called for clarity around the regulation of new, internet-age financial phenomena such as blockchain and cryptocurrencies.

China seems to have a persistent problem when it comes to cryptocurrency fraud. In a separate study, the National Committee of Experts on the Internet Financial Security Technology found that China is a hub for fake cryptocurrencies, and that these scams were regularly putting investors at risk. In total, over 400 fake cryptocurrencies have been discovered in China in recent years. By April 2018, exactly 421 of these had been uncovered, and 60% of them had then been moved to other nations in an attempt to prevent the Chinese authorities from catching them.

The Chinese government has taken significant action in an attempt to put an end to cryptocurrency scams, especially compared to other nations around the world. In 2017, for example, it made the decision to outlaw initial coin offerings, or ICOs, which are designed to raise the required resources to start a new crypto-based project. As part of its rationale for this, the National Internet Finance Association of China said that the risk ICOs posed was too high. And as is common in China, the dangers were viewed in terms of the effect that these offerings were having on the smooth functioning of wider Chinese society.

“The number of projects that have been launched in the name of ICO has grown rapidly in the country, disrupting the socioeconomic order and creating a greater risk danger,” the association said in a statement at the time.

Cryptocurrency crimes in China are often very large in scale and can involve tens of millions of dollars. In one case last month, police in the city of Shenzhen – known as the “Silicon Valley of Hardware” due to its status as a technology hub – took six people into custody on allegations that they had carried out a USD $47m fraud against thousands of China-based investors.

The State Administration for Market Regulation, which is responsible for the oversight of these firms, regularly issues fines against companies which break crypto rules – but the scale of the problem in the country is often too big for the authorities to effectively battle.