"US focuses on security, China on preventing capital outflow" Both countries tighten anti-money laundering measures, making all-out efforts to block illegal financial networks

US Treasury imposes fine on BofA; intensifies anti-money laundering surveillance and sanctions in financial sector
Illegal money laundering methods diversify, including underground banks, virtual assets, and disguised trade
China also makes all-out efforts to prevent capital outflow, strengthens financial crime crackdowns and develops detection technologies

The US Treasury Department imposed a large fine on Bank of America (BofA). Amid intensifying money laundering surveillance in the US financial sector, sanctions are increasingly targeting financial institutions that fail to properly detect and report suspicious transactions. This regulatory trend is also being increasingly observed in other major countries outside the US. In particular, China is increasingly raising the level of crackdowns and monitoring to block capital outflow through underground banks, virtual assets, and false trade transactions.

US government unleashes sanctions on financial sector

According to the Financial Times (FT) on the 13th (local time), the Financial Crimes Enforcement Network (FinCEN), under the US Treasury, imposed a $1.2 billion fine (approximately US$1.23 billion) on BofA for violating anti-money laundering obligations. This action was due to BofA’s failure to properly warn and address suspicious transactions exceeding $5 billion (approximately US$5.14 billion) linked to organizations presumed to be part of China’s money laundering networks and illegal finance near the southern US border. Treasury Secretary Janet Yellen stated, "Financial institutions are on the front lines of the economy and national security. When a bank of this size neglects its anti-money laundering duties, the result exposes the entire US financial system to severe risks from illicit finance."

FT pointed out that this decision by financial authorities is an extension of the recent continuous comprehensive pressure on the US financial sector. In fact, on the 8th, the Treasury’s Office of the Comptroller of the Currency (OCC) imposed a $350 million (approximately US$360 million) fine on American Express National Bank, the bank subsidiary of American Express. According to the authorities, the bank failed to timely identify, evaluate, or sufficiently report suspicious trade-based money laundering transactions amounting to $13 billion (approximately US$13.4 billion) that occurred over about 11 years from June 2014 to May last year. Notably, the main issue cited was the bank focusing its monitoring capacity on smaller deposit accounts rather than its core credit and charge card business.

Virtual asset exchanges also in scope

Last August, the US government also carried out sanctions to curb money laundering. At that time, the Treasury Department’s Office of Foreign Assets Control (OFAC) listed virtual asset exchanges Shellbit and Avanteder on its sanctions list for supporting the funding and illicit financial transactions of Iran’s Islamic Revolutionary Guard Corps (IRGC). The Treasury indicated that Iranian officials used virtual asset trading platforms with lax regulations, networks of offshore paper companies spanning multiple countries, and online gambling businesses to conceal the sources of illicit funds and access the international financial system. In particular, Shellbit, registered in Georgia, was operated by Iranian entrepreneur Siavash Keyvanpour and was found to have conducted direct virtual asset transactions with the IRGC.

According to OFAC, over $1 million (approximately US$1 million) in virtual assets flowed from IRGC-owned wallets into Shellbit, and transfers from Shellbit to IRGC wallets exceeded $2 million (approximately US$2.08 million). Wallets owned or controlled by Keyvanpour already sent more than $2 million to Nobitex, an Iranian virtual asset exchange that is subject to US sanctions. Additionally, Shellbit provided financial services to a network of Persian-language online gambling sites operated by two Iranian influencers residing abroad, laundering tens of millions of dollars in virtual assets through Shellbit. The Iran-based Avanteder was confirmed to have processed multi-million-dollar transactions with already sanctioned exchanges such as Nobitex, Wallex, Bitfin, and Ramzinex.

Table 1. US sanctions cases related to money laundering

Sophistication of money laundering methods

Last month, FinCEN and the Financial Action Task Force (FATF) issued consecutive warnings by exposing money laundering methods that exploit informal financial networks and virtual assets. FinCEN reported on September 3 that suspicious activity reports (SARs) related to digital asset investment fraud submitted by financial institutions numbered 33,904, with related financial activity amounting to $12.7 billion (approximately US$13.1 billion) from September 2023 to December last year. Notably, so-called “Pig butchering” investment scams, where criminals build trust with victims online and encourage high-return investments such as virtual assets to steal money, are spreading through organized criminal networks. These groups employ complex money laundering tactics including using money mules and shell companies to evade tracking, converting criminal proceeds into stablecoins, and transferring funds to overseas virtual asset exchanges.

FATF also noted that professional money launderers move criminal proceeds across borders through informal financial networks such as underground finance and Hawala. Hawala is a system of transferring funds based on trust between intermediaries without using formal banking channels, where actual cash may not cross borders but settlements occur via cash or trade. Analyzing data collected from over 50 countries and regions, FATF found that over 80% of surveyed jurisdictions identified underground finance and Hawala as major money laundering routes or methods, and 70% observed these informal networks merging with new technologies such as virtual assets and fintech.

China also struggles with similar issues

Heightened alertness to money laundering is rising even in China, the US’s strategic competitor. The Chinese government enforces stringent capital controls, including limiting individuals’ annual foreign exchange purchase to $50,000 (approximately US$51,385), yet wealthy individuals anxious over economic slowdown and President Xi Jinping’s “common prosperity” policy persistently attempt to transfer funds abroad. According to the Institute of International Finance (IIF), China’s capital outflow reached a record high of roughly $807 billion (approximately US$829 billion) last year. A typical method involves “smurfing,” where brokers recruit people who have not used their $50,000 annual foreign exchange quota to purchase foreign currency on their behalf, distributing funds across multiple names. Organized schemes using underground banks and false trade transactions are widespread. Customers pay RMB to underground banks within China, and overseas intermediaries transmit equivalent amounts to clients’ offshore accounts.

Companies also inflate import payments or fabricate nonexistent transactions to siphon funds overseas. In fact, companies in Wenzhou and Shenzhen were caught moving about $9.23 million and $18.5 million overseas through false commercial transactions, respectively. Recently, attempts at indirect transfers using virtual assets have increased. According to blockchain analysis firm Chainalysis, last year Chinese-language money laundering networks processed an estimated $16.1 billion (approximately US$16.5 billion) in illicit virtual asset transactions.

Government intensifies crackdowns and attempts integration of advanced technology

Chinese authorities are strengthening regulations and crackdowns to block these illegal fund transfers. The Supreme People’s Procuratorate reported that 3,259 individuals were prosecuted last year for money laundering via virtual assets and underground banks. Recently, Shanghai courts sentenced five organization members to prison for illegally transferring over 200 million RMB (approximately US$30.8 million) abroad using virtual assets, marking actual penal cases. The State Administration of Foreign Exchange (SAFE) investigated and handled over 300 illegal foreign exchange cases—including underground banking—in the first half of this year, with confiscations and fines exceeding 400 million RMB (approximately US$61.5 million).

Academic research on related topics is ongoing locally. For example, last August, Hong Kong’s South China Morning Post (SCMP) reported that a research team from the People’s Public Security University of China (PPSUC), China’s top police university, developed an artificial intelligence (AI) framework capable of detecting illegal cryptocurrency transactions with about 90% accuracy. Corresponding author Dr. Sun Jingchao said in a paper published in China’s “Journal of Intelligence” that the research provides an accurate, generalizable, and interpretable solution for detecting illicit cryptocurrency transactions and that this research offers regulators an innovative method to combat illicit crypto transactions and economic crime.