Chinese Authorities Warn Against Illegal Crypto Fundraising

China is expanding its crackdown against online financial risks related to cryptocurrencies.

The People’s Bank of China, the China Banking and Insurance Regulatory Commission, the Ministry of Public Security and two other agencies jointly warned investors Friday of Ponzi schemes using the terms “blockchain” and “virtual currency” to illegally raise funds.

It was the first time for the Ministry of Public Security to join the other agencies in a regulatory document regarding virtual currency risks, signaling that the police authority is adding its weight and resources to the crackdown on crypto-related illegal activities.

Last September, China officially declared initial coin offerings (ICOs) — or fundraising through cryptocurrencies — illegal and shut down platforms that facilitated such deals. Following the ICO ban, many major virtual currency exchanges based in China moved overseas.

But according to Friday’s notice, some “criminals” are still targeting domestic residents using foreign servers and websites. The document warned that many such illegal schemes are disguised under various alternative names such as IFO, IEO and IMO and often use incentives such as bonus coins and endorsements by celebrities to attract investors.

Marketing claims such as “gain passive returns by trading coins” and “gain dynamic returns by recruiting other investors” are typical pitches used by illegal fundraising, pyramid schemes and fraud, the agencies said.

The notice did not specify any new actions, but Chinese authorities have already cranked up enforcement targeting crypto-related activities.

A multi-agency task force on internet finance will take measures against 124 crypto exchange platforms with servers located overseas but substantially targeting Chinese residents, the Shanghai Securities News reported this week.

No matter where these companies are registered, they should be governed by Chinese jurisdiction as long as the companies target Chinese customers, legal experts said.

Several blockchain-related social media accounts were shut down Tuesday evening. Internet giant Tencent Holdings Ltd. confirmed that at least four major accounts registered by crypto-related businesses on its popular WeChat social media platform were permanently blocked for violating regulations.

After shutting down several WeChat crypto-related accounts, Tencent said in a statement that it would closely monitor crypto-related transactions on its payment platform and might block any confirmed transactions.

A government office on financial and social risk prevention in Beijing’s Chaoyang District, home to many internet businesses, issued a ban Wednesday on any form of “crypto promotion activities” at bars, office buildings and shopping malls.

Shortly after the ban, China-founded Binance, the world's largest crypto exchange now operating abroad, canceled a media event scheduled for Friday in Beijing.

Major Chinese online payment providers are also responding to the authorities’ enhanced scrutiny. Alipay, the biggest payment service in China, has officially prohibited traders from using Alipay accounts to initiate digital asset trades. Alibaba Group-backed Alipay has reportedly disabled some 3,000 accounts involved in crypto trading.