Sam Bankman-Fried, the former cryptocurrency executive indicted on charges of fraud in 2022, has now been charged with violating the Foreign Corrupt Business Practices Act for bribing one or more unnamed Chinese officials. An unsealed indictment holds that Bankman-Fried sent at least $40 million in cryptocurrencies to a Chinese official in order to unfreeze accounts belonging to Alameda, a hedge fund Bankman-Fried founded. At The New York Times, Matthew Goldstein reported on the alleged bribery scheme:
The authorities said that in early 2021, Chinese officials froze the money in the Alameda accounts, which were held in two of China’s largest cryptocurrency exchanges. The accounts had been frozen in connection with an investigation into one of Alameda’s trading partners.
Mr. Bankman-Fried came up with the plan to pay bribes, prosecutors said, after other efforts to unfreeze the money were unsuccessful, including hiring lawyers to lobby Chinese officials and creating fraudulent accounts in an attempt to deceive the Chinese authorities.
The bribe, according to the federal prosecutors, was paid in at least two parts, with the first taking place in November 2021.
The indictment said that after Mr. Bankman-Fried received confirmation that the accounts were unfrozen, the rest of the bribe was paid. The unfrozen funds were then used to fuel additional trading at Alameda. [Source]
Bankman-Fried allegedly paid the first bribe just two months after two top Chinese regulators, including the People’s Bank of China (PBOC), took harsh measures to end cryptocurrency mining and trading in September 2021. The September ban was the culmination of nearly a decade of regulatory unease with cryptocurrencies as both risky and environmentally-unfriendly assets, but did not end the Chinese trade in crypto-currencies: blockchain-focused consulting company Chainanalysis found in October 2022 that the ban had been “ineffective or loosely enforced.” In November 2022, just over a year after the PBOC and other agencies came out against cryptocurrencies, the Central Commission for Discipline Inspection (CCDI) announced that the deputy governor in charge of the PBOC’s cryptocurrency regulation, Fan Yifei, had been detained for unspecified “suspected serious violations of discipline and law,” a common precursor to corruption charges. There have been no public statements by officials in the United States or China connecting Fan to Bankman-Fried, or indeed, to cryptocurrency corruption. Other officials have been disciplined for their links to cryptocurrencies. Xiao Yi, a former vice-chairman of a provincial political advisory body, was stripped of his Party membership for “abusing his power to introduce and support companies to engage in virtual currency ‘mining’ activities that do not conform with the national industrial policy,” among other charges.
In Sept 2021, China issued an order to "clean up and ban" crypto and financing through coin offerings. They gave up trying to regulate a space so full of "illegal and criminal activities" like money laundering, fraud, and pyramid schemes. 2/https://t.co/pfEHnlGOI0
— Martin Chorzempa 马永哲 (@ChorzempaMartin) March 28, 2023
4/ So SBF's purported bribe came when the CN gov was shutting down all crypto business in China, worried about capital leaving China, and the funds involved were huge. Whoever unfroze the accounts was MASSIVELY sticking their neck out.
— Martin Chorzempa 马永哲 (@ChorzempaMartin) March 28, 2023
Fan and Xiao are two of the nearly 5 million Party members (of a total of approximately 96 million) who have been investigated on graft charges since Xi Jinping took control in 2012. Xi’s anti-corruption campaign is now entering its second decade, with connections between officials and private business under increasing scrutiny. In January of this year, Bloomberg reported on Xi Jinping’s ongoing anti-graft push, which despite “overwhelming victory,” is still “far from over”:
“Action should be taken to prevent leading officials from acting for any interest group or power group, and to forestall any collusion between officials and businesspeople,” Xi told a meeting of anti-corruption regulators on Monday, according to the official Xinhua News Agency.
He also warned against “any infiltration of capital into politics that undermines the political ecosystem or the environment for economic development.”
The message that graft cannot be allowed to thrive in the Chinese political system is one that Xi delivers regularly. In December, just after securing a third term in power, Xi said the country had achieved an “overwhelming victory” in its battle against corruption but added that the work was “far from over.” [Source]
The search for graft is seemingly endless. It also seems to remain popular in the public eye; China’s hottest TV show, “The Knockout,” is an ode to Xi’s anti-corruption drive. Since the end of the Two Sessions in March of this year, six provincial- and ministerial-level officials have been detained for graft investigations, as have 10 heads of state-owned corporations. Chinese soccer has been rocked by a corruption investigation that has seen the detentions of the country’s most famous ex-footballer, Li Tie, and the president of the Chinese Football Association, Chen Xuyuan. The investigations threaten to derail China’s foundering hopes of becoming a global soccer power. In recent weeks, graft investigators have also charged Zhao Weiguo, the head of chipmaker Tsinghua Unigroup, with corruption for “taking the state-owned company he managed as his private fiefdom.” The CCDI also announced a new-round of corruption inspections to take place at many of China’s top banks as well as 30 state-owned industrial companies. The campaign is also going global. At The Wall Street Journal, Chun Han Wong and Keith Zhai reported that the CCDI will be deploying inspectors to Chinese embassies around the world in an effort to pursue fugitive officials and their ill-gotten windfalls abroad:
These anticorruption inspectors will be based mainly in countries where corrupt Chinese officials are likely to have stashed large amounts of illicit funds, such as members of the Group of 20 nations, said one of the people. The Central Commission for Discipline Inspection, the antigraft body, has pledged this year to ramp up cross-border efforts in fighting corruption, particularly across countries that participate in Mr. Xi’s Belt and Road Initiative to build global trade infrastructure—a group that includes G-20 members.
[…] “Currently, quite a number of fugitive cases are old cases that stretch over long time spans and where there are few effective clues,” said a commentary published by the CCDI’s official newspaper in December that called for more international cooperation in fighting graft. Officials must overcome these difficulties by strengthening coordination and coming up with new tactics and techniques, the commentary said.
[…] CCDI personnel would likely take up their overseas roles in their capacities as government officials from a state agency, rather than as party inspectors, to conform with diplomatic convention, according to the people familiar with the plan.
For instance, CCDI officials taking postings in embassies abroad could go as officials from the National Supervisory Commission, one of the people said. That commission functions as the CCDI’s state equivalent in a practice known as “one set of personnel, two signboards.” [Source]
