Money launderers have used some of China’s leading online shopping sites to transfer billions of dollars to offshore gambling sites, police raids have revealed.
People wishing to evade China’s strict capital controls, for example to gamble on offshore websites, have been placing fake orders on the shopping sites, including on Pinduoduo, China’s second-largest platform by users. A corresponding sum is then credited to their gaming account.
In recent months, several police forces across China have announced arrests in a slew of cases, alleging that at least Rmb14bn ($2.06bn) was laundered to offshore gambling sites through these fake ecommerce purchases and other methods.
The People’s Bank of China has said it is digging into the networks enabling the cross-border transfers, and the government launched a publicity campaign to “attack and control cross-border gambling”.
In one large case, police in the eastern city of Wuxi found 600m fake packages had been inserted into courier firms’ tracking systems by company insiders in order to complete fake ecommerce transactions. Many of those same package tracking numbers appeared in money-laundering cases in two other Chinese cities where more than Rmb7bn was allegedly funnelled to offshore gambling sites.
Ni Shiyuan, a police officer in Wuxi, said the government should “urge the related platforms, especially new social ecommerce platforms, to strengthen internal controls”. Pinduoduo is the most famous “social ecommerce” company.
A spokesperson for Pinduoduo said “gambling syndicates operating under false pretences on ecommerce platforms is an industry-wide problem”. The company said it has referred more than 1,000 leads to authorities since 2019, resulting in the arrest of more than 200 suspects.
Court cases in China show criminals have used several of the most popular ecommerce sites to launder gambling money. Alibaba and JD.com declined to comment.
Several gamblers said they had used Pinduoduo to transfer money. Zhao Yongdong, who became addicted to online games during the coronavirus lockdown, said he had transferred Rmb110,000 through Pinduoduo purchases, most during the first three months of the year.
He said that topping-up his gambling app by making fake purchases on a well- known platform such as Pinduoduo made it feel legitimate and he believes the company does not do enough to oversee activity on its marketplace. Two other gamblers, Zheng Meiyu and Wang Kai, claimed they had transferred a collective Rmb2m through the shopping app. Mr Wang said he had made 477 purchases through Pinduoduo to move the money.
Mr Wang and a group of gamblers protested outside Pinduoduo’s headquarters in Shanghai this summer, calling for the site to take action and to reimburse them their losses. They wore red shirts scribbled with large characters: “Pinduoduo’s unscrupulous merchants — repay my hard-earned money”.
“They’ve never taken us upstairs, they usually don’t even let us in the front door,” said Mr Wang, adding the local police have carted them away on several of his visits.
Pinduoduo said some gamblers had come to its offices to demand their money back. “As gambling is illegal in China, their cases were referred to the police for further investigations,” the spokesperson said.
The fake transactions can inflate a key metric used by online shopping sites, the gross merchandise volume, or the total value of all orders placed. Nasdaq-listed Pinduoduo, whose market capitalisation is $96bn, has repeatedly highlighted the rapid growth of its GMV.
Pinduoduo said it does not count orders that it has identified as fake or illegal in its GMV.
Pinduoduo’s marketplace has attracted authorities’ attention before. China’s market regulator ordered the company to strengthen merchant and product oversight in 2018 amid concerns over counterfeit goods. It was added to the US Trade Representative’s “Notorious Markets” list last year, joining Taobao and several other Chinese marketplaces.
Pinduoduo has also sued the company behind Chaping, a Chinese online news publisher, for claims about gamblers misusing its platform for money laundering. A Shanghai court fined Chaping Rmb200,000 and ordered it to delete the article and apologise, but also said that “objectively” some merchants on Pinduoduo were engaged in money laundering and said the company should strengthen its oversight and “fill in possible loopholes on the platform”.