China is aggressively escalating enforcement against using Tether for illegal foreign exchange activity, warning of harsh punishments for evading strict crypto prohibitions.

In a joint statement last week, top Chinese legal and currency agencies declared transactions between Tether and the renminbi fully illegal — including indirect technical or exchange assistance.

They cited a case of a prominent OTC crypto trader jailed 7 years for buying USDT abroad to sell into mainland China. Regulators have increasingly punished Tether flows since China's 2021 crypto ban.

Yet crypto appears to still permeate local markets as authorities vow an intensified crackdown. The stern warning spotlights Tether's persistent popularity despite the trading ban, forcing a tougher regulatory reckoning to isolate Chinese markets.

While China discharged a full-scale prohibition on cryptocurrency transactions for individuals and businesses in September 2021, Tether and peer stablecoins linked to fiat currencies have continued providing a gateway for Chinese citizens to move funds overseas and evade capital controls.

But with pressure mounting on regulators as crypto seeps through the cracks, the latest pledge to vigorously prosecute unauthorized cross-border flows foreshadows an ever-harder line against digital asset workarounds.