China’s top legal authorities have included the use of virtual assets to transfer illicit funds as a money laundering method in a judicial interpretation — making it easier to investigate and prosecute crypto-linked money laundering cases.
The interpretation — published on Monday by the Supreme People’s Court and the Supreme People’s Procuratorate — classifies virtual asset trading as one of the money laundering methods. Specifically, it states that using virtual-asset transactions or financial-asset exchanges to transfer or convert the proceeds of crime can be recognized as the act of “disguising or concealing the source and nature of criminal proceeds and their gains by other means” under the country’s criminal law.
Liu Honglin, founder of the Shanghai-based Man Kun law firm, wrote in a social media post today that the interpretation doesn’t equate cryptocurrency trading with money laundering. “The act of individuals holding or trading cryptocurrencies domestically [on the mainland] will not be considered a crime solely due to the issuance of this judicial interpretation,” Liu said.
“The primary purpose of this judicial interpretation is to provide law enforcement agencies with clearer legal grounds for adjudicating specific criminal cases, targeting particular illegal activities rather than cracking down on all cryptocurrency transactions,” Liu explained in the article.
Shao Shiwei, a fintech lawyer based in Shanghai, said that the latest interpretation may make it more difficult for stablecoin merchants to operate, as individuals could face greater legal risks if they receive illicit funds through crypto trading.
In September 2021, the People’s Bank of China, the Supreme People’s Court and several other central authorities issued a notice banning all crypto trading activities on the mainland. The ban clarified that services provided by overseas crypto exchanges to Chinese residents on the mainland are considered illegal financial activities. Many investors, however, still found ways to circumvent the rules and trade.
Over the years, China has implemented tight capital control policies — leading some to use cryptocurrency to circumvent the rules. In May, Chinese police busted an underground bank that used the USDT stablecoin for foreign currency exchanges, involving transactions worth at least 13.8 billion yuan ($1.9 billion).
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