China is closely monitoring the use of virtual assets in money laundering activities, according to the country’s highest court, in a move that legal experts say could increase the risk of prosecution for trading cryptocurrency on the mainland.
Using virtual assets to transfer or convert criminal proceeds is among a range of money laundering methods that violate China’s criminal law, according to a judicial interpretation published on Monday by the Supreme People’s Court and the main agency responsible for legal prosecution, the Supreme People’s Procuratorate.
The top court’s judicial interpretation increases the legal risks faced by mainland Chinese cryptocurrency investors when making trades, Shao Shiwei, a lawyer at Shanghai-based Mankun Law Firm, wrote in a post on WeChat.
“From now on, it will be more difficult for USDT merchants to operate and for ordinary people to occasionally trade cryptocurrencies because of potentially high legal risks,” Shao wrote, referring to the world’s biggest stablecoin. Tether’s USDT stablecoin is a type of cryptocurrency pegged to the US dollar.
Money laundering related to the use of virtual assets, such as cryptocurrencies, has become an urgent focus in Chinese authorities’ crackdown on financial crimes. Photo: Shutterstock
If ordinary investors happen to receive proceeds from criminal activities during the buying or selling of virtual assets, they could be held as suspects in a money laundering case, according to Shao. Crypto investors on the mainland must be more cautious to avoid inadvertently taking part in money laundering and other illegal activities, she added.
That judicial interpretation was released amid the constant “innovation and upgrade” in money laundering methods, including use of cryptocurrencies and game tokens, that have become more difficult to tackle in today’s internet age, Chen Xueyong, deputy chief judge of the top court’s No 3 Criminal Adjudication Tribunal, said at a press briefing on Monday.
It marked the first time that virtual assets have been explicitly mentioned in an official criminal law interpretation, providing a greater sense of urgency to implementing revisions to the country’s outdated Anti-Money-Laundering (AML) Law.
A proposed AML law amendment, which is expected to be passed next year, is expected to involve a sharpened focus on prosecuting crimes related to the use of cryptocurrencies to transfer assets abroad.
A view of one of the courts inside the Supreme People’s Court of China in Beijing. Photo: AFP
Calling out virtual asset-based money laundering in the judicial interpretation is not only a response to the highly frequent occurrence of such activities, but it is also aimed at courts to guide their determination of related cases, according to Liu Honglin, founder of Mankun law firm, which focuses on issues in the blockchain industry.
The new interpretation, however, does not equate cryptocurrency trading with money laundering, or change mainland China’s cryptocurrency policies in any way, Liu said.
At present, various crypto-related businesses, including cryptocurrency mining and initial coin offerings are banned on the mainland. Beijing, meanwhile, has given Hong Kong the green light to regulate and support the operations of virtual-asset businesses.
Still, investors on the mainland have stayed active in the market and remain important participants in many international cypto exchanges. Chinese cryptocurrency investors made US$1.15 billion in 2023 to rank fourth behind those in the United States, the United Kingdom and Vietnam, according to an international survey published in March by New York-based blockchain research firm Chainalysis.
