Written by: Gyro Finance
Despite rumors flying around, virtual currency regulation is still becoming stricter.
On August 19, the Supreme People's Court and the Supreme People's Procuratorate jointly held a press conference and issued the "Interpretation on Several Issues Concerning the Application of Law in Handling Criminal Cases of Money Laundering", which officially came into effect on August 20.
The interpretation mentioned that the transfer and conversion of criminal proceeds and their benefits through "virtual asset" transactions and financial asset exchanges can be considered as "covering up or concealing the source and nature of criminal proceeds and their benefits by other means" as stipulated in Article 191, Paragraph 1, Item 5 of the Criminal Law. This is also the first time that virtual assets, rather than virtual currencies, have been mentioned in judicial interpretations in my country, and it is also the first time that this concept has been clearly proposed in the Money Laundering Law.
For a time, there was an uproar in the crypto circle, and the theory that virtual asset transactions were equivalent to money laundering was rampant. OTC traders were even more frightened, fearing that they would make a mistake and end up in prison. But in fact, the theory that the two were equivalent was not true. It was just that if virtual assets were used for money laundering purposes, such legal provisions would apply.
In any case, the emergence of this move has refuted the theory of China's loosening of encryption regulation that has been widely circulated overseas in recent days. However, for OTC, the risks of virtual asset transactions are undoubtedly continuing to increase.
After the explanation was released, many well-known lawyers in the industry also interpreted it, citing the opinions of professionals. First of all, it should be made clear that "virtual currency transactions are by no means equivalent to money laundering" and this statement is purely taken out of context.
In fact, looking back at the main nodes of my country's virtual asset supervision, from the "Notice on Preventing Bitcoin Risks" in 2013, to the subsequent crackdown on ICOs, the closure of domestic virtual asset exchanges, and the crackdown on Bitcoin mining in the past two years, as well as the "Notice on Further Preventing and Dealing with Virtual Currency Trading Speculation Risks", according to Mankiw lawyer Liu Honglin's point of view, mainland China still has no explicit prohibition on individual citizens holding and trading virtual currencies. In other words, individuals holding or trading virtual currencies will not be classified as crimes due to the interpretation issued this time.
From the original text, it is mentioned that "through virtual asset transactions and financial asset exchanges, in order to conceal and conceal the source and nature of the proceeds of the upstream crime stipulated in the crime of money laundering and the proceeds generated by it, the proceeds of the crime and its proceeds are transferred and converted." The core is the long sentence at the end, that is, if the behavior is used for "money laundering", rather than the behavior itself. Lawyer Liu Lei of Beijing Yingke also wrote an article to explain this, saying that "if OTC vendors do not receive the stolen money, or receive the stolen money without knowing the source of the funds, they can get rid of the suspicion of money laundering."
As for why virtual assets are included in the money laundering law at this time? The core is not difficult to understand. Virtual currencies have been too prominent in money laundering fraud cases in recent years.
Chen Hongxiang, president of the Third Criminal Division of the Supreme People's Court, said in his speech that in recent years, the means of money laundering have become complex and ever-changing. Judging from the money laundering cases handled from 2022 to 2023, money laundering mainly involves transferring funds or providing financial accounts through transfers or other payment settlement methods, accounting for more than 50%. In the meantime, with the widespread application of Internet technology, money laundering methods have been constantly updated and upgraded. Virtual currency, game currency, "running point platform", live broadcast rewards, etc. have become new money laundering carriers and methods. Upstream criminals use virtual currency, game currency, etc. to transfer assets across borders through underground banks. The amount involved is high and the investigation and punishment are difficult, which puts forward new and higher requirements for combating money laundering crimes.
The data also shows the same trend. According to a report, in 2022, the number of money laundering cases involving virtual currency fraud accounted for one-third of all cases involving currency, becoming the main category of cases. A typical case is the Blue Sky Grey illegal fundraising case that once shocked the market. The female protagonist Qian Zhimin absconded abroad with Bitcoin worth tens of billions of yuan, which also led to another money laundering case by the British authorities. She was finally arrested after 7 years on the run.
In this context, the first appearance of virtual currency transactions in the money laundering law responds to the rapid changes in current criminal methods, which is in line with the changes in the actual objective situation and reflects the adjustment of judicial interpretation to improve the judgment cases. It is worth emphasizing that according to lawyer Liu Yang, the new judicial interpretation of money laundering crime has added the expression of virtual assets, which does not mean that the property attributes of "virtual assets" have been clarified, but only the transaction behavior of "virtual assets" has been included.
From the perspective of the concerned groups, OTC practitioners, merchants and high-frequency traders have become the groups most affected by this interpretation. Compared with the previous concealment and concealment crimes that were sentenced for receiving too much stolen money, the more severe crime of money laundering will be included in the trading risks. According to Article 312 of the Criminal Law of the People's Republic of my country, if the concealment and concealment of criminal proceeds are serious, a fixed-term imprisonment of not less than three years but not more than seven years will be imposed. However, if it is a money laundering crime, the sentence for serious circumstances is a fixed-term imprisonment of not less than five years but not more than ten years, that is, the maximum penalty has been changed from 7 years to 10 years.
So how do we determine the guilt?
According to the laws and regulations of our country, there are 7 upstream sources of funds required for money laundering, namely drug funds, gang crime funds, terrorist crime funds, smuggling funds, embezzlement and bribery funds, criminal funds for disrupting financial management order, and financial fraud crime funds. According to lawyer Shao Shiwei, funds involving these 7 types will be more closely related to money laundering, while other sources of funds that are not included in the above will be judged as concealment crimes. If both are involved, there will be a conflict of laws, and there is a greater chance of being subject to the heavier criminal law.
Among the seven types of funds, the last two are the most closely related to the crypto circle, which can be further divided into the crimes of illegally absorbing public deposits, fundraising fraud, and embezzlement and bribery. These three are precisely the funds that OTC practitioners are most likely to come into contact with. If OTC merchants are suspected of transactions with such funds, such as in common U-exit scenarios, they may inadvertently become part of money laundering.
It is based on this context that OTC merchants will be forced to strengthen their review obligations and conduct stricter screening of the source of funds. On the other hand, OTC merchants are not judicial organs, and it is understandable that it is difficult to detect the stolen money in the existing data. How to define the "knowing or should know" in the crime of money laundering and the crime of concealing the proceeds of crime in my country's criminal law becomes extremely critical, because whether it is money laundering or concealing the crime, it must be required that the merchant "knows or should know" that the upstream funds are the proceeds of crime.
Article 3 of the interpretation clause stipulates that "a comprehensive review and judgment should be made based on the information the perpetrator has accessed and received, the circumstances of handling the proceeds of crime of others and their proceeds, the types and amounts of the proceeds of crime and their proceeds, the methods of transferring and converting the proceeds of crime and their proceeds, abnormal circumstances such as trading behaviors and financial accounts, the perpetrator's professional experience, his relationship with upstream criminals, his confession and defense, the testimony of co-defendants and witnesses, etc." It is not difficult to see that the provision is actually comprehensive and subjective judgment also exists, which inevitably increases the transaction risks of OTC merchants.
In actual cases, there are precedents of OTC merchants receiving stolen money, helping others, concealing, defrauding, and even opening casinos, and "subjective knowledge" plays an important role in this. If the merchant has completed the most comprehensive review obligations that match personal cognition, it can even be judged as a third party in good faith to make a presumption of innocence, but if it involves a case, there are still many details that need to be paid attention to.
So what should OTC merchants and OTC users do? Lawyer Xiao Sa from Beijing Dacheng Law Firm made four suggestions. First, keep a record of the source of funds for cryptocurrency trading; second, keep a record of users' purchase and sale of encrypted assets on the platform; third, relevant records must be kept consistent and the capital chain must be complete; finally, if it is not necessary, the frequency of OTC can be reduced, and only choose reliable channels to issue coins when necessary.
Overall, the inclusion of virtual assets in the Money Laundering Law reflects the focus of my country's regulatory authorities on virtual currencies, which focuses on core issues such as fraud, money laundering and capital flight. On the other hand, it can be seen that my country's regulation of virtual currencies is still very consistent, with consistent policy tightness and a trend towards tightening.
Interestingly, in recent months, as Hong Kong's policies have gradually been relaxed, rumors have suddenly spread overseas, claiming that my country will loosen its supervision of virtual assets and lift the ban on Bitcoin. On July 14, Galaxy Digital CEO Mike Novogratz mentioned in a tweet that he had heard reports that China might lift the ban on Bitcoin by the end of 2024, and replied, "If this is true, and this is the second time I've heard this news in a few weeks, it would be a big deal." The tweet has now been deleted.
Just recently, on August 18, Justin Sun tweeted again, "China lifts the ban on cryptocurrencies. What is the best MEME for this?" This also led various media to start spreading this speculation.
This judicial interpretation has refuted the rumors. In the foreseeable future, my country will not change its regulatory attitude towards this matter, and will even further improve the necessary regulatory rules. Although it is not illegal for Chinese residents to hold virtual currencies, various transactions involving virtual currencies will still be subject to heavy supervision. From the regulatory focus, we can also understand that the risk of capital flight is difficult to limit, and cryptocurrencies have become a breeding ground for fraud due to anonymity. As long as these two cannot be resolved, it will be difficult for my country to make a big turnaround in its attitude towards virtual currencies.
This can also be seen from the reports of mainstream media. Most of the reports of mainstream media in my country on this direction are focused on Bitcoin speculation and risk warnings, which indirectly reflects the attitude of the top leaders. Even if Hong Kong gradually relaxes its restrictions, virtual currencies still have difficulty entering the mainstream mainland, and mainland users cannot buy virtual currency ETFs.
For the cryptocurrency community, it may be wise to abandon the Chinese mainland-style fantasy of virtual currency.
References:
Liu Yang, deputy secretary-general of the National Criminal Committee of Beijing Deheng Law Firm: A brief analysis of the new judicial interpretation of money laundering from the perspective of defense;
Lawyer Shao Shiwei: Trading in "virtual assets" is listed as a method of money laundering;
Lawyer Liu Honglin: Web3 Lawyer: Is trading virtual currency money laundering? Nonsense;
Xiao Sa: What does the official announcement of "virtual asset trading" as a crime mean for the cryptocurrency community?
Liu Lei’s Lawyer Team: Understand in one article: What is the impact of the Supreme People’s Court and the Supreme People’s Procuratorate’s judicial interpretation on “money laundering” on the cryptocurrency OTC market?
