On August 19, 2024, the Supreme People's Court and the Supreme People's Procuratorate issued new judicial interpretations on money laundering (click to view). Article 5, paragraph (6) states that the transfer or conversion of criminal proceeds and their benefits through 'virtual assets' and financial asset exchange methods will be considered money laundering; this means that in the future, laundering money through USDT and other virtual currencies will be classified as money laundering.

For players in the cryptocurrency space, what does it mean that personal buying and selling of USDT and other cryptocurrencies, especially for OTC merchants, has become one of the ways to launder money?

First: The most affected is OTC, where risks have intensified! Personal trading of USDT and BTC has less impact. Holding USDT and BTC is unaffected!

Answer: The OTC trading model determines that there are significant risks of frozen accounts and criminal liability. Common charges include aiding and abetting, concealing, and illegal business operations, and subsequently, money laundering will become a frequent occurrence.

Trading USDT and BTC as personal investments, withdrawing from exchanges, and conducting proper reviews generally only expose one to the risk of frozen accounts, with little criminal risk. Personal holdings of virtual currencies are also unaffected.

Answer: Virtual currency transactions are not illegal; they are normal trading activities. Currently, there are three main regulatory documents regarding virtual currency: the notice issued by the People's Bank of China and other departments on December 5, 2013 (on preventing Bitcoin risks), the announcement issued by the People's Bank of China and seven ministries on September 4, 2017 (on preventing risks related to token issuance and financing), and the notice jointly issued by the People's Bank of China and ten ministries on September 24, 2021 (on further preventing and dealing with risks in virtual currency trading speculation). None of these three documents state that virtual currency transactions are illegal; where there is no prohibition, there is freedom. Money laundering is merely emphasized as a potential use; virtual currency is one of the tools for money laundering.

There is no one-size-fits-all approach; to constitute the crime of money laundering, two conditions must be met. First, objectively, the funds must come from the upstream of money laundering crimes, such as concealing or hiding drug crimes, organized crime of a mafia nature, terrorist activities, smuggling crimes, corruption and bribery crimes, crimes disrupting financial management order, and financial fraud crimes. Merely receiving the aforementioned funds does not constitute money laundering. Second, subjectively, there must be knowledge or presumed knowledge of the nature of the received funds. Both conditions are necessary. That is, receiving the aforementioned funds + subjective knowledge.

Fourth: What does subjective knowledge mean? If a suspect does not admit to anything and there are no clear chat records, can judicial authorities convict them?

They can be convicted. The judicial interpretation of money laundering in Article 3 clarifies that the determination of 'knowing or should have known' should be based on the information the actor has been exposed to, the situation of the criminal proceeds and their benefits received, the types and amounts of the criminal proceeds and their benefits, the methods of transfer and conversion, unusual transaction behaviors, funding accounts, etc., combined with the actor's professional experience, relationship with upstream criminals, their testimony and defenses, as well as the testimony of co-defendants and witnesses for a comprehensive review and judgment. Evidence proving that the actor truly did not know is an exception. Like aiding and abetting and concealing charges, presumptive rules are also applied, in addition to direct evidence such as chat records.

Fifth: What buying and selling behaviors of USDT will be classified as money laundering?

Example: Zhang San has been trading USDT for the past two years at an exchange. One day, he was introduced to Li Si through a friend. Li Si then introduced him to a so-called big shot, Wang Wu, who told Zhang San that he is the boss of a certain company in China and wants to allocate virtual currency. The two parties communicated about transactions through an overseas encrypted chat app, setting the price difference at 0.3 yuan per USDT. Wang Wu indicated that he wanted to pay in cash offline, and they agreed to meet in a certain location in China for a hand-to-hand exchange of USDT for cash. Afterward, the funds paid by Wang Wu turned out to be funds from corruption and bribery. In this case, objectively, the funds Zhang San received from selling coins are one of the seven types of funds related to money laundering. Subjectively, although Wang Wu did not explicitly inform Zhang San that the nature of the funds was corruption and bribery, given the unusual transaction model, abnormal pricing, failure to fulfill review obligations, and Zhang San's time in virtual currency trading and experience, Zhang San could deduce that the so-called big shot had 'problems with both the person and the money.' Consequently, Zhang San's action of selling USDT and withdrawing funds would be presumed by judicial authorities to be knowingly involved, thereby constituting money laundering. Of course, if the evidence does not sufficiently presume knowledge that the funds are from corruption and bribery, it might instead be recognized as aiding and abetting or other charges.

Sixth: Players in the cryptocurrency space have greater review obligations and need to protect themselves more!

Answer: Players in the cryptocurrency space must avoid receiving funds from fraudulent activities, online gambling, currency exchange, as well as avoiding funds from corruption, fundraising fraud, and illegal collection. They should also inquire about the other party's purpose for buying USDT and the source of the funds, and keep transaction records for tracing.