Rare official announcement.

Author: Liu Honglin

On June 5, the Legal Affairs Office of the Beijing Municipal Public Security Bureau published an article on its official WeChat account "Law Youth Garden," detailing the innovative "Beijing Model" of the Beijing Municipal Public Security Bureau—disposing of virtual currencies involved in cases through compliant licensed exchanges in Hong Kong, achieving a closed loop from on-chain to off-chain, which is both legal and compliant, as well as efficient and secure.

According to the article from "Law Youth Garden," the Legal Affairs Division of the Beijing Municipal Public Security Bureau, in collaboration with the Beijing Property Exchange, has explored a new channel: the public security organs first entrust the physical virtual currencies involved in cases to the Beijing Property Exchange for inspection, receipt, and transfer, and then publicly liquidate and sell them through compliant licensed exchanges in Hong Kong (such as OSL Exchange, HashKey Pro). After the transaction is completed, the funds undergo the national foreign exchange management approval procedures and are ultimately settled into a special account for case-related funds of the public security organs, remitted to the national treasury. As of now, the Beijing Property Exchange has disposed of a total of 5.468 million pieces of case-related property.

According to information shared by Beijing lawyer Liu Yang (WeChat account: Zhongben Law. Recommended to follow!), there are several key details behind this chain:

First, the First Research Institute of the Ministry of Public Security provides full technical support, with the disposal process recorded on audio and video to ensure safety and compliance. This work is specifically carried out by a wholly-owned subsidiary of the institute, Beijing Zhongtianfeng Security Protection Technology Co., Ltd.

Second, the bank cooperating with Zhongtianfeng for disposal is within the CITIC Bank system, which includes the Beijing branch of CITIC Bank, as well as CITIC Bank's Hong Kong branch, Hong Kong trust institutions, and non-bank financial institutions. The reason for involving trust institutions and other non-bank entities is that banks can only conduct interbank business and cannot directly open accounts at Hong Kong exchanges for disposal operations. Zhongtianfeng and CITIC Bank have developed a "Virtual Currency Disposal Reflow Clearing System," which has now been deployed and launched on the public security intranet and has been filed and approved by the People's Bank of China and the State Administration of Foreign Exchange.

Third, the cooperation between the Beijing Municipal Public Security Bureau and the Beijing Property Exchange is not an isolated case; for example, the Suzhou Municipal Public Security Bureau has collaborated with the local state-owned enterprise Suzhou Bida Digital Asset Service Center. This indicates that the model has strong replicability.

This "Beijing Model" addresses the longstanding issue of virtual currencies involved in cases being unable to be liquidated directly within the country and responds to the risks and challenges of cross-border disposal in judicial practice. By completing liquidation through compliant licensed exchanges in Hong Kong, coupled with strict regulatory approvals, the involved virtual currencies can "cleanly" transition from on-chain back to off-chain and smoothly enter the national treasury, which is commendable from both legal and regulatory perspectives.

However, a close reading of the operational chain of this "Beijing Model" reveals a core link: the compliant licensed exchanges in Hong Kong are the key part of this chain and the most trusted disposal scenario.

So the question arises: why can Hong Kong become an ideal landing point for this type of cross-border disposal?

Previously, lawyer Honglin discussed this topic in detail in “Mankun Lawyer | Hong Kong Cryptocurrency Exchanges, the Biggest Demand is Actually from the Mainland”, and interested friends can read further.

Overall, the local user base of the virtual asset market in Hong Kong is actually quite limited. Although the Hong Kong regulatory authorities established a virtual asset trading license system early on and allowed compliant exchanges to provide services to professional investors and even retail customers, the local market has struggled to support a complete trading ecosystem due to difficulties in opening bank accounts, insufficient understanding of virtual assets, and a limited user scale.

In theory, Hong Kong licenses can target global users, but the reality is that international users are mostly tied to platforms like Coinbase and Binance. It is easy to imagine the difficulty for Hong Kong exchanges to compete for global users. Instead of fighting for retail investors in the global market, it is better to leverage the advantages of being a "system interface" and serve those "atypical markets"—especially mainland China.

The opportunity arises from the resolute attitude of mainland China towards virtual currencies: there will not and cannot be a comprehensive opening of the virtual currency investment and public trading market to retail investors.

The core reason behind this is not just that the virtual currency market is "high risk" or "technologically immature," but rather due to a higher-level institutional arrangement—the foreign exchange management system in China. As long as the capital account remains non-freely convertible, tools like crypto assets, which inherently carry the attribute of cross-border capital flow, cannot be freely released. This is not a decision that any department can make alone, but a rigid institutional red line.

Therefore, rather than competing for retail investors, the truly smart Hong Kong exchanges should study the opportunities within the "institutional interlayer": judicial disposal and cross-border wealth management are among the most typical scenarios.

And these are precisely the biggest market opportunities for Hong Kong cryptocurrency exchanges.

In recent years, virtual currencies have appeared more frequently in criminal cases and civil and commercial disputes. Court rulings on property division and virtual currencies seized by public security all require a compliant exchange that can complete a "closed loop from on-chain to off-chain," and Hong Kong can just play such a role. It is close to the Chinese judicial system, has a mature licensing system, can be compliant, and can solve practical problems.

Due to work reasons, lawyer Honglin has participated in several judicial disposal projects involving virtual currencies and has learned about several pilot documents from provincial public security departments regarding the judicial disposal of involved cryptocurrencies. Without involving sensitive information, lawyer Honglin can provide a few examples to help everyone better understand the professionalism and complexity of this mechanism.

For example, when public security organs manage involved virtual currencies, they are required to immediately take measures such as signal jamming to disconnect the network of the involved wallets to prevent suspects from transferring assets. The involved virtual currencies must be transferred to qualified custodians to prevent others from secretly transferring funds through private keys or mnemonic phrases.

In the disposal phase, public security organs also require that non-stablecoin types be first converted into stablecoins, and then liquidated using foreign legal tender, while retaining a complete transaction list and vouchers to ensure fair pricing, traceable processes, and auditable transactions.

For involved virtual currencies located overseas, it is necessary to entrust qualified custodians or disposers abroad to assist in freezing and liquidation operations. These institutions must hold local financial regulatory licenses and meet China's compliance requirements, and can only be designated for cooperation after verification by the cybersecurity department of the Ministry of Public Security.

After the funds are liquidated, similar to the Beijing model mentioned at the beginning of this article, it is necessary to complete international balance of payments declarations and restoration declarations with the central bank and the foreign exchange administration before the funds can enter domestic accounts for settlement and disposal.

This comprehensive regulatory system ensures the legality and compliance of judicial disposal while leaving sufficient traceability and security guarantees for future audits.

The existence of such internal details not only indicates the high importance that judicial authorities place on the disposal of virtual currencies but also reflects a dual defense of national financial security and data security, further proving that the disposal of cryptocurrencies is not just a concern for the crypto community but a systematic project at the national level.

And the core hub in this project is Hong Kong.

To some extent, whether Hong Kong can become a global center for crypto finance ultimately does not depend on competing in technology or user numbers, but on whether it can continue to play the role of a "compliant intermediary" within China's institutional boundaries. After all, the Beijing model has clearly told us: in a legal and compliant judicial disposal and fund reflow system, Hong Kong's role is indispensable.

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