Authored by: Lawyer Liu Honglin, ManKun Law Firm, Shanghai
On August 19, 2024, the Supreme People's Court and the Supreme People's Procuratorate jointly held a press conference to release the "Interpretation on Several Issues Concerning the Application of Law in Handling Criminal Cases of Money Laundering" (hereinafter referred to as the "Interpretation"). The "Interpretation" will come into effect on August 20, 2024. This judicial interpretation explicitly includes virtual asset transactions in the category of money laundering, sparking widespread discussion.
However, virtual currency trading does not equate to money laundering, let alone mean that all virtual currency trading activities constitute a crime. This article will provide a detailed analysis of the impact of this judicial interpretation on domestic virtual asset trading and explore its relationship with the upcoming revision of the "Anti-Money Laundering Law." At the same time, it reminds the media to maintain a cautious approach when reporting on such policies to avoid causing unnecessary panic.
Virtual Currency Trading is Not Automatically Considered Money Laundering
Firstly, virtual currency trading does not equate to money laundering, let alone constitute a criminal offense. Article 5 of the "Interpretation" issued by the two highest judicial authorities lists "virtual asset" transactions as one of the methods of money laundering to conceal and disguise the proceeds and gains of seven upstream crimes specified in Article 191 of the Criminal Law. The original text states: Article 5: If one of the following acts is committed to conceal or disguise the proceeds and gains of the upstream crimes specified in Article 191 of the Criminal Law and their sources and nature, it may be deemed as "concealing or disguising the proceeds and gains of crimes by other means" as stipulated in the first paragraph of Article 191, including: … (6) transferring or converting the proceeds and gains of crimes through "virtual asset" transactions or financial asset exchange methods.
Because the legal language is not so easily understood, many uninformed individuals may mistakenly understand that: (1) trading virtual currency is money laundering; (2) trading virtual currency in China is illegal. Such understanding is actually one-sided and incorrect.
I will use a simple formula to help everyone understand.
If A + B = C
A represents the transfer of proceeds and gains of crimes through virtual asset transactions or financial asset exchange methods
B represents the transfer or conversion of proceeds and gains of crimes
C can be deemed as "concealing or disguising the proceeds and gains of crimes by other means"
Therefore, A (virtual asset transactions) does not directly equate to C (money laundering). It is only when A and B (the transfer or conversion of criminal proceeds) occur simultaneously that it will be deemed as money laundering. Therefore, the view that all virtual currency trading is equivalent to money laundering is incorrect.
The issuance of this judicial interpretation by the two highest judicial authorities is to facilitate the judicial adjudication of cases where virtual currency is frequently used for money laundering crimes, providing clear enumeration for the convenience of judicial adjudication in individual cases. However, this does not mean that all virtual currency trading activities in mainland China constitute money laundering. When reporting on similar judicial interpretations or policy documents, the media should maintain an objective and cautious attitude to avoid creating panic based solely on one-sided interpretations or attention-grabbing headlines.
Will this Judicial Interpretation Affect China's Mainland Virtual Currency Regulatory Policies?
The issuance of this judicial interpretation will not change China's basic regulatory policies regarding virtual currency trading in the mainland. China's virtual currency policy has undergone multiple adjustments and evolutions over the years. Here are some key milestones and core contents:
In December 2013, the People's Bank of China and five other ministries issued the "Notice on Preventing Risks of Bitcoin." This was the first time China explicitly stated that Bitcoin is not legal tender and emphasized that financial institutions are not allowed to engage in business related to Bitcoin. This document laid the foundation for China's initial regulation of virtual currency, warning against financial risks.
In September 2017, the People's Bank of China and seven other ministries jointly issued the "Announcement on Preventing Risks of Token Issuance Financing." This announcement comprehensively banned ICO (Initial Coin Offering) activities, explicitly stating that various token issuance financing activities were suspected of illegal fundraising, illegal issuance of securities, and illegal sale of token vouchers. This measure directly led to the closure of many domestic virtual currency trading platforms at the time.
In September 2017, the People's Bank of China and other departments required the closure of domestic virtual currency exchanges. Under the influence of this policy, all domestic virtual currency exchanges were forced to close or relocate their operations overseas, marking a comprehensive ban on virtual currency trading in China. Many exchanges chose to transfer their operations to Hong Kong or other countries to evade mainland China's regulation.
In May 2021, the Financial Stability and Development Committee of the State Council reiterated the crackdown on Bitcoin mining and trading activities. This policy further clarified China's strong regulatory stance on virtual currency, leading to the closure of numerous mining farms, with some relocating overseas.
In September 2021, the People's Bank of China and ten other departments jointly issued the "Notice on Further Preventing and Dealing with the Risks of Speculation in Virtual Currency Trading." This notice once again emphasized the illegality of virtual currency-related activities, further clarifying the comprehensive ban on virtual currency trading and mining, completely blocking all trading channels for virtual currency in the domestic market. This document further strengthened previous policies, ensuring the "exit" of virtual currency from the Chinese market.
It is worth noting that mainland China has not explicitly prohibited individuals from holding and trading virtual currency to this day. Therefore, the act of individuals holding and trading virtual currency in the mainland itself will not be deemed a crime due to the issuance of this judicial interpretation. The role of this judicial interpretation is to provide law enforcement agencies with clearer legal basis for adjudication in individual cases and to punish specific criminal behaviors related to virtual currency trading, rather than to crack down on all virtual currency trading activities.
The Relationship between this Judicial Interpretation and the Major Revision of the "Anti-Money Laundering Law"
According to the information released at the press conference of the two highest judicial authorities yesterday, the number of criminal cases of money laundering in China has been continuously increasing. In the past three years, the first-instance courts nationwide have concluded a total of 2,406 cases involving 2,978 individuals for the crime of money laundering (Article 191 of the Criminal Law), including: 499 cases involving 552 individuals concluded in 2021, 697 cases involving 834 individuals concluded in 2022, 861 cases involving 1,019 individuals concluded in 2023, and 349 cases involving 573 individuals concluded from January to June 2024. After the revision of the criminal law provisions on money laundering, the number of cases increased significantly by 153.3% in 2021, and by 39.7% and 23.5% in 2022 and 2023, respectively.
According to the "2022 Research Report on Blockchain and Virtual Currency Crime Trends" released by ZhiFan Technology, in terms of the number of cases, the number of cases involving fraud and money laundering using virtual currency ranked first in 2022, accounting for 30.5% of the total, far higher than other types. In terms of the amount involved, cases of fraud and money laundering ranked second, accounting for 22.5%. It can be seen that in terms of both the number of cases and the amount involved, fraud and money laundering occupy a large proportion in cases involving virtual currency-related crimes.
In recent years, the momentum of various illegal gains seeking "whitewashing" through traditional money laundering methods has been effectively curbed. To evade crackdowns, criminals have turned to using the more concealed and convenient "virtual currency" as a means to launder illegal gains. Virtual currency generated under the background of blockchain technology possesses characteristics such as decentralization, anonymity, global circulation, and algorithmic encryption that are difficult to regulate, and has played a major role as a payment and settlement channel in various forms of crimes such as online gambling, telecommunications fraud, and pyramid schemes.
To catch the thieves, especially in the context of the rising national security concerns of China's anti-money laundering efforts, the most urgent and necessary issue to be addressed at the legal level is the problem of money laundering involving virtual assets. This is also the reason why virtual currency is a key focus of the major revision of the "Anti-Money Laundering Law." Previously, Lawyer Honglin wrote an article titled "Virtual Currency is the Key Focus of the Major Revision of the Anti-Money Laundering Law" specifically discussing this matter, and interested individuals can read further on this topic. Through the issuance of this revision and the judicial interpretation, money laundering activities related to virtual assets have received a clearer legal definition and means of punishment. The relationship between the revised "Anti-Money Laundering Law" and the judicial interpretation of money laundering in the Criminal Law can be understood simply through the following points:
Different Legal Levels: The "Anti-Money Laundering Law" is a substantive law specifically enacted in China, mainly regulating the anti-money laundering obligations of financial institutions and other industries, and establishing relevant administrative penalty measures. The judicial interpretation of the Criminal Law issued by the two highest judicial authorities belongs to judicial interpretation, aiming to interpret and specifically apply the articles of the Criminal Law.
Different Regulatory Targets: The "Anti-Money Laundering Law" mainly targets financial institutions and specific industries, requiring them to fulfill anti-money laundering obligations such as customer identification and reporting of suspicious transactions to prevent money laundering activities. The judicial interpretation of the Criminal Law, on the other hand, targets specific criminal behaviors, clarifying which behaviors constitute crimes and how to determine guilt and sentencing through the interpretation of the articles of the Criminal Law.
Complementary to Each Other: The "Anti-Money Laundering Law" stipulates measures to prevent and monitor money laundering activities. However, if these measures fail to effectively prevent money laundering activities, the Criminal Law and its judicial interpretation will intervene to punish specific money laundering criminal behaviors. Therefore, the judicial interpretation of the Criminal Law plays a role in punishing crimes based on the foundation of the "Anti-Money Laundering Law." The two complement each other and jointly maintain the country's financial order. If an action violates the "Anti-Money Laundering Law," it will first face administrative penalties. If the same action also constitutes a criminal offense under the Criminal Law, such as money laundering, judicial authorities will pursue criminal liability based on the Criminal Law and its judicial interpretation. Therefore, the "Anti-Money Laundering Law" and the judicial interpretation of the Criminal Law coordinate with each other in the implementation process to regulate illegal behaviors at different levels.
In summary, they together constitute the legal system for anti-money laundering, with one focusing on prevention and monitoring, and the other focusing on the conviction and punishment of criminal behaviors.
Conclusion
In conclusion, the issuance of the joint judicial interpretation by the two highest judicial authorities on the handling of criminal cases of money laundering will not comprehensively change China's regulatory policies on virtual currency trading. However, it clarifies the legal standards under which virtual asset transactions may constitute money laundering crimes in specific circumstances. At the same time, this judicial interpretation, along with the revision of the "Anti-Money Laundering Law," forms an organic synergy, jointly building China's legal defense against combating money laundering crimes involving virtual assets. When reporting on such policies, the media should exercise caution to avoid causing unnecessary panic and ensure the healthy development of the market.
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