Attorney Shao Shiwei | Three Practical Issues in the Judicial Disposition of Virtual Currencies: Insights from the Shanghai High People’s Court Guidelines on Enforcement Involving Virtual Currencies

Virtual assets involved in cases are often disposed of by public security organs in advance during the investigation stage

In criminal cases involving virtual assets, it is common for public security organs to dispose of the virtual assets involved during the investigation stage. The usual justifications are significant price volatility, high difficulty in custody, and the need to liquidate the assets to provide restitution to victims.

The problem with this approach is that the virtual assets involved are disposed of in advance before a court has adjudicated guilt and before the amount involved has been determined.

At this stage, the case remains in the initial phase of criminal proceedings. It has not yet been determined whether the conduct constitutes a crime or what specific charge applies; it also remains unclear whether the virtual assets involved should be characterized as illegal proceeds or lawful property, and whether they meet the threshold for prosecution; relevant evidence is still being collected and verified.

Disposing of virtual assets at this stage essentially amounts to a substantive disposition of property that has not yet undergone complete legal evaluation.

More critically, such disposition is irreversible: once virtual assets are liquidated, it is difficult to reverse the transaction. If the outcome of the case changes—for example, if the conduct is found not to constitute a crime—the disposed virtual assets cannot be restored to their original state.

Meanwhile, in some cases handled by Attorney Shao, it can be observed that the judicial evaluation of the case is in fact influenced by prior disposition outcomes: even where there is controversy over whether the conduct constitutes a crime, the scope for an acquittal is significantly constrained when the property involved has already been disposed of. Attorney Shao has previously discussed this issue in his article titled “Public Security Organs Should Not Dispose of Virtual Assets Involved in Cases Without a Court Judgment!discussed in the article.

The limitation of the Guidelines issued on this occasion lies in the following:

First, they only regulate the enforcement stage and fail to address the widespread issue of premature disposition during the investigation stage;

Second, even at the enforcement stage, the Guidelines do not address the core issue of “irreversibility after disposition”—there are still no clear rules on how to return property that has already been disposed of in cases where the investigation is dismissed, prosecution is declined, or an acquittal is declared.

Inconsistent Disposition Methods and Valuation Standards Directly Affect the Determination of Conviction Amounts

1. In specific cases, the methods for disposing of virtual assets involved are not uniform.

From law enforcement practice, public security organs have adopted various approaches to dispose of virtual assets: some liquidate them directly through over-the-counter (OTC) channels with USDT dealers; others process them via overseas exchanges; some engage third-party institutions to handle the operations; and in certain cases, the parties involved are allowed to dispose of and liquidate the assets themselves;

From a procedural perspective, in some cases approval procedures were fulfilled and written records were created, while in others there was only a brief "statement of circumstances" providing a simple account of the disposal process.

Currently, it has become relatively common for public security organs to engage third-party institutions to participate in asset disposal. In practice, such institutions often intervene under the guise of "technical services" or "disposal assistance," with fee structures varying significantly; in some cases, disposal costs reach 15% to 30% of the amount involved in the case. Given that the amounts involved in such cases often range from tens of millions to hundreds of millions of yuan, this implies substantial disposal costs.

According to Reuters, a certain technology company in Shenzhen has, since 2018, disposed of more than RMB 3 billion worth of crypto assets on behalf of governments in various regions. However, as things stand, such third parties are not the subjects authorized to carry out judicial disposal, and their qualification standards, access conditions, and boundaries of liability remain unclear.

2. Compared with the diversification of disposal pathways and the lack of uniform norms,the valuation of virtual currenciespresents even more prominent issues.

Based on Attorney Shao’s communications with law enforcement personnel across various regions nationwide, the valuation standards for the same cryptocurrency differ from case to case: some adopt the price on the date of seizure, others calculate based on the actual realized sale price, some refer to the price at the time the offense occurred, and still others use the purchaser’s acquisition cost as the basis. The sources of price data are also inconsistent, potentially derived from average exchange prices, specific transaction prices, third-party quotations, or even internally determined figures.

There is also a lack of uniform standards regarding timing. Some assets are disposed of immediately after seizure, while others are delayed by several months or even longer. Differences in the timing of disposal often lead to significant discrepancies in the benchmark prices used for valuation.

In determining reference prices, the absence of uniform rules has resulted in instances where prices are set either excessively high or low. Once a price is adopted, it directly determines the recognized amount involved in the case, thereby influencing the determination of guilt and sentencing outcomes.

In response to the aforementioned issues, Article 18 of the Guidelines attempts to establish a price-determination mechanism through a pathway of "market price – negotiated price – inquiry – appraisal," and introduces rules such as "reference prices provided by network service providers" and "online transaction prices" to provide a framework for price determination.

However, from the perspective of practical implementation, core issues remain unresolved: the relationship between the price used for conviction and the actual disposal price is not clarified; key concepts such as "market price" and "online transaction price" lack specific definitions; and the applicable standards for procedures such as auction and variable-price sale have not been detailed.

Meanwhile, clear remedies remain lacking in situations where the parties do not accept the determined valuation.

Collaboration with overseas exchanges lacks a regulatory framework, and enforcement remains at the stage of "freezable but difficult to transfer."

In a large number of cases, the virtual assets involved are actually stored in accounts on overseas centralized exchanges. However, based on current enforcement practices, judicial authorities' ability to investigate and control such assets remains limited.

Practical experience shows that if the defendant cooperates, the relevant assets can be disposed of by transferring them to designated accounts; however, where the defendant does not cooperate, typically only account freezing can be achieved, while direct transfer of virtual assets is difficult.

Regarding this issue, Attorney Shao previously authored an article specifically discussing it in related cases he handled (➡️ "Can Virtual Assets Frozen by Judicial Authorities Be Enforced Against a Party Who Refuses to Cooperate?》）。

From a technical perspective, Chinese judicial authorities can achieve account freezing by issuing letters or requests for assistance, but they cannot directly enforce mandatory deductions from overseas exchanges. From a legal perspective, overseas exchanges are not directly subject to Chinese judicial jurisdiction; their level of cooperation depends on their own compliance policies, mutual legal assistance arrangements, and their recognition of the authority or credentials of the requesting entity.

However, in practice, there are a series of more specific issues. For example, there is a lack of stable identity verification and trust mechanisms with overseas exchanges, and external communication channels are not unified. There are also concerns regarding information leakage when submitting law enforcement materials. Once an exchange refuses to cooperate or the response cycle is excessively long, there is no clear contingency plan.

Although the Guidelines do not directly prescribe collaboration mechanisms with overseas exchanges, Articles 17, 20, and 22 leave some room for the pathway of "domestic entrustment, overseas disposal, and closed-loop repatriation." This model has a practical foundation in individual cases. For instance, prior to the issuance of the Guidelines, the Shanghai Baoshan District People's Court successfully used this model to dispose of over 90,000 FIL tokens.

However, from a regulatory perspective, "overseas disposal" has not formed an operable institutional arrangement. For example, the selection criteria for overseas exchanges, approval procedures for disposal, qualification requirements for third-party institutions, and rules for determining overseas transaction prices remain unclear.

For scenarios where enforcement fails, such as when an overseas exchange refuses to cooperate, responds with delay, or when price anomalies or asset risks arise during the transaction process, corresponding remedial pathways and liability assumption mechanisms have not been prescribed.

Furthermore, although Article 22 of the Guidelines sets forth principled requirements for foreign exchange management, it does not detail specific operational procedures. In practice, the approval pathways, documentation requirements, and timelines for cross-border fund repatriation still heavily rely on case-by-case coordination.

Against this backdrop, the disposal of assets held in overseas exchanges still primarily relies on the defendant's cooperation and case-specific operational experience, without forming a stable and predictable enforcement mechanism.

Conclusion

From the perspective of the enforcement procedure itself, the Guidelines provide relatively clear arrangements for the seizure and custody of virtual assets, which holds practical significance at the current stage.

However, based on actual case-handling practices, the judicial disposal of virtual assets often does not occur during the enforcement stage, but is instead sold off and disposed of during the criminal proceedings.

Under this premise, merely improving rules at the enforcement level is insufficient to address the core issues in practice. The resolution of these issues still depends on establishing corresponding rules at the earlier disposal stages.