If you are going to play it this way, I am fully awake and attentive.

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 came into effect on August 20, 2024. This judicial interpretation explicitly includes virtual asset transactions within the scope of money laundering activities, sparking widespread discussion.

However, virtual currency transactions are not equivalent to money laundering, nor does it mean that all virtual currency transaction activities constitute criminal offenses. This article provides a detailed analysis of the impact of this judicial interpretation on domestic virtual asset transactions and explores its relationship with the Anti-Money Laundering Law, which is slated for revision. At the same time, we remind media outlets to exercise caution when reporting on such policies to avoid causing unnecessary panic.

 

Virtual Currency Transactions Are Not Categorically Deemed Money Laundering

First, virtual currency transactions are not equivalent to money laundering, let alone criminal offenses. Article 5 of the Interpretation on Several Issues Concerning the Application of Law in Handling Criminal Cases of Money Laundering, issued by the Supreme People’s Court and the Supreme People’s Procuratorate, lists transactions involving “virtual assets” as one of the methods of money laundering used to conceal or disguise the proceeds and gains from seven categories of upstream crimes. The original text states: “Article 5: Where any of the following acts is committed to conceal or disguise the source and nature of the proceeds and gains derived from the upstream crimes specified in Article 191 of the Criminal Law, such act may be deemed as ‘concealing or disguising the source and nature of criminal proceeds and gains by other means’ as stipulated in Item 5, Paragraph 1 of Article 191 of the Criminal Law: … (6) Transferring or converting criminal proceeds and gains through ‘virtual asset’ transactions or financial asset exchanges.”

Due to the less accessible nature of legal language, many individuals who are not fully informed may mistakenly believe that: (1) trading virtual currencies constitutes money laundering; and (2) trading virtual currencies in China is illegal. Such understanding is partial and incorrect.

I will use a simple formula to facilitate understanding.

If A + B = C

A refers to transferring or converting through virtual asset transactions or financial asset exchanges

B refers to the transfer or conversion of criminal proceeds and gains

C may be deemed as ‘concealing or disguising the source and nature of criminal proceeds and gains by other means’

Therefore, A (virtual asset transactions) does not directly equal C (money laundering); rather, it is only when A occurs simultaneously with B (the transfer or conversion of criminal proceeds) that the activity is deemed money laundering. Thus, the view that all virtual currency transactions are equivalent to money laundering is incorrect.

The issuance of the Judicial Interpretation by the Supreme People's Court and the Supreme People's Procuratorate takes into account the frequent use of virtual assets in money laundering crimes. To facilitate judicial adjudication in individual cases, it provides explicit enumerations. However, this does not mean that all virtual asset trading activities within mainland China constitute money laundering. When reporting on such judicial interpretations or policy documents, media outlets should maintain an objective and prudent attitude, avoiding the creation of panic through one-sided interpretations or sensational headlines.

 

Will this Judicial Interpretation affect the regulatory policy on virtual assets in mainland China?

The issuance of this Judicial Interpretation will not change the basic regulatory policy regarding virtual asset trading in mainland China. China’s policy on virtual assets has undergone multiple adjustments and evolutions. The following are some key milestones and their core content:

• In December 2013, the People's Bank of China and four other ministries and commissions issued the Notice on Preventing Bitcoin Risks.This was the first time China explicitly stated that Bitcoin is not legal tender and emphasized that financial institutions must not engage in Bitcoin-related businesses. This document laid the foundation for the initial regulation of virtual assets in China, warning against financial risks.
• In September 2017, the People's Bank of China and six other ministries and commissions jointly issued the Announcement on Preventing Risks Associated with Token Issuance and Financing.The announcement comprehensively prohibited Initial Coin Offering (ICO) activities, explicitly stating that various token issuance and financing activities were suspected of involving illegal fundraising, illegal issuance of securities, and illegal sale of token vouchers. This measure directly led to the closure of numerous domestic virtual asset trading platforms at the time.
• In September 2017, the People's Bank of China and other departments required the closure of domestic virtual asset exchanges.Under the influence of this policy, all domestic virtual asset exchanges were forced to close or relocate their operations overseas, marking a comprehensive ban on virtual asset trading in China. A large number of exchanges chose to transfer their businesses to Hong Kong or other countries to evade regulatory oversight in mainland China.
• In May 2021, the Financial Stability and Development Committee of the State Council of China reiterated its crackdown on Bitcoin mining and trading activities.This policy further clarified China’s strict regulatory stance on virtual assets, leading to the closure of a large number of mining farms, with some relocating overseas.
• In September 2021, the People's Bank of China and nine other departments jointly issued the Notice on Further Preventing and Disposing of Risks Associated with Virtual Asset Trading and Speculation.The Notice reiterates the illegality of activities related to virtual currencies, further clarifies the comprehensive prohibition on virtual currency trading and mining, and completely blocks all domestic trading channels for virtual currencies. This document represents a further strengthening of prior policies, ensuring the "exit" of virtual currencies from the Chinese market.

It is worth noting that mainland China has not yet explicitly prohibited individual citizens from holding and trading virtual currencies. Therefore, the act of individuals holding and trading virtual currencies domestically will not, in itself, be deemed criminal due to the issuance of this judicial interpretation. The role of this judicial interpretation is primarily to provide clearer legal basis for law enforcement agencies in adjudicating individual cases, targeting specific criminal conduct for punishment, rather than cracking down on all virtual currency trading activities.

 

Relationship between this Judicial Interpretation and the Major Revision of the Anti-Money Laundering Law

According to information released at yesterday’s press conference by the Supreme People’s Court and the Supreme People’s Procuratorate, the number of criminal cases involving money laundering in China continues to rise. Over the past three years, courts nationwide concluded first-instance trials in 2,406 criminal cases involving 2,978 defendants for the crime of money laundering (Article 191 of the Criminal Law). Specifically: in 2021, 499 cases involving 552 defendants were concluded; in 2022, 697 cases involving 834 defendants were concluded; in 2023, 861 cases involving 1,019 defendants were concluded; and from January to June 2024, 349 cases involving 573 defendants were concluded. Following the amendment to the provisions on the crime of money laundering in the Criminal Law, the number of cases increased significantly by 153.3% in 2021, and rose year-on-year by 39.7% in 2022 and 23.5% in 2023.

Furthermore, according to the “2022 Research Report on Trends in Blockchain and Virtual Currency Crimes” published by Zhifan Technology, in terms of case volume, fraud and money laundering cases involving virtual currencies ranked first in 2022, accounting for 30.5% of the total, far exceeding other types. In terms of the amount involved, fraud and money laundering cases ranked second, accounting for 22.5%. Thus, it is evident that fraud and money laundering constitute the majority of cryptocurrency-related criminal cases, both in terms of case volume and the amounts involved.

In recent years, the momentum of using traditional money laundering models to "launder" proceeds from various illegal and criminal activities has been effectively curbed. To evade crackdowns, criminals have turned to using more concealed and convenient "virtual assets" as vehicles to "clean" illicit funds. Virtual assets, emerging against the backdrop of blockchain technology, possess characteristics such as decentralization, anonymity, global circulation, and algorithmic encryption that makes regulation difficult. They have become the primary payment and settlement channels in various forms of crime, including online gambling, telecom fraud, and online pyramid schemes.

To address the root cause, regarding China’s anti-money laundering efforts elevated to the level of national security, the most urgent issue necessitating resolution at the legal level is money laundering involving virtual assets. This is also why virtual currencies are a key focus of the first major revision of the Anti-Money Laundering Law. Previously, Attorney Hong Lin authored the article “First Major Revision of the Anti-Money Laundering Law: Virtual Currencies Are the Focus,” which specifically discusses this matter; interested readers may refer to it for further reading. Through this revision and the issuance of the judicial interpretation, money laundering activities related to virtual assets have received clearer legal definitions and enforcement measures. The relationship between the revised Anti-Money Laundering Law and the judicial interpretation on money laundering under the Criminal Law can be briefly understood through the following points:

• Different Levels of Legal Authority:The Anti-Money Laundering Law is a substantive law specifically enacted in China, primarily regulating anti-money laundering obligations of financial institutions and other industries, and establishing relevant administrative penalties. In contrast, the judicial interpretation on the Criminal Law issued by the Supreme People’s Court and the Supreme People’s Procuratorate constitutes a judicial interpretation, aimed at interpreting and specifying the application of provisions within the Criminal Law.
• Different Regulatory Targets:The Anti-Money Laundering Law primarily 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. In contrast, the judicial interpretation under the Criminal Law targets specific criminal acts, clarifying which behaviors constitute crimes and how they should be convicted and sentenced through the interpretation of Criminal Law provisions.
• Mutually Complementary:The Anti-Money Laundering Law prescribes measures for the prevention and monitoring of money laundering activities. However, if such measures fail to effectively prevent the occurrence of money laundering, the Criminal Law and its judicial interpretations will intervene to impose penalties on specific criminal acts of money laundering. Accordingly, the judicial interpretations of the Criminal Law serve a punitive function building upon the Anti-Money Laundering Law; the two instruments are complementary and jointly safeguard the national financial order. Where conduct violates the Anti-Money Laundering Law, it will first be subject to administrative penalties. If such conduct simultaneously constitutes a crime under the Criminal Law, such as the offense of money laundering, judicial authorities will pursue criminal liability in accordance with the Criminal Law and its judicial interpretations. Thus, during implementation, the Anti-Money Laundering Law and the judicial interpretations of the Criminal Law are coordinated to regulate unlawful conduct at different levels.

In summary, the two instruments together constitute the legal framework for anti-money laundering, with one focusing on prevention and monitoring and the other on the conviction and punishment of criminal conduct.

 

Summary

In light of the foregoing, the issuance of the Interpretation of the Supreme People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Application of Law in the Handling of Criminal Cases of Money Laundering will not comprehensively change China's regulatory policy on virtual currency transactions. However, it clarifies the legal standards under which virtual asset transactions may constitute money laundering crimes in certain circumstances. Meanwhile, this judicial interpretation forms an organic synergy with the amendments to the Anti-Money Laundering Law, jointly establishing China's legal defense against money laundering crimes involving virtual assets. When reporting on such policies, media outlets should exercise caution to avoid causing unnecessary panic and to ensure the healthy development of the market.

 

Special Disclaimer:

This article is an original work of Mankun Law Firm. It reflects only the personal views of the author and does not constitute legal consultation or legal advice on any specific matter.

 

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