Written by: Liu Honglin, Attorney at Shanghai Mankiw LLP
On August 19, 2024, the Supreme People's Court and the Supreme People's Procuratorate jointly held a press conference and issued 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. The judicial interpretation clearly includes virtual asset transactions in the scope of money laundering, which has triggered widespread discussion.
However, virtual currency transactions are not equal to money laundering, nor do they mean that all virtual currency transactions constitute a crime. This article will analyze in detail the impact of this judicial interpretation on domestic virtual asset transactions and explore its relationship with the upcoming revision of the Anti-Money Laundering Law. At the same time, the media is reminded to be cautious when reporting on such policies to avoid causing unnecessary panic.
Virtual currency transactions are not considered money laundering across the board
First of all, virtual currency transactions are not equal to money laundering, let alone criminal offenses. Article 5 of the "Interpretation on Several Issues Concerning the Application of Laws in Handling Criminal Cases of Money Laundering" issued by the Supreme People's Court and the Supreme People's Procuratorate lists "virtual asset" transactions as one of the ways of money laundering to conceal seven types of upstream crimes. The original text is as follows: Article 5 Anyone who conceals or conceals the source and nature of the proceeds of the upstream crime stipulated in Article 191 of the Criminal Law and the income generated by it, and commits any of the following acts, may be deemed to have "concealed or concealed the source and nature of the proceeds of crime and its income by other means" as stipulated in Article 191, Paragraph 1, Item 5 of the Criminal Law: ... (VI) Transferring or converting the proceeds of crime and its income through "virtual asset" transactions or financial asset exchanges.
Because the legal language is not so easy to understand, many people who do not know the truth will mistakenly understand that: (1) trading virtual currencies is money laundering; (2) trading virtual currencies is illegal in China. Such understanding is actually one-sided and incorrect.
I use a simple formula to make it easier for everyone to understand.
If A + B = C
A is through virtual asset transactions and financial asset exchange
B is to transfer and convert the proceeds of crime and their benefits
C can be identified as "disguising or concealing the source and nature of the proceeds of crime and its benefits by other means"
Then, A (virtual asset transaction) is not directly equal to C (money laundering), but only when A and B (transfer or conversion of criminal proceeds) occur at the same time will it be considered as money laundering. Therefore, it is incorrect to mistakenly believe that all virtual currency transactions are equivalent to money laundering.
The two high courts issued the judicial interpretation this time in consideration of the high frequency of virtual currency being used for money laundering crimes. To facilitate the judicial trial work in individual cases, a clear list was made, but this does not mean that all virtual currency transactions in mainland China are money laundering. When reporting similar judicial interpretations or policy documents, the media should maintain an objective and prudent attitude and avoid creating panic based on one-sided interpretations or eye-catching headlines.
Will this judicial interpretation affect mainland China’s virtual currency regulatory policy?
The release of this judicial interpretation will not change the basic regulatory policy on virtual currency transactions in mainland China. China's virtual currency policy has undergone many adjustments and evolutions. The following are some of the key milestones and core contents:
In December 2013, the central bank and five other ministries and commissions issued the "Notice on Preventing Bitcoin Risks". This was the first time that China clearly stated that Bitcoin is not a legal tender and emphasized that financial institutions are not allowed to conduct Bitcoin-related business. This document laid the foundation for China's initial supervision of virtual currencies and warned of financial risks.
In September 2017, the central bank and seven other ministries jointly issued the "Notice on Preventing Risks in Token Issuance and Financing". The notice completely banned ICO (initial coin offering) activities and clearly pointed out that all types of token issuance and financing activities were suspected of illegal fundraising, illegal issuance of securities, and illegal sale of token tickets. This move directly led to the closure of many virtual currency trading platforms in China at that 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 move overseas operations, marking China's comprehensive ban on virtual currency transactions. A large number of exchanges chose to transfer their operations to Hong Kong or other countries to circumvent mainland China's supervision.
In May 2021, China's State Council Financial Stability and Development Committee reiterated its crackdown on Bitcoin mining and trading. This policy further clarified China's strong regulatory attitude towards virtual currencies, resulting in the closure of a large number of mines and the transfer of some mines overseas.
In September 2021, the central bank and ten other departments jointly issued the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation". The notice once again emphasized the illegality of virtual currency-related activities, further clarified the comprehensive ban on virtual currency trading and mining, and completely blocked all trading channels for virtual currencies in China. This document is a further strengthening of previous policies and ensures the "exit" of virtual currencies in 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 behavior of individuals holding and trading virtual currencies in China will not be considered a crime due to the issuance of this judicial interpretation. The role of this judicial interpretation is more to provide law enforcement agencies with a clearer legal basis in individual case trials and to punish specific criminal acts, rather than to crack down on all virtual currency transactions.
The relationship between this judicial interpretation and the revised Anti-Money Laundering Law
According to information from the judicial interpretation press conference of the two high courts yesterday, the number of criminal cases of money laundering in China continues to rise. In the past three years, courts across the country have concluded a total of 2,406 criminal cases of money laundering (Article 191 of the Criminal Law) at first instance involving 2,978 people, including: 499 cases involving 552 people were concluded in 2021, 697 cases involving 834 people were concluded in 2022, 861 cases involving 1,019 people were concluded in 2023; 349 cases involving 573 people were concluded from January to June 2024. After the amendment of the Criminal Law on money laundering, the number of cases in 2021 increased significantly by 153.3%, and in 2022 and 2023, the year-on-year increases were 39.7% and 23.5% respectively.
According to the "2022 Blockchain and Virtual Currency Crime Trend Research Report" released by Zhifan Technology, in terms of the number of cases, the number of cases of 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, fraud and money laundering cases ranked second, accounting for 22.5%; it can be seen that whether in terms of quantity or the amount involved, fraud and money laundering account for the majority of currency-related criminal cases.
In recent years, the trend of using traditional money laundering models to "launder" funds obtained from various types of illegal crimes has been effectively curbed. In order to evade crackdowns, criminals have turned to using more concealed and convenient "virtual currencies" as a carrier to "launder" illegally obtained funds. Virtual currencies generated based on blockchain technology have the characteristics of decentralization, anonymity, global circulation, and algorithmic encryption that is difficult to regulate. They have served as the main payment and settlement channels in various forms of crime such as online gambling, electronic fraud, and online pyramid schemes.
To catch a thief, we must first catch the leader. For China's anti-money laundering cause, which has risen to the level of national security, the most urgent and necessary issue to be addressed at the legal level is the money laundering involving virtual assets. This is also the reason why virtual currency is the focus of the first major revision of the Anti-Money Laundering Law. Previously, Lawyer Honglin wrote an article titled "The First Major Revision of the Anti-Money Laundering Law, Virtual Currency is the Focus" to talk about this matter. Interested friends can read further. Through this revision and the issuance of judicial interpretations, money laundering related to virtual assets has received clearer legal definitions and means of combating it. The relationship between the revised Anti-Money Laundering Law and the judicial interpretation of the Criminal Law on money laundering can be simply understood through the following points:
Different legal levels : The Anti-Money Laundering Law is a substantive law specially legislated in China, which mainly regulates the anti-money laundering obligations of financial institutions and other industries and establishes relevant administrative penalty measures. The judicial interpretation of the Criminal Law issued by the two high courts this time is a judicial interpretation, which aims to interpret and specifically apply the provisions of the Criminal Law.
Different regulatory objects : 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 targets specific criminal offenses, and through the interpretation of the provisions of the Criminal Law, it clarifies which behaviors constitute crimes and how to convict and sentence.
Mutual complementation : The Anti-Money Laundering Law stipulates measures to prevent and monitor money laundering, but if these measures fail to effectively prevent the occurrence of money laundering, the Criminal Law and its judicial interpretation will intervene to punish specific money laundering crimes. Therefore, the judicial interpretation of the Criminal Law plays a role in punishing crimes on the basis of the Anti-Money Laundering Law. The two complement each other and jointly maintain the national financial order. If an act violates the Anti-Money Laundering Law, it will first face administrative penalties. If the act also constitutes a crime in the sense of criminal law, such as money laundering, the judicial authorities will pursue criminal responsibility in accordance with 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 during implementation and regulate illegal acts at different levels.
In general, the two together constitute the legal system of anti-money laundering, one focusing on prevention and monitoring, and the other focusing on conviction and punishment of criminal acts.
summary
In summary, the release of the Interpretation on Several Issues Concerning the Application of Laws in Handling Criminal Cases of Money Laundering by the Supreme People's Court and the Supreme People's Procuratorate will not completely change China's regulatory policy on virtual currency transactions, but it clarifies the legal standards that virtual asset transactions may constitute money laundering crimes under certain circumstances. At the same time, this judicial interpretation forms an organic synergy with the revision of the Anti-Money Laundering Law, and together they build a legal defense line for China to combat virtual asset money laundering crimes. When reporting on such policies, the media should remain cautious to avoid causing unnecessary panic and ensure the healthy development of the market.
