China Classifies Virtual Assets in Money Laundering

China’s legal authorities have recognized the use of virtual assets for illicit fund transfers as a method of money laundering in a new judicial interpretation.

The interpretation, released by the Supreme People’s Court and the Supreme People’s Procuratorate, categorizes virtual asset trading among the methods for money laundering. It states that utilizing virtual-asset transactions or financial-asset exchanges to transfer or convert criminal proceeds can be viewed as “disguising or concealing the source and nature of criminal proceeds and their gains by other means” in accordance with the country’s criminal law.

Liu Honglin, founder of the Shanghai-based Man Kun law firm, noted that the interpretation does not equate cryptocurrency trading with money laundering. He clarified that individuals trading cryptocurrencies on the mainland will not be deemed criminals simply due to this new interpretation. Liu emphasized that the intention behind this interpretation is to give law enforcement clearer legal footing for adjudicating specific cases, focusing on illegal activities instead of broadly targeting all cryptocurrency transactions.

Shao Shiwei, a fintech lawyer in Shanghai, warned that the latest interpretation might complicate operations for stablecoin merchants, as individuals could face heightened legal risks if they receive illicit funds through crypto trading.

In September 2021, China’s central authorities, including the People’s Bank of China and the Supreme People’s Court, issued a complete ban on crypto trading activities within the mainland, labeling services from overseas crypto exchanges for Chinese residents as illegal. Despite the ban, many investors have found ways to bypass these restrictions.

Over the years, the Chinese government has enforced stringent capital control policies, prompting individuals to use cryptocurrency as a workaround. In May, police dismantled an underground bank that utilized the USDT stablecoin for foreign currency exchanges, with transactions exceeding 13.8 billion yuan ($1.9 billion).