Xiao Sa's team mentioned in an article on WeChat on Wednesday (August 21) that China's Supreme People's Court and Supreme People's Procuratorate jointly held a press conference and officially released the "Explanation on Several Issues Concerning the Application of Laws in Handling Criminal Cases of Money Laundering". The team mentioned that, to put it bluntly, this means an increase in criminal risks for people in the cryptocurrency circle.
The Interpretation consists of 13 articles, which are short but powerful, and comprehensively crack down on money laundering crimes. It is worth noting that Article 5 of the Interpretation clearly stipulates the catch-all clause for money laundering crimes, and explicitly includes "virtual asset transactions" in it.
Can we still trade in cryptocurrencies after the new regulations come into effect?
According to Article 13 of the Interpretation, this Interpretation shall come into force on August 20, 2024. It was announced on the same day and implemented the next day, which is really fast. So, for Chinese cryptocurrency partners, the top priority is to come to a clear conclusion: Can we still speculate in cryptocurrency after the new regulations?
Let me give you the conclusion first: Yes.
First of all, the "Interpretation" is not formulated specifically for the cryptocurrency industry. As can be seen from its name and the associated criminal penalty clauses, it is aimed at crimes such as money laundering and concealing the proceeds of crime, and is not intended to deliberately crack down on the cryptocurrency industry or the blockchain and Web3 industries.
Secondly, Article 5 of the Interpretation has made it clear that only those who use virtual asset transactions to cover up the proceeds of seven specific upstream crimes stipulated in the crime of money laundering may be guilty of money laundering. Article 191 of the Criminal Law stipulates that the upstream crimes of money laundering include: drug crimes, organized crimes of a mafia nature, terrorist activities, smuggling crimes, corruption and bribery crimes, crimes that undermine the financial management order, and financial fraud crimes.
The Sajie team believes that the main reason why "virtual asset transactions" are clearly defined as one of the umbrella clauses for money laundering (Article 191, paragraph 1, item 5 of the Criminal Law) is that when encrypted assets are used as a money laundering tool, they are too easy to use.
In recent years, crypto assets have increasingly become a "weapon" for money laundering and concealing criminal proceeds thanks to the technical advantages of blockchain technology's point-to-point and global transmission.
According to a research report by China Science and Technology Chain Security, in 2021 alone, the amount involved in money laundering, pyramid schemes, and online gambling using cryptocurrencies has reached 298.542 billion yuan, of which USDT, BTC, and ETH account for the majority. To this day, this number is still expanding rapidly.
At the same time, according to statistics from an article published in the 2nd issue of Police Technology in 2023, among the types of virtual currency crimes, aiding and abetting ranks first and concealing ranks second, and the number is far higher than other crimes.
In addition to money laundering, pyramid schemes, and online gambling, in practice, the Sajie team has also handled the following cases involving illegal and criminal acts using crypto assets:
1. One spouse uses cryptocurrency to conceal and transfer common property;
2. A high net worth individual used cryptocurrency to circumvent China’s foreign exchange controls, transfer assets overseas, and purchase real estate, securities and other assets;
3. A certain enterprise and its actual controller used crypto assets to circumvent the legal channels for foreign exchange settlement, transferred overseas income into China, and evaded taxes;
4. A dishonest debtor uses crypto assets to evade property inquiries by the court and creditors and maliciously refuses to perform the debts determined by the effective judgment.
In addition, there is another case that everyone is familiar with, the case of Tianjin Lantian Ge Rui illegally absorbing public deposits. On the eve of the 2017 crash, the culprit Qian Zhimin used only a mobile hard drive to pocket the stolen money of tens of billions of dollars that was converted into Bitcoin, and easily took it out of the country and fled abroad, living a life of spending money until he was arrested by the British police in 2024. This shows that once crypto assets are used as a money laundering tool, they are really easy to use.
After the new regulations are released, what are the most risky behaviors in the cryptocurrency circle?
First, there are currency traders, and secondly, there are people with large OTC demand and frequent transactions. According to the provisions of China's Criminal Law, whether it is the crime of money laundering or the crime of concealing the proceeds of crime, it must be based on the fact that the criminal "knows or should know" that the relevant money is the stolen money or the derivative income of the stolen money obtained by others from the upstream crime of money laundering. The upstream crime of concealing the proceeds of crime is the proceeds of other crimes other than the upstream crime of money laundering, such as the proceeds of telecom fraud.
For a long time, the biggest headache for currency traders and OTC traders with large demand and frequent transactions is receiving the stolen money involved in the case. There is even a saying in the currency circle that "if your card has not been frozen, you have not traded in the currency." So, since receiving stolen money has become an inevitable and objectively unavoidable thing, it is extremely important to define the "knowing or should have known" in the crime of money laundering and concealing the proceeds of crime stipulated in the Chinese Criminal Law.
Article 3 of the Interpretation makes clear provisions for determining whether one “knows or should have known”: a comprehensive review and judgment should be made based on the information the perpetrator has accessed and received, the circumstances of handling the criminal proceeds and proceeds of others, the types and amounts of criminal proceeds and proceeds, the methods of transferring and converting criminal proceeds and proceeds, abnormal circumstances such as transaction behaviors and financial accounts, as well as the perpetrator’s professional experience, his relationship with upstream criminals, his confession and defense, the testimony of co-defendants and witnesses.
Let's take a real case handled by the Sister Sa team before the release of the "Interpretation" as an example. In 2023, Student A was detained by a local judicial authority in China on suspicion of "concealing the proceeds of crime" for selling U (USDT). When meeting Student A, he clearly told us that his U was the proceeds of cryptocurrency speculation, and he simply sold U and had no idea of the source of funds from the underground bank. After the Sister Sa team intervened, it was found that the reason why Student A was identified by the Chinese judicial authorities as suspected of "concealing the proceeds of crime" was mainly due to the following reasons:
1. The funds transferred from the underground bank to Student A's account came from stolen money from telecommunications fraud;
2. Student A has a specific relationship with the underground bank. The chat records between the two can prove that Student A has a certain understanding of the source of funds of the underground bank;
3. The funds transferred into Student A's account from underground banks are far greater than the money he earned from selling U (calculated according to the exchange rate at the time of selling U);
4. Student A could not provide a reasonable explanation for the reasons for the excess funds transferred in and the direction of the outflows and did not retain objective evidence;
5. After receiving the stolen money, Student A kept the funds in a deposit and only transferred them out after a long period of time.
Based on the above objective evidence, the judicial authorities determined that Student A "knew or should have known" that the funds transferred into his account by the underground bank came from telecommunications fraud, and convicted and sentenced him.
Coincidentally, in 2023, the People's Court of Dongsheng District, Ordos City also sentenced a case very similar to the one handled by the Sister Sa team - Case No. (2023) Nei 0602 Xingchu 203. In this case, the defendant Xu provided his three bank cards to others for use between February 27, 2022 and March 3, 2022, resulting in more than 90 million fraud funds running out of the cards and being frozen. Subsequently, when he was playing U online on March 5, 2022, he received another 200,000 in fraudulent money, and he withdrew cash from the bank counter on the same day.
The court's logic for determining Xu's subjective "knowing" intent in concealing the proceeds of crime is as follows:
1. Because, when Xu’s card was frozen, he already knew that “in the virtual currency transactions he was engaged in, both the seller’s collection account and the buyer’s payment account might be accounts associated with telecommunications fraud, that is, the funds paid by the buyer to him to purchase virtual currency might be stolen money from telecommunications fraud.”
2. Therefore, "in the virtual currency transaction on March 5, 2022, the defendant Xu should have known that the money paid by the buyer to him was the proceeds of crime."
In this regard, Sister Sa’s team cannot agree. Xu’s behavior of providing cards for profit is certainly wrong and may be suspected of aiding and abetting crime. However, there is no evidence to prove that the person who used the card and the U-coin collector were in the same group, nor is there any evidence to prove that the two funds involved in telecom fraud were from the same or related telecom fraud cases. So how can Xu’s perception of the improper source of funds in the crime of aiding and abetting crime be directly “pushed” to the crime of concealing the proceeds of crime?
Convicting and punishing him simply because "the funds paid by the buyer to purchase virtual currency may be stolen money from telecommunications fraud" as stated in the verdict is suspected of violating the principle of legality of crime and punishment.
How should people who trade in cryptocurrencies protect themselves?
In recent years, due to rampant fraud, a large amount of black money has flowed into underground banks, and the probability of cryptocurrency traders receiving dirty money has increased greatly, but in most cases, their cards are frozen, and occasionally they are questioned by the investigation agency as witnesses. However, criminal risks are like black swans around us, and we must guard against them.
Therefore, based on practical experience, the Sajie team has made some suggestions for cryptocurrency traders to prevent criminal risks.
First, keep a record of the source of funds for cryptocurrency trading. According to our team, most cryptocurrency traders have clean sources of funds. Some are from their own salary income, some are from legal business income, and some are from idle funds from the disposal of real estate, stocks and other assets in previous years. Therefore, the most urgent task is to keep evidence of the source of funds used for cryptocurrency trading, so that once asked, you can explain everything clearly.
Secondly, keep a record of your purchase and sale of crypto assets on the platform. This part of evidence is very important. Some crypto asset platforms only provide a record query function for the last three months, and the platform may not cooperate with further inquiries. Therefore, cryptocurrency traders must develop the habit of taking screenshots and recording videos every month to prevent the situation of cramming at the last minute.
Again, relevant records must be kept consistent and the funding chain must be complete. Regardless of the reason, there should not be a situation where large amounts of funds are of unknown origin, far exceeding the profits from cryptocurrency speculation and cannot be explained.
Finally, if it is not necessary, the frequency of OTC can be reduced, and only when necessary, choose a reliable channel to issue coins. When issuing coins, both parties can prove and make commitments to each other on the clean sources of encrypted assets and legal currencies by signing relevant agreements, leaving traces for future reference.
Xiao Sa's team wrote: "China has officially declared 'virtual asset trading' a crime. To put it bluntly, this means an increase in criminal risk for people in the cryptocurrency industry. The sword of Damocles hanging over the heads of cryptocurrency traders has increased by 1. Cryptocurrency traders need to be extremely cautious and cannot directly apply their previous experience in issuing coins to today. Keeping good evidence is the best way to protect yourself."
"In addition, you must not be afraid to seek medical treatment. If risks arise, you must promptly seek help from a trustworthy professional lawyer. When communicating with a lawyer, you must tell the truth and prevent the breeding of criminal risks in all aspects."
