China is intensifying its scrutiny of virtual assets in relation to money laundering, a move announced by the Supreme People’s Court and the Supreme People’s Procuratorate. This judicial interpretation, unveiled on Monday, signals a significant increase in legal risks for cryptocurrency traders on the mainland.
The interpretation underscores that utilizing virtual assets to transfer or convert illicit funds constitutes a violation of Chinese criminal law. This development is expected to heighten the legal exposure for cryptocurrency investors, according to Shao Shiwei, a lawyer at Shanghai’s Mankun Law Firm. Shao noted in a WeChat post that the new regulations will complicate operations for merchants dealing with Tether’s USDT stablecoin, which is pegged to the US dollar, and could deter casual traders due to elevated legal risks.
The focus on virtual assets aligns with a broader crackdown on financial crimes in China, with authorities increasingly targeting sophisticated money laundering techniques that exploit cryptocurrencies and game tokens. Chen Xueyong, deputy chief judge of the Supreme Court’s No 3 Criminal Adjudication Tribunal, highlighted this development in a press briefing, pointing out that this is the first official criminal law interpretation to specifically address virtual assets.
The interpretation comes as China prepares to amend its Anti-Money Laundering (AML) Law, expected to pass next year, with a greater emphasis on prosecuting crimes involving the international transfer of assets via cryptocurrencies. Liu Honglin, founder of Mankun Law Firm, explained that while the interpretation does not equate cryptocurrency trading with money laundering or alter China’s cryptocurrency policies, it does reflect the rising frequency of such crimes and aims to guide judicial handling of related cases.
Currently, cryptocurrency activities such as mining and initial coin offerings are banned on the mainland. However, Beijing has permitted Hong Kong to regulate and foster virtual asset businesses. Despite these restrictions, mainland investors remain active, contributing significantly to international cryptocurrency markets. In 2023, Chinese cryptocurrency investors generated $1.15 billion, placing them fourth globally behind the United States, the United Kingdom, and Vietnam, according to Chainalysis.
This article originally appeared in the South China Morning Post (SCMP), a leading source of news on China and Asia. For more stories, visit the SCMP app or check out SCMP’s Facebook and Twitter pages.
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