China's Crackdown on Crypto Money Laundering Raises Stakes for Investors
China's highest court has issued a stark warning to cryptocurrency investors, stating that the use of virtual assets for money laundering is a criminal offence. Legal experts warn that this new interpretation could significantly increase the risk of prosecution for those trading cryptocurrencies in mainland China.
The Supreme People's Court and the Supreme People's Procuratorate published a judicial interpretation on Monday, explicitly outlining that utilising virtual assets to move or convert criminal proceeds constitutes a violation of Chinese criminal law. This move signals a renewed focus on combating money laundering, particularly in relation to cryptocurrency.
Shao Shiwei, a lawyer at Shanghai-based Mankun Law Firm, highlights the heightened legal risk for both USDT merchants and individual cryptocurrency traders. She suggests that casual trading activities may now be subject to greater scrutiny and potential legal consequences.
"From now on, it will be more difficult for USDT merchants to operate and for ordinary people to occasionally trade cryptocurrencies because of potentially high legal risks," Shao wrote on WeChat, referencing the world's largest stablecoin, Tether's USDT, which is pegged to the US dollar.
The interpretation clarifies that investors who unknowingly receive proceeds from criminal activity during cryptocurrency transactions could be implicated in money laundering cases. This underscores the need for increased vigilance among Chinese crypto investors to avoid unintentional involvement in illicit activities.
Deputy Chief Judge Chen Xueyong of the Supreme People's Court's No 3 Criminal Adjudication Tribunal attributed the judicial interpretation to the increasing sophistication of money laundering methods, including the use of cryptocurrencies and game tokens, which are challenging to track in the digital age.
This is the first instance of virtual assets being explicitly mentioned in an official criminal law interpretation. This development amplifies the urgency of revising China's outdated Anti-Money-Laundering (AML) Law, which is expected to undergo a significant amendment next year.
The proposed AML law amendment aims to strengthen the focus on prosecuting crimes related to using cryptocurrencies for transferring assets abroad. It is anticipated to be passed in 2025.
Liu Honglin, founder of Mankun Law Firm, emphasises that while the interpretation highlights the gravity of virtual asset-based money laundering, it does not equate cryptocurrency trading with money laundering nor alter China's existing cryptocurrency policies.
Cryptocurrency mining and initial coin offerings remain prohibited in mainland China. Meanwhile, Hong Kong has been granted the authority to regulate and support the operation of virtual asset businesses.
Despite the ongoing restrictions, mainland Chinese investors remain active in the international cryptocurrency market. According to a Chainalysis report published in March, Chinese investors generated US$1.15 billion in profits from cryptocurrencies in 2023, ranking fourth globally behind the US, UK, and Vietnam.
This new judicial interpretation underscores the Chinese government's persistent efforts to curtail the use of cryptocurrencies for illicit financial activities. While not explicitly prohibiting cryptocurrency trading, the heightened legal risks associated with money laundering using virtual assets will likely influence the behaviour of Chinese investors and businesses operating within the cryptocurrency space.
