China’s Procuratorial Daily published an article titled “Systematically Cracking Down on the Legal Regulatory Dilemmas of Using Virtual Currencies to Launder Money,” noting that current judicial practice faces three layered systemic dilemmas when combating virtual currency money laundering crimes: first, dilemmas in the legal characterization of conduct; second, dilemmas in evidence collection; and third, dilemmas in tracing and recovering losses. The article proposes systematic response plans to address each of the three major dilemmas.
Dilemma in Legal Characterization: Problems with Judicial Practice of “Pocketing” the Offense of Covering Up under Article 191’s Seven-Type Limits
According to the Procuratorial Daily article, the core of the dilemma in legal characterization is that China’s anti-money laundering law has effectively removed limits on the scope of predicate crimes, but the money laundering offense under Article 191 of the Criminal Law is still strictly limited to seven specific types of predicate crimes (such as drug crimes, corruption and bribery, etc.). For acts of laundering proceeds derived from predicate crimes that are not among those seven types, judicial authorities can only prosecute under Article 312 of the Criminal Law for the crime of concealing and disguising criminal proceeds (the offense of concealment), leading to a clear “pocketing” tendency in the crime of concealment.
The response plan proposed in the article includes: achieving a transformation in the judicial process from passive identification to proactive review (improving professional cognition, strictly implementing “dual investigation in one case,” and strengthening procedural connections); and initiating the guiding function of prosecutorial oversight and performance evaluation standards (strengthening supervision over filing and investigative activities, and optimizing the evaluation system).
Dilemmas in Evidence Collection and Tracing/Recovery: Specific Challenges of Mixer Cross-Chain Transfers, Public/Private Key Mechanisms, and Cross-Border Cooperation Barriers
According to the Procuratorial Daily article, the use of virtual currency to launder money faces the following specific technical and institutional challenges in verification and tracing/recovery:
Difficulty in collecting evidence: Criminals use mixers, privacy coins, and decentralized exchanges to carry out multi-layer splitting and cross-chain transfers, making it hard for traditional investigative methods to penetrate.
Difficulty in identification: The public/private key mechanism makes it difficult to determine the identity of the criminal subject; the technical threshold for de-anonymization is higher.
Difficulty in proving: Data barriers between transaction platforms and payment institutions create “information silos,” making it difficult to integrate and reconstruct a complete chain of funds.
Obstacles to disposal: The “prohibition on circulation” stance at the level of financial regulation leads to a lack of compliant channels for monetization after seizure.
Procedural vacuum: Across steps—from custody of private keys in the investigative stage to monetization channels in the execution stage—there is no unified standard across each link.
Cross-border barriers: Large differences among countries in how virtual currency is legally characterized, and international rules on criminal judicial assistance lag behind.
The article calls for building an integrated governance framework of “domestic coordination and international linkages,” including establishing a national-level custody and disposal platform for virtual assets involved in cases, and exploring the creation of a “judicial cooperation chain” based on blockchain technology.
Common Questions
What are the current limitations of China’s Criminal Law Article 191 money laundering offense?
According to the Procuratorial Daily article, China’s Criminal Law Article 191 money laundering offense is still strictly limited to seven specific types of predicate crimes, including drug crimes, among others. This means that for acts of laundering proceeds from crimes that are not among those seven types using virtual currencies, judicial authorities can only prosecute under Criminal Law Article 312 for the offense of concealing and disguising criminal proceeds, creating a systemic problem of “poor linkage between sentencing and law enforcement.”
Why do technical means such as mixers make evidence collection for virtual currency money laundering so difficult?
According to the Procuratorial Daily article, mixers, privacy coins, and decentralized exchanges (DEXs) can carry out multi-layer splitting and cross-chain transfers, constructing complex criminal networks spanning multiple jurisdictions. In addition, the public/private key mechanism makes the linkage between on-chain addresses and real identities (de-anonymization) technically challenging, while criminal groups may also destroy data and encrypt communications during the course of committing crimes, causing the evidence chain to become fragmented.
What solutions has the Procuratorial Daily proposed to address dilemmas in tracing and recovering losses?
According to the article, the main recommendations include: establishing a national-level cross-departmental coordinated disposal mechanism; rolling out unified operating standards for seizure, custody, valuation, and monetization of virtual currencies involved in cases; establishing a dynamic valuation expert committee; and actively participating in the formulation of international rules—exploring the signing of bilateral or multilateral international criminal judicial assistance agreements for virtual currency crimes, and promoting the establishment of a “judicial cooperation chain” based on blockchain technology.
