China declared crypto transactions and mining illegal in September 2021. Five years later, prosecutors are looking for an easier way to prove when the tokens still moving through the country are being used to clean dirty money.
- A paper published Sunday by Procuratorate Daily and carried on the website of China's Supreme People's Procuratorate proposes allowing courts to infer money-laundering intent from certain types of crypto activity.
- It could also apply when a person quickly sells a large amount of crypto under obviously unusual terms, or moves large sums frequently through anonymous wallets that cannot be connected to their public identity or properly explained.
- The user would then have to provide a reasonable explanation to rebut the presumption.
Using a mixer wouldn't automatically become money laundering
The proposal stops short of saying that every person who uses a crypto mixer has committed money laundering.
- Instead, using a crypto mixer would become evidence of intent.
- Prosecutors would still need other evidence showing that the transactions involved criminal proceeds and formed part of a wider laundering operation.
The paper, authored by two prosecutors Yang Yingjie and Guo Shaoyou, as well as Liu Xinqi, an associate law professor at Xiangtan University, argues that China's existing rules make crypto laundering difficult to prosecute because its AML framework and criminal code don't fully line up.
As a result, some defendants accused of moving criminal proceeds through crypto are charged with the broader offense of concealing illicit funds instead of money laundering.
China wants more blockchain surveillance
The authors also proposed making verified blockchain records easier to use in court.
Transactions that can be confirmed through a public blockchain explorer and matched to an unchanged hash could be presumed authentic, according to the paper.
- Investigators should be allowed to combine indirect and incomplete evidence to establish a laundering trail, the authors argued.
- That could allow a court to find that money laundering occurred even when police cannot trace every coin from its original source to its final destination.
The paper also calls for rules allowing investigators to monitor blockchain data in real time, analyze internet traffic and conduct penetration testing during crypto investigations, subject to approval and oversight.
China banned crypto. It still needs somewhere to sell seized coins
The paper also runs into a problem of China's own making. Although police in China can seize crypto, because crypto circulation is illegal, authorities still lack a standard way to hold it, price it or even sell it.
- The proposed fix is a national platform for storing and disposing of confiscated cryptocurrencies, followed by approved auctions or private sales priced using blockchain data and quotes from large overseas exchanges.
So while crypto remains illegal for everyone else, the state may still need an orderly marketplace when it wants to cash out.