China proposes new legal framework for virtual currency money laundering cases

China has proposed a series of judicial and procedural reforms to strengthen investigations, evidence handling and asset recovery in virtual currency money laundering cases, as prosecutors seek to close gaps in the country’s criminal enforcement framework.

According to an article published in the People’s Procuratorate Daily, China’s current legal framework faces three major obstacles when prosecuting virtual currency money laundering cases, including difficulties in determining criminal liability, collecting evidence, and recovering illicit assets.

The article, written by prosecutors from the Yuhu District People’s Procuratorate in Xiangtan, Hunan, and a law professor from Xiangtan University, said virtual currencies have improved transaction efficiency, but their decentralised structure, anonymity and cross-border nature have also made them increasingly attractive for laundering criminal proceeds.

Although China has established an anti-money laundering framework, the authors said inconsistencies between the revised Anti-Money Laundering Law and the Criminal Law have created enforcement challenges. While the updated AML law no longer limits predicate offences, Article 191 of the Criminal Law still applies only to seven specified upstream crimes, leaving many virtual currency laundering cases involving other offences to be prosecuted under the offence of concealing or disguising criminal proceeds instead.

The article warned that this has increasingly turned the latter offence into a catch-all provision and argued that judicial authorities should place more emphasis on identifying standalone laundering conduct during investigations.

Prosecutors call for stronger investigations and evidence rules

To address those issues, the authors proposed that China’s highest judicial authorities issue dedicated case-handling guidelines, publish additional guiding cases, and expand training in blockchain analysis technologies for investigators and prosecutors.

Investigators should also adopt a mandatory “dual investigation” approach by examining both the underlying offence and related laundering activity, the article said. It recommended preparing virtual currency fund flow reports during investigations and requiring prosecutors to assess whether separate money laundering charges should accompany predicate offences, including under China’s self-laundering provisions where appropriate.

The proposal also called on prosecutors to intervene earlier in complex investigations, examine the purpose behind fund transfers rather than relying solely on the type of upstream offence, and strengthen supervision when cases that qualify as money laundering are instead filed under other criminal provisions.

Evidence collection remains another major challenge because criminals increasingly use mixers, privacy coins, decentralised exchanges and cross-chain transfers to split and move funds across multiple jurisdictions, the authors said. Encrypted communications, destroyed data and limited cross-border cooperation further complicate investigations, while linking blockchain wallet addresses to real-world identities remains technically demanding.

To address those issues, the article proposed recognising publicly verifiable blockchain transaction records as self-authenticating electronic evidence when their hash values remain consistent. Blockchain analytics reports obtained from compliant analysis firms should also be accepted as evidence, subject to judicial review of the tools, methods and conclusions used in producing those reports.

The authors also suggested allowing courts to infer criminal intent under certain circumstances, including when suspects use mixers or privacy-focused cryptocurrencies to conceal transactions, rapidly dispose of large cryptocurrency holdings through abnormal trading methods or conduct frequent high-value transactions using anonymous wallets that cannot reasonably be linked to their identities.

Rather than requiring investigators to trace every transfer from origin to destination, the article argued that courts should be permitted to rely on indirect and circumstantial evidence where individual pieces of evidence corroborate each other and establish a complete chain of proof.

Authors propose national asset recovery framework

Asset recovery has presented another obstacle because China prohibits cryptocurrency circulation while authorities often lack compliant channels to dispose of seized virtual assets, the article said. The authors added that inconsistent procedures governing private key management, asset valuation and liquidation have created risks during criminal enforcement.

To resolve those issues, they proposed establishing a national mechanism to standardise the seizure, custody, valuation and disposal of confiscated virtual currencies. 

A centralised custody platform could manage seized assets, while disposal could take place through compliant channels such as designated auctions or negotiated transfers. They also recommended creating an expert committee to develop judicial valuation standards using blockchain data and pricing from major international exchanges.

Cross-border cooperation should also be strengthened through bilateral or multilateral judicial assistance agreements covering virtual currency crime, the authors said. 

They further proposed developing a blockchain-based judicial cooperation network that would allow participating jurisdictions to verify suspicious wallet addresses, asset freeze orders and other enforcement information while respecting national data sovereignty.

The recommendations build on China’s recent push to tighten oversight of crypto-related financial crime. In June, the People’s Bank of China said virtual currency laundering would remain an enforcement priority during the country’s next five-year anti-money laundering strategy, while noting that organised criminal groups increasingly rely on cryptocurrencies, underground banks and cross-border fund transfers to conceal illicit proceeds. 

The central bank also said authorities would continue strengthening international cooperation on investigations, intelligence sharing and asset recovery in cases involving cross-border financial crime.