Chinese prosecutors and a law professor are pushing for a clearer legal playbook for virtual currency money laundering cases, arguing that the current setup is too clunky for how crypto actually moves.
- Proposal, not policy: a commentary piece in the People’s Procuratorate Daily
- Three pain points: liability, evidence, and seized-asset recovery
- Main fix: dual investigations, stronger blockchain forensics, clearer court rules
- Big enforcement headache: what to do with confiscated crypto once it’s seized
The proposal appeared in the People’s Procuratorate Daily and was written by prosecutors from the Yuhu District People’s Procuratorate in Xiangtan, Hunan, together with a law professor from Xiangtan University. Their core point is simple: China’s current framework runs into three major obstacles in virtual currency money laundering cases, deciding criminal liability, collecting evidence, and recovering illicit assets.
That sounds like legal housekeeping, but it matters in practice. Crypto moves fast, crosses borders, and slips through tools built to blur the trail. That is great if you are a law-abiding user who values self-custody and open networks. It is also great if you are a crook trying to make the money disappear before anyone finishes the paperwork.
The authors say part of the mess comes from a legal mismatch. China’s revised Anti-Money Laundering Law no longer limits predicate offences, but Article 191 of the Criminal Law is still described as applying only to seven specified upstream crimes. In plain language, the anti-money laundering rulebook looks broader than the criminal-law hook used to charge cases. As a result, many virtual currency laundering cases involving other offences are prosecuted under concealing or disguising criminal proceeds, which the authors say has increasingly become a catch-all provision.
The fix they want starts with the courts. The proposal calls for dedicated case-handling guidelines from China’s highest judicial authorities, more guiding cases, and expanded training in blockchain analysis technologies. Guiding cases are reference decisions used to steer lower-court reasoning, so this is basically a call for more legal road signs and fewer judicial detours.
They also want investigators to adopt a mandatory “dual investigation” approach. That means probing both the laundering activity and the underlying crime at the same time, rather than treating them as separate problems. It matters because laundering charges are only as strong as the link to the crime that generated the funds. If the upstream offence is unclear, the money trail can look suspicious without being legally actionable.
The authors say prosecutors should step in earlier in complex cases and decide whether separate money laundering charges should accompany predicate offences, including under China’s self-laundering provisions where appropriate. In other words, the same person may be investigated for both the original crime and the act of cleaning up the proceeds.
The evidence problem is where this gets genuinely thorny. The piece points to the usual crypto troublemakers: mixers, privacy coins, decentralised exchanges, cross-chain transfers, encrypted communications, destroyed data, limited cross-border cooperation, and the difficulty of linking wallet addresses to real-world identities. Blockchain records can show that funds moved. They do not automatically show who controlled the wallet, why the funds moved, or whether the person accused is actually the person behind the transaction.
To deal with that, the authors propose recognizing publicly verifiable blockchain transaction records as self-authenticating electronic evidence when hash values remain consistent. A hash value is a cryptographic fingerprint for data. If it matches, it helps show the record has not been altered. That is useful, but it is not magic. A clean hash can support authenticity, yet it does not prove completeness, ownership, or intent by itself.
They also say blockchain analytics reports from compliant analysis firms should be accepted as evidence, subject to judicial review. That is a sensible middle ground if it is handled properly. Analytics can help trace fund flows and spot patterns. It should not be treated like courtroom truth in a shiny suit. Forensic reports can support a case, but they should not replace actual proof.
The authors also argue that judges should be allowed to infer criminal intent from a combination of suspicious indicators, including the use of mixers or privacy-focused cryptocurrencies, the rapid disposal of large holdings through abnormal trading methods, or frequent high-value transactions through anonymous wallets that cannot reasonably be linked to a suspect’s identity. They also say indirect and circumstantial evidence should be allowed if it forms a complete chain of proof.
That is a fair point, with guardrails. Financial crime is often proven through patterns rather than confessions. But courts should not slide into guilt by association. Using privacy tools is not automatically criminal. Otherwise, enforcement starts drifting from precision into lazy paranoia, and that is how bad law gets dressed up as public safety.
Asset recovery is the other big headache. China prohibits cryptocurrency circulation, but authorities still need a lawful way to handle seized virtual assets. The authors say inconsistent procedures around private key management, asset valuation, and liquidation have created enforcement risks. That is not a minor administrative issue. With crypto, possession often means control of the private key. Without it, the asset can be effectively frozen forever. Add price volatility, and a delay in disposal can turn a seizure into a paperwork-filled guessing game.
To fix that, they propose a national mechanism to standardise the seizure, custody, valuation and disposal of confiscated virtual currencies, supported by a centralised custody platform. They also suggest disposal through designated auctions or negotiated transfers, and an expert committee to develop judicial valuation standards using blockchain data and pricing from major international exchanges.
That sounds neat on paper. In practice, centralized custody reduces chaos, but it also raises hard questions: who controls the keys, who audits the process, who sets the valuation, and how transparent is the whole operation? If the state wants to move fast against crypto crime, it still has to avoid building a new black box of its own.
Cross-border cooperation is another major part of the proposal. The authors want stronger bilateral and multilateral judicial assistance agreements covering virtual currency crime, plus a blockchain-based judicial cooperation network to verify suspicious wallet addresses, asset freeze orders, and other enforcement information while “respecting national data sovereignty”.
That phrase is doing a lot of work. Crypto crime does not stop at the border, but legal systems still do. Any serious enforcement model has to balance cooperation with control over data, evidence, and jurisdiction. That is easier said than done, especially when the suspects, wallets, exchanges, and servers may all live in different countries and none of them are in a hurry to help.
The proposal also fits with China’s broader enforcement posture. In June, the People’s Bank of China said virtual currency laundering would remain an enforcement priority in China’s next five-year anti-money laundering strategy. The central bank said
“organised criminal groups increasingly rely on cryptocurrencies, underground banks and cross-border fund transfers to conceal illicit proceeds.”It also said authorities would continue strengthening international cooperation on investigations, intelligence sharing, and asset recovery.
That is the real tension here. China already takes a hard line on crypto circulation, but a ban on trading is not the same thing as a solution to laundering. Criminals do not care about policy slogans. They use whatever works, crypto, underground banks, or some ugly blend of all three. If enforcement wants to stay relevant, it has to get better at tracing, proving, and recovering, not just prohibiting.
Key questions and takeaways
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Is China changing the law right now?
Not based on this proposal. What’s being discussed here is a recommended framework from prosecutors and an academic, not an enacted rule. -
Why is the current setup seen as weak?
The authors say it is hard to pin down liability, collect evidence, and recover seized crypto when the money can move quickly across borders and through privacy tools. -
What does “dual investigation” mean?
It means looking at the laundering activity and the underlying crime together. That helps prosecutors connect the funds to the offence that produced them. -
Can blockchain records prove a case on their own?
No. Matching hash values can help show a record is intact, but blockchain data still needs context, attribution, and supporting evidence to carry real weight in court. -
Why are seized crypto assets such a problem?
Because control depends on private keys, prices can swing hard, and authorities need a lawful way to store, value, and dispose of the assets without losing them or creating disputes. -
Why does cross-border cooperation matter so much?
Crypto crime often spans several jurisdictions. Without faster cooperation on evidence, freezes, and asset recovery, cases can stall while the funds vanish.
There is a serious legal logic behind the proposal: if crypto laundering is going to be prosecuted like serious financial crime, the courts need rules that actually work in the real world. But the counterweight matters too. The more a system leans on analytics, inference, and centralized custody, the more transparency and due process have to improve alongside it. Otherwise you end up with a machine that is technically sophisticated and legally sloppy, which is no way to run a crackdown.
Further reading
A few extra links for the enforcement, forensic, and policy angles that didn’t fit neatly into the main text.
- China proposes new legal framework for virtual currency
- Money Laundering and Cryptocurrency report
- How Chinese police track and seize cryptocurrency
- U.S. seizes $332K in Ethereum from the 2021 Uranium Finance hack
- Coinbase helps UK police nab 5 in London crypto kidnapping case
- Irish police seize $35M in Bitcoin from drug dealers
