China’s Supreme Court Updates Anti-Money Laundering Law to Address Virtual Assets

In a significant legal update, China’s Supreme Court has revised its Anti-Money Laundering (AML) laws to include virtual assets, marking a pivotal shift in the country’s approach to digital currencies. This change comes as the nation grapples with a surge in money laundering cases, reflecting the growing challenge of regulating financial crimes in the digital age.

Virtual Assets Now Recognized Under China’s AML Laws

For the first time, virtual asset transactions are now recognized as a method of money laundering under China’s Anti-Money Laundering Law. The Supreme People’s Court and the Supreme People’s Procuratorate announced this revision during an August 19 conference, making it the most significant update to the law since its inception in 2007. The new interpretation broadens the scope of the law to encompass digital transactions, aligning with global trends in financial regulation.

Source: Supreme People’s Procuratorate

Under the revised law, the transfer and conversion of criminal proceeds via digital transactions are explicitly prohibited. Offenders caught using virtual assets for money laundering could face severe penalties, including fines ranging from 10,000 to 200,000 Chinese yuan (approximately $1,400 to $28,000).

Additionally, more serious violations could result in jail terms of five to ten years. The update also introduces stricter guidelines for cases deemed to involve “serious circumstances,” such as refusal to cooperate with authorities or laundering amounts exceeding 5 million Chinese yuan (around $700,000).

A Response to Rising Financial Crime

The revision of the AML laws comes against the backdrop of a dramatic increase in money laundering prosecutions in China. In 2023 alone, the Supreme People’s Procuratorate reported that nearly 3,000 individuals were prosecuted for money laundering, representing a staggering 20-fold increase since 2019. This surge underscores the urgent need for robust legal frameworks to combat increasingly sophisticated financial crimes.

Speculation on China’s Stance on Cryptocurrency

The timing of this legal revision has fueled speculation about China’s potential shift in its stance on cryptocurrency. While some industry insiders, such as Galaxy Digital CEO Mike Novogratz and Tron founder Justin Sun, have hinted at a possible unbanning of Bitcoin in China by late 2024, others remain skeptical.

Source: Justin Sun

Experts like Yifan He, CEO of Red Date Technology, and Mikko Ohtamaa, co-founder of Trading Strategy, argue that a reversal of the crypto ban would be inconsistent with the Chinese government’s broader political agenda.

China has maintained a stringent stance on cryptocurrency since 2017, banning crypto exchanges and intensifying its crackdown on digital currencies in 2021. Despite ongoing speculation, the country’s latest legal moves suggest a continued focus on regulating the sector rather than embracing it.

Crackdown on USDT Money Laundering Operations

In a related development, authorities in Qingdao have taken action against a criminal network involved in laundering over $1.1 million (8 million Chinese yuan) through the stablecoin Tether (USDT). The group allegedly used business licenses and identification documents to open accounts for laundering purposes, converting the illicit funds into USDT before transferring them back to the criminals. Nine individuals are currently facing charges as part of this crackdown.