With the rapid growth and widespread adoption of cryptocurrencies in China, concerns are mounting about their potential to facilitate money laundering activities. Chinese scholars have urged policymakers to prioritize addressing this critical issue in the upcoming revision of the country's Anti-Money Laundering (AML) Law, scheduled for enactment in 2025.
Facilitating Illicit Activities
On January 22, 2024, the Prime Minister Li Qiang chaired an executive meeting of the State Council to discuss the Anti-Money Laundering Law of the People's Republic of China. Here is a summary of the Revised Draft.
Chinese scholars have issued a clarion call, urging policymakers to prioritize the critical issue of cryptocurrency-related money laundering (AML) within the upcoming revision of China's Anti-Money Laundering Law. Scheduled for enactment in 2025, the revised law presents a crucial opportunity to address the unique challenges posed by digital currencies in facilitating illicit activities.
With a sense of urgency, the scholars highlight that cryptocurrency-related money laundering has emerged as the most critical, pressing, and necessary anti-money laundering issue demanding legal reforms. They emphasize the rapid growth and widespread adoption of cryptocurrencies within China, coupled with the inherent anonymity and decentralization characteristics, creating fertile ground for money laundering activities.
A Typical Case
"In practice, it has been found that financial institutions' "strict prevention" is not enough to prevent virtual asset money laundering. In 2021, the Supreme People's Procuratorate and the Central Bank released a typical case of using virtual currency for cross-border exchange and money laundering. In 2018, Chen Moubo fled abroad on suspicion of fund-raising fraud.
According to Chen Moubo's instructions, his relative Chen Mouzhi sold the vehicle purchased by Chen Moubo with illegal fund-raising money at a low price of more than 900,000 yuan, and then contacted Bitcoin "miners" in the WeChat group established by Chen Moubo to sell the car. All the money is transferred to the "miners" in exchange for Bitcoin keys, and the keys are sent to Chen Moubo for his overseas exchange."
A Lack of Operational Guidance
These concerns stem from the potential of cryptocurrencies to circumvent traditional AML safeguards. Unlike traditional financial institutions subject to stringent reporting and monitoring requirements, cryptocurrency transactions often occur peer-to-peer, potentially evading regulatory oversight. This opaqueness makes them attractive tools for criminals seeking to launder illicit funds.
The report highlighted that "there is a lack of operational guidance on the subsequent seizure, freezing, deduction, and confiscation of virtual asset money laundering crimes, resulting in a "disconnect". Without legal authorization, "grey areas" will be created, creating law enforcement blind spots and difficulties in combating the use of virtual assets for money laundering."
Proposal for Specialized Investigative Units
The scholars advocate for several key measures to be incorporated into the revised law. Firstly, they emphasize the need for clear and comprehensive legal definitions of "cryptocurrency" and "cryptocurrency-related activities" to establish a solid foundation for regulatory action. Additionally, they call for the implementation of mandatory reporting requirements for cryptocurrency exchanges and other service providers, similar to those imposed on traditional financial institutions.
Furthermore, the scholars propose the establishment of specialized investigative units within law enforcement agencies equipped with the necessary expertise to trace and track cryptocurrency transactions. They also advocate for enhanced international cooperation and information sharing among countries to combat cross-border crypto-related money laundering.
Necessity for a Balance
While acknowledging the potential benefits of blockchain technology and cryptocurrencies, the scholars underscore the importance of striking a balance between fostering innovation and safeguarding national security. They believe that prioritizing crypto AML within the revised law will effectively combat financial crime while fostering the responsible development of the blockchain ecosystem in China.
The scholars' call to action resonates with the growing global concern regarding crypto-related money laundering. Their timely intervention paves the way for a constructive dialogue between policymakers, academics, and industry stakeholders to formulate effective legal frameworks that address this complex and evolving challenge. As China prepares to revise its Anti-Money Laundering Law, prioritizing crypto AML will send a strong message of its commitment to combating financial crime and shaping a responsible future for blockchain technology.
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