China Classifies Crypto Transactions as Money Laundering in Major AML Law Update

TLDR

• China has officially recognized “virtual asset” transactions as a method of money laundering in its revised anti-money laundering (AML) laws.
• The new regulations, effective August 21, 2024, set specific thresholds for serious offenses and introduce hefty fines and potential prison sentences for violators.
• This marks the first major update to China’s AML framework since 2007 and follows previous bans on ICOs and crypto transactions in 2017 and 2021.

On August 20, 2024, China’s highest judicial bodies, the Supreme People’s Court and the Supreme People’s Procuratorate, announced changes to the country’s anti-money laundering (AML) laws.

For the first time, Chinese authorities have explicitly recognized “virtual asset” transactions as a method of money laundering.

The revised interpretation of the AML law, set to take effect on August 21, now includes virtual asset transactions among the recognized money laundering methods. This update marks the first major revision to China’s AML framework since its adoption in 2007.

Under the new regulations, transferring and converting criminal proceeds through digital transactions will be considered as “covering up and concealing the source and nature of criminal proceeds and their benefits by other means.” This change aims to close a significant loophole in the country’s efforts to combat financial crimes.

The updated law sets specific thresholds for serious offenses. Laundering amounts over 5 million yuan ($685,000) or causing losses of more than 2.5 million yuan ($343,000) will be considered severe cases. These thresholds ensure that large-scale money laundering operations face stricter legal scrutiny and harsher penalties.

Penalties for violators are substantial. If convicted and sentenced to up to five years in prison or given criminal detention, individuals face a minimum fine of 10,000 yuan ($1,370). For sentences between five and ten years, the fine increases to at least 200,000 yuan ($27,400) in addition to imprisonment.

This move comes after China’s previous bans on initial coin offerings (ICOs) in 2017 and cryptocurrency transactions in 2021. It reflects the country’s ongoing efforts to regulate digital assets and prevent their use in illegal activities.

The revision also introduces clearer guidelines for what constitutes “serious circumstances” in money laundering cases. These include situations where individuals refuse to cooperate with authorities or when the amount being laundered exceeds the specified thresholds.

China’s crackdown on money laundering has intensified in recent years. The Supreme People’s Procuratorate reported that 2,971 people were prosecuted for money laundering in 2023, a 20-fold increase from 2019. This sharp rise highlights the growing prevalence of money laundering activities and the need for updated regulatory measures.

In a related development, police in Qingdao are currently prosecuting a case involving a network caught using the stablecoin Tether (USDT) to launder over $1.1 million for criminal enterprises. Nine people are facing criminal charges in this matter, further underscoring the ongoing challenges China faces in regulating virtual assets.

The timing of these revisions has sparked speculation within the cryptocurrency industry. Some believe that China could be moving towards lifting its long-standing ban on cryptocurrency trading. However, many experts remain skeptical about this possibility.

Yifan He, CEO of Red Date Technology, a major Chinese blockchain firm, stated that he doesn’t think China would ever allow its citizens to trade Bitcoin freely using local fiat currency. This sentiment is echoed by others who believe a reversal of China’s crypto ban would contradict the government’s political agenda.