Chongqing Procuratorate: Record of the Seminar on the Disposal of Involved Virtual Currencies

Excerpt整理: Sun Xiaotian, Master's Degree from East China University of Political Science and Law

On February 5, 2024, the Supreme People's Procuratorate published an article titled "Record of the Seminar on the Disposal of Virtual Currency" in the journal "People's Procuratorate." The meeting was convened by the Chongqing Municipal People's Procuratorate and invited representatives from public security, judicial authorities, academic experts, and virtual currency disposal companies. Prior to this, although the official WeChat account of the Chongqing Procuratorate had reported on the meeting, it did not disclose much of the content. Therefore, the author found this article to be a treasure and specifically selected some representative viewpoints to share with readers concerned about the judicial disposal of virtual currency.

Regarding the handling of virtual currency cases, Pu Xianglin, political commissar of the Intelligence Command Center of the Public Security Bureau of Tongliang District, Chongqing, pointed out that effectively handling virtual currency crime cases requires close cooperation among various police units, including criminal investigation, technical investigation, and cyber security. The procuratorial authorities should timely intervene to guide evidence collection, and there should be deep cooperation among public security agencies across provinces to connect related information such as involved bank cards and virtual currency addresses. Strong support from technology companies is also needed to complete the tracing of virtual currencies. Meanwhile, he raised several issues encountered in case handling: First, tracing upstream criminal facts related to virtual currencies is difficult. This issue has seen breakthroughs with the support of police collaboration and technology companies. Second, the difficulty in seizing and freezing virtual currencies arises because decentralized wallet addresses cannot be executed for seizure through legal documents at exchanges. It is only possible to find the holders of virtual currency wallet addresses and their keys, but the keys are also at risk of being hacked, and there may be more than one key. The current main approach is to establish a new wallet address for the suspect to transfer the virtual currency into, which is then managed by police officers. Third, the disposal of virtual currencies is challenging. Virtual currency transactions are defined by the state as illegal financial activities, leading public security agencies to lose their legal basis for handling virtual currencies. The practical approach is to have virtual currency holders sell their virtual currencies for RMB themselves, after which public security agencies handle the matter; or to entrust third-party companies with the disposal. However, none of these practices have legal support, making the formulation of relevant laws and regulations for virtual currency disposal urgent.

Regarding disposal risks, Chen Xia, deputy chief judge of the Second Criminal Trial Division of the Chongqing High Court, suggested that the subjects and processes for the seizure and disposal of involved virtual currencies should be standardized. Additionally, the state currently prohibits virtual currency trading, while disposal inevitably involves trading. There is a practical need for disposal in judicial work, especially in fundraising crimes, where victims or participants need their assets returned. For involved virtual currencies, it is not necessary to conduct judicial disposal for all; only those with judicial needs and victims require judicial disposal. Furthermore, from the perspective of national revenue, it may be reasonable to consider transferring some rights, which would also help reduce legitimacy risks. At the same time, to minimize disposal risks, multiple departments, including financial regulators, should intervene simultaneously and participate in the process, overseeing the disposal.

Regarding methods of disposal, Chen Weihuang, deputy director of the Legal Policy Research Office of the Chongqing Procuratorate, proposed three suggestions: First, public security agencies should identify the right timing for investigation and timely dispose of virtual currencies. The value of virtual currencies fluctuates greatly; during the process from investigation to prosecution to trial, the amount of virtual currency may change. Additionally, suspects may have multiple wallet addresses, and if not handled promptly during the investigation phase, the virtual currency may be transferred. It is recommended to secure the assets during the investigation phase and then have the procuratorial authorities supplement the evidence. Second, regarding the judicial disposal subjects of virtual currencies, it is suggested to entrust virtual currencies to third-party companies with disposal capabilities through service purchase. Third, risk control should be implemented during the disposal process. Given the uniqueness of virtual currencies, the security of the fund pool must be ensured; if there are issues with the fund pool itself, the entire judicial evidence chain could be compromised.

Wang Yanwei from Zhongke Chain Security (Beijing) Technology Co., Ltd. pointed out that the cases participating in the investigation indicate that judicial authorities across various regions are actively exploring practices for the disposal of virtual currencies, but there is still a lack of unified standards and procedures. The basic operation in practice is: seizures generally utilize cold wallets or create seizure addresses for wallets, with the entire seizure process recorded; custody typically involves handing over mobile phones and other media to designated police officers or having mnemonic phrases and passwords held by multiple people separately. Currently, there are three principles widely recognized for disposal: First, the "transparency" principle, where disposal is entrusted to overseas institutions with anti-money laundering licenses for overseas delivery; second, the "informed foreign exchange settlement," where certain banks approved by foreign exchange regulatory authorities can engage in related business, clarifying that the disposal is for the purpose of recovering losses when public security agencies issue notices; third, the "payment first, then currency," where the virtual currency price is locked first, and the suspect pays the judicial authority before the virtual currency is handed over to the disposal company. At the same time, it is recommended to conduct systematic training and exchanges on knowledge related to virtual currencies and their disposal to summarize and refine local disposal standards and norms.