Reuters: Chinese local governments are selling seized crypto assets

Written by: Timmy Shen Translated by: Centreless

Summary

• Chinese local governments are selling seized crypto assets amid a slowing economy, Reuters reported.

Despite a ban on cryptocurrency trading in mainland China, Reuters reported that Chinese local governments are selling seized crypto assets through private companies.

Against the backdrop of a slowing economy, local governments are cashing in crypto assets confiscated for illegal activities to supplement fiscal revenues. Reuters cited transaction records and court documents.

This is accompanied by a surge in criminal cases involving cryptocurrencies in China, ranging from online fraud, money laundering to illegal gambling.

According to blockchain security company SAFEIS, the amount of money involved in cryptocurrency crimes in China soared to 430.7 billion yuan (about 59 billion U.S. dollars) in 2023, 10 times that of the previous year. According to data from the country's top procuratorate, China prosecuted a total of 3,032 people suspected of cryptocurrency money laundering last year.

The increase in cryptocurrency-related criminal cases has also led to a sharp increase in local government fines and confiscation revenues, reaching a record 378 billion yuan in 2023, an increase of 65% in five years, according to official public budget data.

In some cities, seized crypto assets have become an important source of local finances, said Liu Honglin, a lawyer who provides crypto-related legal advice to local governments. Because digital currency can be transferred anonymously across borders, it is increasingly being used by criminals as an illegal tool.

Legal experts believe that this practice may lead to opaque processes and breed corruption.

"Lawyers said that the lack of clear regulations for the handling of seized Bitcoin and other tokens (which are banned from trading in mainland China) has led to different and opaque practices in various places, and some people worry that this may encourage illegal activities and breed corruption," Reuters quoted lawyers as saying in the report.

China continues to ban cryptocurrency trading and mining activities on the mainland, while Hong Kong has repeatedly expressed its ambition to create a "crypto hub" through a trading licensing system. The report pointed out that the Chinese mainland authorities have commissioned local companies to handle seized crypto assets.

Although it is illegal for individuals to trade cryptocurrencies, commercial activities to help governments sell crypto assets are still legal, thus attracting more and more participants.

Bit Jungle, a blockchain service provider, said that as long as private companies can ensure the safety of assets, sell them through licensed overseas exchanges, and comply with capital management regulations, it is legal to assist local governments in disposing of cryptocurrencies.

For example, Shenzhen technology company "Jiafenxiang" has facilitated more than 3 billion yuan (about 408 million U.S. dollars) in cryptocurrency sales transactions in overseas markets since 2018 on behalf of several local governments in Jiangsu Province, including Xuzhou, Hua'an and Taizhou.

Transaction records cited by Reuters show that the relevant US dollar income was first converted into RMB through local banks and then transferred to the accounts of local finance bureaus.

According to data from BitcoinTreasuries.net, China currently holds about 190,000 bitcoins, making it the second largest national bitcoin holder in the world, second only to the United States' 198,012 bitcoin holdings.

In the judicial system, how to deal with cases involving cryptocurrencies has also become a key issue. Relevant institutions have held special seminars on many occasions. For example, in February this year, the Supreme People's Court and representatives of several judicial institutions and universities held a seminar in Beijing on legal research and judicial treatment of cryptocurrencies.

Last December, the People's Bank of China highlighted the regulation of cryptocurrencies in its latest annual Financial Stability Report and said it was committed to improving the international regulatory framework for crypto assets.

Sun Jun, a lawyer specializing in the crypto field and senior partner of Shanghai Landing Law Offices, suggested that China should clarify the property attributes of virtual currencies, set up a special agency or system to be responsible for the disposal of cryptocurrencies, and conduct qualification reviews of third-party companies.

Ru Haiyang, co-CEO of HashKey, the largest licensed cryptocurrency exchange in Hong Kong, said that China might follow Trump's example and use the confiscated Bitcoin as a strategic reserve, with the central government managing and disposing of related assets in a unified manner.