Judicial disposal of virtual currency must be standardized

Source: People's Court Daily, Author: Yang Kai, Professor of East China University of Political Science and Law

The exploration and optimization of compliance paths for the judicial disposal of virtual currencies are of great significance for maintaining financial stability and promoting the healthy development of the market. my country should continue to uphold the principle of prudence, and by issuing comprehensive guidelines, provide a clear legal framework for the judicial disposal of virtual currencies, build a healthy, transparent and efficient financial market environment, and lay a solid legal foundation for the prosperity and development of the digital economy and digital finance.

In current judicial practice, the disposal of virtual currencies has become a focus of attention. According to the "2022 China Virtual Currency Judicial Disposal Report" released by Zero One Finance, as of the end of 2022, the total amount of virtual currencies to be disposed of by Chinese judicial organs has reached an astonishing value, involving Bitcoin (BTC), Ethereum (ETH), Tether (USDT) and other mainstream virtual currencies, with a total value estimated to exceed billions of US dollars. According to statistics from the SAFEIS Security Research Institute, my country has cracked down on a total of 428 virtual currency crime cases in 2023, a decrease of 88.9% from 2022, but the overall amount involved has increased sharply to 430.719 billion yuan, about 12.36 times that of 2022. Virtual currency has gradually become one of the main virtual property involved in criminal cases in my country. These data only cover known virtual currencies that have officially entered the judicial process. The actual number may be even larger because many cases are still under investigation and have not yet been fully counted.

The judicial disposal of virtual currencies involved in the case is currently a very difficult and realistic problem for judicial organs. On the one hand, the successive release of the "Announcement on Preventing the Risks of Token Issuance and Financing" in 2017 and the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" in 2021 further clarified the strict restrictions on virtual currency transactions. The policy adjustment not only reshaped the legal position of virtual currency, turning it from a potential currency alternative to the focus of illegal financial activities, but also had a profound impact on judicial practice, especially in the legal identification of the nature of virtual currency and its judicial disposal process, which put forward new challenges and requirements. On the other hand, the judicial organs have a practical need to dispose of virtual currency. In cases related to fund-raising fraud, telecommunications network fraud, opening casinos, organizing and leading pyramid selling activities, money laundering, etc., the judicial organs need to realize the purpose of realizing the purpose of determining the amount of crime or paying it to the state treasury. In addition, it also includes virtual currency that is the object of property preservation in civil cases, and the part confiscated in administrative illegal activities. Since traditional disposal methods such as auctions and sales are difficult to implement due to violations of current laws and regulations, a large amount of virtual currency has been sealed and cannot be converted into liquid funds, affecting the normal operation of economic activities. Therefore, the current legal regulation of the judicial disposal of virtual currency is imminent.

Faced with the judicial disposal of virtual currency, the public security organs have actively explored. For example, Shandong Province and Fujian Province have proposed different disposal methods, including negotiation with the issuer for recovery, auction priority, and entrusting third-party institutions to dispose of it. However, these attempts still face challenges in terms of compliance, regulatory gaps and risk control at the operational level. The current disposal methods, whether through third-party company transactions or by entrusting overseas companies to realize cash, all have compliance risks, including but not limited to duty crimes, violations of policies prohibiting virtual currency speculation, and foreign exchange management regulations. Although public security organs have tried a variety of disposal methods, due to the lack of unified standards, the implementation varies greatly from place to place, and some disposal methods, such as domestic OTC transactions, have been reduced in use.

The following legal issues are usually faced in the judicial disposal of virtual currencies: First, the issue of ownership identification. In terms of evidence collection, the main difficulty faced by judicial organs is how to accurately track and confirm ownership in the anonymous trading environment of virtual currencies. To this end, they need to rely on a series of complex evidence collection methods, including analysis of transaction records obtained from virtual currency exchanges, smart contract codes, and tracking of IP addresses and geographic location data, which form the basis for building a complete chain of evidence in virtual currency cases. In addition, expert testimony also plays a key role in explaining the complexity of blockchain technology and virtual currency transactions, helping the court understand and evaluate the ownership and value of virtual currencies. The ownership of virtual currency faces the dual challenges of anonymity and decentralization. Its ownership is based on private key control rather than traditional real-name accounts or third-party registration, which brings great difficulties to the confirmation of ownership in judicial practice. Judicial organs need to build a diversified chain of evidence, including electronic data, transaction records, network logs, witness testimony, etc., to ensure the integrity and reliability of the chain of evidence. At the same time, with the help of professional technical means of third-party institutions, ensure the authenticity and legality of private keys, strengthen confidentiality and security measures, so as to maintain the fairness of judicial procedures and the security of virtual currency.

The second is the issue of virtual currency value assessment. Market volatility and the selection of evaluation time are crucial to the value assessment of virtual currency. The price of virtual currency is affected by many factors. The selection of evaluation time directly affects its value. How to determine the evaluation time to reflect the true value of virtual currency has become a major problem. The determination of evaluation standards and data authenticity are directly related to the valuation of virtual currency. There are price differences between different trading platforms, and choosing appropriate evaluation standards is crucial. At the same time, how to prevent conflicts of interest and data manipulation in the evaluation process and ensure the authenticity and credibility of the evaluation results are also important challenges faced by judicial organs. Judicial organs need to strengthen dynamic evaluation strategies, adjust the evaluation time in a timely manner in combination with market analysis and case progress, and use multi-platform data integration and the services of professional evaluation agencies to ensure the objectivity and fairness of the evaluation results, enhance the transparency of the evaluation process, and accept multi-party supervision to ensure the fairness of the evaluation process and the acceptance of the results.

The third issue is the legal realization of virtual currency. In terms of grasping the timing of realization and market risks, the price of virtual currency fluctuates, and choosing the best time to realize to maximize value recovery has become a major challenge for judicial organs. At the same time, how to find a balance between legal channels and efficient transactions to ensure that the realization process complies with laws and regulations is also a difficult problem. In terms of the clarity and complexity of fund allocation and ownership, the proceeds from realization should be reasonably allocated to ensure that the rights and interests of all stakeholders are properly handled. This involves legal, economic and social considerations, and its complexity should not be underestimated. The legal realization of virtual currency involves the choice of realization time and the control of market risks. Judicial organs need to carefully select the best realization time, establish and improve risk management mechanisms, and ensure the compliance and security of the realization process. By selecting well-known domestic and foreign trading platforms or judicial auction platforms, they should establish and improve compliance review mechanisms to ensure that all operations comply with laws and regulations, achieve transparency and fairness in fund allocation, protect the legitimate rights and interests of all stakeholders, and maintain the country's financial order and social welfare.

The dilemma of judicial disposal of virtual currency involved in the case is that while denying the property attributes of virtual currency in cognition, the property value presented by virtual currency cannot be avoided in the process of handling the property involved. In view of the complexity and challenges of virtual currency disposal, my country's judicial practice must issue a comprehensive set of virtual currency judicial disposal guidelines as soon as possible to provide a clear legal basis and operational norms for this emerging field. This guideline should cover multiple dimensions such as the legal status, compliance requirements, asset disposal procedures, and legal responsibilities of virtual currency, so as to build a more fair, transparent, and secure market environment and promote the healthy development of the virtual currency industry.

Clarifying the legal status of virtual currency is the cornerstone of building a compliance framework. The guidelines should define the attributes of different types of virtual currencies, such as cryptocurrencies, stablecoins, and functional tokens, clarify their position in the legal system, and whether they are considered property, commodities, or other forms of assets. At the same time, the compliance requirements for virtual currencies should be established, including registration and filing, information disclosure, anti-money laundering and anti-terrorist financing measures, etc., to ensure that the business activities of market participants are legal and compliant.

The standardization of asset disposal procedures is the key to ensuring the smooth judicial disposal of virtual currencies. The guidelines should specify in detail the legal procedures for freezing, sealing, seizing, auctioning, and selling virtual currencies, and clarify the responsibilities and powers of judicial organs, financial institutions, and third-party institutions in the disposal process. At the same time, the legal responsibilities for violations of regulations, including administrative penalties and criminal responsibilities, should be defined to form a strong legal deterrent and ensure the fairness and legality of disposal activities.

Protecting the rights and interests of the parties is the core of building a fair market environment. The guidelines should ensure that in the process of virtual currency disposal, the parties' rights to know, participate, and remedy are fully respected, and every step of the disposal process should be open and transparent and subject to social supervision. In addition, the selection and supervision of third-party institutions should be standardized, and the professionalism and fairness of third-party institutions should be ensured through public bidding or competitive negotiations, so as to avoid secret operations and conflicts of interest.

In order to improve the transparency and security of virtual currency disposal, the guidelines should also emphasize the importance of process traceability and strengthened supervision. When disposing of virtual currency, third-party institutions should record the details of the operation throughout the process to ensure that every step is traceable, which is convenient for subsequent audits and reviews. At the same time, a sound cross-departmental supervision mechanism should be established, including judicial organs, financial regulatory agencies, etc., to monitor the disposal process throughout the process, promptly discover and correct violations, and maintain market order.

The cross-border nature of virtual currency determines that its supervision and disposal require international cooperation. my country should actively participate in the formulation of international rules, share experiences with regulatory agencies of various countries, coordinate policies, jointly combat transnational virtual currency crimes, and prevent financial risks. At the same time, building a vibrant, safe and controllable virtual currency judicial disposal ecosystem will not only promote the healthy development of the digital economy, but also contribute Chinese wisdom to global virtual currency governance.

In summary, the exploration and optimization of compliance paths for the judicial disposal of virtual currencies are of great significance for maintaining financial stability and promoting the healthy development of the market. The supervision and judicial disposal of virtual currencies is a systematic project that requires the coordinated efforts of legislative, judicial and regulatory agencies, as well as international cooperation. The issue of judicial disposal of virtual currencies not only tests the adaptability and innovation awareness of the legal systems of various countries, but also puts higher demands on global regulatory cooperation. Faced with the challenges of this emerging field, how to find a balance between maintaining financial security and promoting scientific and technological innovation has become a key issue that needs to be answered urgently on a global scale. In the face of the opportunities and challenges brought by virtual currencies, my country should continue to uphold the principle of prudence, and through the issuance of comprehensive guiding opinions, provide a clear legal framework for the judicial disposal of virtual currencies, build a healthy, transparent and efficient financial market environment, and lay a solid legal foundation for the prosperity and development of the digital economy and digital finance.