China Faces Dilemma in Handling Seized Cryptocurrencies Amid Growing Criminal Activity
SHANGHAI, April 16, 2025 – The Chinese government is currently in discussions over how to manage a significant cache of cryptocurrencies that have been seized from criminal activities. This growing pile of digital assets has sparked a debate among local governments, the judicial system, and the financial sector about the need for clearer regulations in a landscape that remains largely undefined.
Growing Concern Over Inconsistencies in Crypto Management
As authorities grapple with the complexities of handling cryptocurrencies—trading of which is banned in mainland China—lawyers and judges have expressed concerns regarding the lack of coherent guidelines for managing these assets. The absence of standard procedures has led to inconsistent practices across various jurisdictions, which some believe could inadvertently encourage criminal activity or corruption.
According to reports, local governments are turning to private firms to liquidate seized cryptocurrencies for cash. A notable example is Jiafenxiang, a Shenzhen-based company that has sold over 3 billion yuan worth of seized cryptocurrencies since its inception in 2018 for local authorities, including cities like Xuzhou, Hua’an, and Taizhou. Critics have pointed out that this practice, while financially beneficial for local governments, operates in contradiction to the national ban on crypto trading.
Chen Shi, a law professor at the Zhongnan University of Economics and Law, has highlighted that with the rapid increase in crypto-related criminal cases, a more structured approach toward the handling of confiscated digital currencies is essential for effective regulation. In 2023, monetary losses from crypto crimes reportedly surged tenfold, totaling 430.7 billion yuan (approximately $59 billion), which includes a staggering rise in prosecutions for money laundering related to cryptocurrencies.
Rising Financial Stakes for Local Governments
The financial implications for local governments are considerable. Penalty and confiscation revenues reached a record 378 billion yuan in 2023, reflecting a 65% increase over five years. As cryptocurrencies become an increasingly favored tool for illicit activities ranging from fraud to money laundering, they are simultaneously aiding the financial health of localities through asset liquidation.
Guo Zhihao, a lawyer from Shenzhen, advocates for the central bank to assume a greater role in handling seized cryptocurrencies. He believes the bank could either sell these assets internationally or establish a reserve, similar to proposals recently put forth in the U.S. under former President Donald Trump.
The consensus emerging from recent seminars among legal experts and officials suggests a need for recognizing cryptocurrencies as legal assets and developing a standardized procedure for their disposition.
Potential Solutions and Future Considerations
Lawyers and financial experts are urging a paradigm shift that could see the establishment of a comprehensive regulatory framework governing the treatment of cryptocurrencies in China. Proposals include creating a centralized agency for managing seized cryptocurrencies and implementing strict guidelines for private companies involved in their disposal.
Ru Haiyang, co-CEO of Hong Kong’s largest licensed crypto exchange, suggests a consolidated approach to managing these assets, which could minimize losses and maximize value recovery from seized cryptocurrencies. Winston Ma, an adjunct professor at NYU Law School and former managing director at China Investment Corporation, agrees with the necessity of centralized management to enhance the efficacy of resource handling.
The challenges associated with illegal cryptocurrency transactions show no signs of abating. As local governments continue to encounter financial pressures, the discussions surrounding appropriate strategies for managing seized digital currencies have become increasingly urgent.
As this dialogue unfolds, the potential for significant changes to China’s approach to cryptocurrencies looms, with implications that could reshape the landscape of both regulation and enforcement in this rapidly evolving sector.
Conclusion
In summary, as illicit use of cryptocurrencies escalates, so too does the response from the Chinese authorities, who are in the midst of crafting regulations to better manage confiscated assets. The evolving nature of this debate reflects the complexities of a digital economy that remains both a significant challenge and opportunity for the nation’s governance structure.
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