How can the judicial disposal of virtual currencies be standardized What are the new viewpoints in the Peoples Court Daily

Coin World reported:
Early this morning, a friend sent me a link to an article published by the People’s Court Daily on its official WeChat account titled “Standardization is Required for the Judicial Disposal of Virtual Currency.” As the judicial disposal of virtual currency has always been one of lawyer Liu’s research areas, I have been following the new trends in the judicial practice and theoretical field regarding disposal business. The People’s Court Daily is supervised by the Supreme People’s Court, so the use of the term “standardization” in the context of judicial disposal of virtual currency indicates that the highest court still considers the field of judicial disposal of virtual currency to be non-standard. From Lawyer Liu’s practical experience, it is undeniable that there are still many compliance-related issues that need to be addressed urgently in the current disposal situation. However, overall, there has been significant progress compared to the indiscriminate disposal methods used last year or even earlier.
1. What does “Standardization is Required for the Judicial Disposal of Virtual Currency” talk about?
The article was written by Professor Yang Kai from East China University of Political Science and Law. At the beginning, it introduces the “challenging practical problems” in the current practice of judicial disposal of virtual currency. On the one hand, regulatory documents (September 4th Notice, September 24th Circular) strictly limit virtual currency transactions and even classify some virtual currency businesses as illegal financial activities. On the other hand, there is a practical need for the disposal of virtual currency in a large number of criminal cases (such as determining the amount involved and sentencing decisions). Therefore, Professor Yang believes that “legal regulation of judicial disposal of virtual currency is urgent” due to the fundamental reason that “while denying the property attributes of virtual currency in terms of recognition, it is impossible to avoid the property value presented by virtual currency in the process of handling the involved properties.”
The author believes that the judicial disposal of virtual currency is a comprehensive business that requires the participation of legislation, the judiciary, supervisory agencies, and even international cooperation. It is also believed that China needs to quickly introduce a comprehensive set of guidelines for the judicial disposal of virtual currency as the legal basis and operational norms for the business of judicial disposal of virtual currency.
2. What are the non-standard aspects of the current disposal?
The author believes that the current judicial disposal involves the following aspects that need to be regulated:
First, the issue of ownership identification of the virtual currency involved. Due to the anonymity and decentralization of virtual currency, in criminal cases, it is necessary to determine whether the virtual currency involved belongs to the suspect, defendant, or victim using different standards of proof than before. For example, evidence collection requires “transaction records obtained from virtual currency exchanges, analysis of smart contract codes, as well as tracking of IP addresses and geographical location data.”
Second, there is no fixed standard for evaluating the value of virtual currency. Currently, there is no unified standard for determining the price of the virtual currency involved. Based on Lawyer Liu’s experience, for example, some audit and appraisal agencies commissioned by law enforcement agencies directly calculate the value of the virtual currency involved as equivalent to the US dollar, while others calculate it based on the fiat currency (mainly Chinese yuan, Hong Kong dollar, and US dollar) obtained after liquidation. There are also cases where the amount involved is calculated as the amount transferred to the financial account of the law enforcement agency after deducting transaction fees by the disposal company, and so on.
Third, how to choose the legal liquidation of virtual currency; for example, when to choose the timing of liquidation. If it is a stablecoin (such as USDT, USDC), it is relatively easier. However, if it is BTC, it may face significant price fluctuations in the short term, and some altcoins may experience a price collapse in a short period of time. There is also the issue of selecting a disposal company (such as selection procedures and qualification requirements).
In addition, the author also mentioned “selecting well-known domestic and foreign trading platforms or judicial auction platforms.” Lawyer Liu disagrees with this approach. Firstly, there are currently no so-called legal trading platforms in China. Secondly, judicial auctions of virtual currency are difficult to implement in China.
3. What compliance recommendations does the People’s Court Daily have?
The author mentioned the following compliance recommendations:
First and foremost, it is important to clarify the legal status of virtual currency (the “Notice of the People’s Bank of China, the Ministry of Industry and Information Technology, the China Banking Regulatory Commission, and other departments on preventing bitcoin risks” clearly states that bitcoin is a virtual commodity but does not explicitly state the legal nature of other virtual currencies).
Second, the disposal process should be standardized. The author believes that guidelines should be established to specify the legal procedures for freezing, sealing, confiscating, auctioning, and selling virtual currency, and clarify the responsibilities and authorities of judicial authorities, financial institutions, and third-party institutions in the disposal process.
Third, the legitimate rights and interests of the parties involved should be protected, ensuring their right to information, participation, and remedies. Lawyer Liu also considers this point to be very important, especially in criminal defense cases, where suspects and defendants often have little or no recourse in the process of virtual currency disposal, and their right to information and participation often remains superficial.
Fourth, transparency and security in the disposal process. For example, when disposing of the virtual currency involved, the disposal company needs to keep a complete record of all domestic and foreign operations to ensure that all steps can be traced. Law enforcement agencies or other departments (such as banks, the central bank, foreign exchange, taxation, etc.) should establish cross-departmental supervision mechanisms to oversee the disposal process.
Fifth, strengthen international cooperation. Lawyer Liu does not elaborate on this point, and interested readers can refer to the original article.
4. In conclusion
According to Lawyer Liu’s understanding, Professor Yang, who wrote the article “Standardization is Required for the Judicial Disposal of Virtual Currency,” mainly focuses on public social governance in his research at East China University of Political Science and Law. His practical experience in virtual currency operations may be less than his theoretical research. For example, in civil cases, there is no practical way to preserve virtual currency, as courts usually do not accept the filing of civil litigation related to cryptocurrency, let alone future preservation operations. Moreover, even if a case can be filed, the preservation group of the enforcement bureau would find it difficult to carry out cross-border preservation operations (because virtual currency exchanges or mainstream wallet servers are located overseas).
However, overall, this article does reflect the need for further compliance in the judicial disposal of virtual currency at present. It is a normal process for a new business area to transition from indiscriminate to refined methods. Lawyer Liu believes that the business of judicial disposal of virtual currency will also continue to develop in the direction of legality, compliance, and transparency. For friends interested in the judicial disposal of virtual currency, you can refer to the “Previous Articles” section below this article or contact Lawyer Liu.