According to an article on the official WeChat account of the Xuhui District Procuratorate in Shanghai, on August 29, 2024, the Xuhui District Procuratorate and the Xuhui District Public Security Bureau jointly signed the “Guidelines for the Disposal of Virtual Currency in Criminal Proceedings” (hereinafter referred to as the “Guidelines”). This provides specific guidance for the handling of criminal cases involving virtual currency by public and procuratorial authorities in the jurisdiction, including “detailed and clear provisions on the entire process and various aspects such as evidence inquiry, seizure and custody, and transfer and disposal,” as detailed in the article “Another Innovative Initiative in the Comprehensive Performance of Network Procuratorial Work! ‘Guangqi X Space’ Officially Launched.” After reading some analysis articles online, lawyer Liu found that some titles exclaimed, “China’s First Cryptocurrency Crime Handling Standard is Released!” while others believed that the “Guidelines” aimed to specify the specific circumstances of judicial disposal of virtual currency. In fact, these interpretations are not entirely accurate. Given the convenience of “the early bird catches the worm,” lawyer Liu has learned about the general content of the “Guidelines” and will provide a brief analysis and commentary in this article.
(Image source: “Xuhui Procuratorate” official WeChat account)
I. Main Content of the “Guidelines”
In fact, the article from the Xuhui Procuratorate explains it very clearly. The theme is the establishment of the Xuhui Procuratorate’s brand for comprehensive performance of network procuratorial work, the “Guangqi X Space.” The main role of this department is to combat and punish new types of network technology crimes. As one type of new network technology crime, crimes involving virtual currency are also mentioned. The specific approach is the signing of the “Guidelines” by the public security and procuratorial authorities in Xuhui District.
The content of the “Guidelines” is not extensive. It mainly involves how to legally and compliantly inquire about and secure evidence related to virtual currency in criminal cases (with electronic evidence as the main focus), how to seize and manage virtual currency involved in the case (which possesses both evidentiary and property attributes), and general requirements for the transfer and disposal of virtual currency involved in the case.
II. Impact of the “Guidelines” on Criminal Defense in the Crypto Industry
Frankly speaking, the “Guidelines” will not have a significant impact on criminal defense in the entire crypto industry. This is mainly because the “Guidelines” are merely a procedural document for handling cases in Xuhui District and do not have a direct influence on neighboring districts, let alone Shanghai or the whole country.
In addition to geographical limitations, the “Guidelines” are not the so-called “China’s first cryptocurrency crime handling standard,” as some articles claim. Lawyer Liu knows and has actually obtained at least five similar guidelines or regulations for handling criminal cases involving virtual currency, some at the provincial level and some at the municipal level. If we consider the disposal guidelines at the district and county levels, Xuhui District in Shanghai is indeed the first.
Overall, the existing regulations are largely similar across different regions. “The Supreme People’s Court, the Supreme People’s Procuratorate, and the Ministry of Public Security” have already made clear regulations on evidence standards and procedures for collecting evidence in cybercrime cases (such as the “Opinions on Several Issues Concerning the Application of Criminal Procedure in the Handling of Information Network Crime Cases” in 2022 and the “Regulations of the People’s Procuratorates on Handling Network Crime Cases” issued by the Supreme People’s Procuratorate in 2021). All criminal cases in the crypto industry can be covered under the general concept of cybercrime. Therefore, it is difficult to expect “The Supreme People’s Court, the Supreme People’s Procuratorate, and the Ministry of Public Security” to specifically issue regulations for criminal cases involving virtual currency nationwide. Instead, it is more likely that virtual currency content will be added when revising some judicial interpretations of criminal charges (with two exceptions: firstly, if there are a sufficient number of criminal cases in the crypto industry and there are special changes in evidence and legal application, such as adding virtual currency content to the law; secondly, if specific regulations on the disposal of virtual currency are issued).
III. Impact of the “Guidelines” on the Disposal of Virtual Currency in Cases
One of the current debates in the disposal of virtual currency involved in cases is the timing or authority of disposal. According to laws and judicial interpretations, the principle is that the court is responsible for the disposal of property involved in criminal cases. However, in current judicial practice regarding virtual currency criminal cases, it is mostly the public security authorities who directly handle the disposal. Lawyer Liu has also analyzed this in previous articles. From the perspective of public security authorities, their basis for disposal is as follows:
1. From the perspective of departmental regulations, there seems to be a procedure for disposing of virtual currency:
“Several Provisions on the Management of Property Involved in Cases by Public Security Authorities”
“For bonds, stocks, fund shares, and other properties with large market price fluctuations, and drafts, promissory notes, and checks with imminent expiration dates, if the rights holders provide written consent or apply, and with the approval of the main person in charge of the public security authorities at or above the county level, they can be sold or auctioned in accordance with the law, and the proceeds shall be deposited into the only compliant account of the unit.”
“In the investigation stage, for items that are prone to damage, loss, decay, deterioration, or difficult to store, with the approval of the main person in charge of the public security authorities at or above the county level, they can be entrusted to relevant departments for sale or auction after being photographed or videotaped. The proceeds from the sale or auction shall be temporarily preserved until the end of the litigation and then handled together.”
“For frozen properties such as bonds, stocks, and fund shares, the parties or their legal representatives or authorized agents should be informed of their right to apply for sale.”
Even for the procuratorate, under certain conditions, the disposal of property involved in the case can be carried out during the investigation process.
2. Rules of Criminal Procedure of the People’s Procuratorates
“The freezing of bonds, stocks, and fund shares should be notified in writing to the parties or their legal representatives or authorized agents of their right to apply for sale.”
Specifically, after the party applies and the chief procurator approves, the bonds, stocks, fund shares, and other properties involved in the case can be sold or realized before the case is closed, and the proceeds shall be transferred to the procuratorate’s designated bank account.
From the perspective of the nature of virtual currency itself, timely disposal is necessary. Virtual currency, based on its anonymity and decentralization, is significantly different from traditional assets in terms of custody. There have been cases where the virtual currency of suspects/defendants was seized and subsequently lost. The reason is that the handling authorities did not promptly transfer the virtual currency involved in the case to a new wallet address. If someone other than the suspect/defendant also obtains the wallet private key (mnemonic), it is easy to transfer the virtual currency involved in the case in a very short period of time.
In addition, the market volatility of virtual currency is significant, and the price can experience roller-coaster-like fluctuations within a day. If the proceeds from the eventual realization of the virtual currency significantly exceed or fall below the amount at the time of the crime, it would be unacceptable for both the prosecutor and the defense lawyer (as the defendant’s sentencing could be extremely severe or light, or even result in an acquittal, such as when the value of the virtual currency involved in the case becomes zero, how should it be charged?). Therefore, the more timely the disposal, the less intense the confrontation between prosecution and defense may be in future litigation.
However, from another perspective, the public security authorities, procuratorates, and even courts face the following challenges when disposing of virtual currency involved in cases:
First, virtual currency is neither a “bill of exchange” nor “debt equity.” The disposal of virtual currency by public security authorities, procuratorates, or courts raises concerns about whether they have the necessary authority.
Second, in the current regulatory documents on virtual currency, no one is allowed to engage in the business of exchanging virtual currency for fiat currency. Public security authorities have therefore entrusted third-party disposal companies to handle the disposal of virtual currency involved in cases. There is still controversy over whether this model is in line with current regulatory requirements.
Third, overall, there is no clear and unified standard or guideline for the disposal of virtual currency involved in cases at present. This has led to different grassroots experiences in handling cases by authorities in different regions, with each institution “doing its own thing” and “feeling their way through the dark.” The “Guidelines” are just one of these experiences. However, Liu believes that the release of the “Guidelines” is still significant. If it can be made publicly available to all citizens (or at least citizens in the jurisdiction of Xuhui), its significance would be even greater.
Returning to the question raised at the beginning of this section, if the “Guidelines” have an impact on the disposal of virtual currency, it is limited to the Xuhui District in Shanghai. It is also difficult to escape the limitations of the positive and negative issues listed above by lawyer Liu.
IV. Conclusion
Recently, news about the disposal of virtual currency involved in cases has been overwhelming. From the Supreme People’s Court’s project tender to an article in the People’s Court Daily (see “Recommended Readings” at the end of this article), and now the guidelines from the Xuhui District in Shanghai, all of these indicate one thing: an increasing number of judicial authorities are paying attention to the compliance issues in the field of disposing virtual currency involved in cases, and the need for compliant disposal is becoming urgent. This also serves as a warning to third-party disposal companies: only compliance can ensure long-term success.
