There’s been confusion about China’s Bitcoin and Tether bans. Are people being imprisoned for buying and selling Bitcoin? How are they caught and punished? What parts of the Chinese judiciary state are involved, and what can that tell us about how Bitcoin usage is being punished in a heavily censored state?
Legal status of Bitcoin
Since a 2021 ban on trading Bitcoin and mining it, it does appear that the courts have upheld Bitcoin’s legal status as property. However, “illegitimate uses,” such as using it for currency, have not been upheld. Mining Bitcoin, issuing tokens/ICOs, and trading Bitcoin/Tether all seem illegal. The Cybersecurity Administration of China will also ban/block large KOL accounts from posting about Bitcoin on Chinese social media, with Bitcoin trading activity moving to Discord/Telegram to some degree from WeChat (though smaller trading groups may still be active on WeChat). The rest of the article will analyze when judicial forces got involved on a larger scale. However, there were arrests of cases before 2021, such as the PlusToken arrests, but these were usually related to other crimes. Since 2021, there have been cases solely involving virtual currency trading.
Since the 2021 ban
Since 2021, the judicial authorities have gotten involved in multi-agency bans on cryptocurrency, specifically the Chinese courts and police. Arrests have been made since then, though they probably represent a low amount of actual trade volume. What can analyses of the arrests and the stories tell us about how Chinese law enforcement works on these cases? Who is trading Bitcoin and Tether, and how are they doing it?
Man lends bank card to buy virtual currency, earns 147.1 yuan, sentenced and fined 5,000 yuan.
The Mawei People’s Procuratorate (a local bureau of China’s highest prosecutorial system) arrested somebody for buying about $13,067 worth of Tether (94,988 yuan) for an acquaintance – and sentenced them to nine months in jail. One of the interesting things about this is that the person was told to download an “unspecified” app, which presumably isn’t WeChat – it may be Telegram or Discord, showing that Bitcoin/Tether traders are aware of not having conversations on WeChat. The arrest may have been conducted because of banking card flows. Still, it was also noted that the Procuratorate had evidence of screenshots confirming this behavior – showing that somebody within the group or an agent within had entered the discussion.
SAFE, which coordinates foreign exchange and is responsible for enforcing the $50,000/year per person rule on capital flight, mentions in its cooperation with the Supreme People’s Procuratorate that “virtual currencies” often act as an intermediate step in foreign-exchange crime and they’re interested in the technical factors of virtual currency to mitigate this crime.
In Jilin province, which borders North Korea, six people were arrested for moving cryptocurrencies to South Korea. Law enforcement from the city of Panshi made the arrest, and they became aware of it because of local banking activity involving many transactions with different individuals. It wasn’t “on-chain” analytics or a federal policing force that got involved, but rather tight control over the local banking system and access to those records by local law enforcement – something other cases will have.
Chinese police arrest 63 people for laundering US$1.7 billion via cryptocurrency.
In this case, the Public Security Bureau of Inner Mongolia’s Tongliao city arrested 63 people for “laundering” $1.7bn in USDT by trading it back into RMB. The initial case was tipped off by having more than 10mn RMB in deposits. However, 200 police officers worked on the case. They showed what a local police bureau could do with enough focus: getting onto Telegram (though the SCMP made a mistake here, as Telegram is not encrypted by default) and working with “overseas crypto exchanges and traced crypto blockchain records as part of the investigation.” These exchanges aren’t mentioned, but Huobi, OKEx, and Binance have significant roots in the Chinese ecosystem. This case emphasized that local banking remains how large-scale operations like this are often caught, but also brought to the fore that local policing forces can cooperate with foreign exchanges and use some version of on-chain analytics. Suspects were also extradited from Thailand, which has seen prominent arrests of people the Chinese state is interested in before. The Public Security Bureau can be seen as a “local police force,” roughly the equivalent of an NYPD.
The Weixin (WeChat in China) post on this sure has plenty of cash pallets and excitement.
Bitcoin miner gets life in prison, China offers bounties for crypto firms: Asia Express.
There appears to be an active bounty for people trying to raise funds through ICOs or tokens in China. Third-party tracking firms seem to track people running projects, and the police will then arrest those responsible and dump the tokens for RMB. Most Web3/altcoin founders have chosen to leave China, most likely. It’s also interesting to think about the implications of this for trading in Bitcoin. However, peer-to-peer trade, or even larger OTC arrangements, could not be targeted in such a way unless they grew to a significant enough scale.
The People’s Procuratorate in Wuxi City claimed their first arrest for laundering virtual currencies. Wuxi is in Jiangsu and is one of the closest cities to Shanghai. A defendant named Wang was sentenced to one year and six months in prison. In this case, somebody they had defrauded by promising them Tether (but not delivering) reported them to the police. After, the statement goes over how there are likely many cases involving “virtual currencies” that are beyond the ability of the Wuxi City Procuratorate to find and track down.
Absurdity | Supreme People’s Procuratorate Monthly: Stealing Bitcoin does not constitute a crime
The Supreme People’s Procuratorate (responsible for oversight over local Procuratorates like the ones we’ve seen in Wuxi and Mawei) has weighed in since the September 2021 ban; one author believes that the law no longer protects stolen Bitcoin. That is at odds with the Courts in the Chinese system—and the position of the author of this Weibo post, a lawyer who finds the position absurd.
Conclusion
More than 1,200+ people have been arrested partially or fully for trading cryptocurrencies in China since the 2021 ban involved law enforcement. Law enforcement—and specifically the People’s Procuratorates and Public Security Bureaus (you can think of them roughly as the local police, as well as local branches of federal policing)—has become involved since 2021—since then, they’ve arrested multiple people.
While many of the arrests seem related to criminal rings using cryptocurrencies, there are also arrests for people trading on an individual basis or for relatively small amounts. Those cases are usually caught through access to local banking records or chat records provided to law enforcement. Some companies help local law enforcement canvas what is happening with exchanges, including cooperation from some of the exchanges themselves.
Overall, law enforcement in China looks bearish about Bitcoin, refusing even to see stealing Bitcoin as a crime in some instances -. In contrast, the courts have generally upheld Bitcoin to be property. There doesn’t seem to be a systematic attempt to crack down on peer-to-peer trading – with local law enforcement making arrests if cases are presented to them and law enforcement talking openly about the challenges of dealing with virtual currencies.
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