How are the Crypto Assets involved in the case in China handled? The police's new trick: selling through Hong Kong to pay into the national treasury!

For a long time, a thorny question has plagued China's law enforcement agencies: how to deal with the large number of cryptocurrencies involved in the case that have been seized and confiscated in accordance with the law in the fight against the increasingly rampant use of virtual currencies for money laundering, fraud and other criminal activities. Under the background of Chinese mainland's policy of strictly prohibiting virtual currency transactions, these digital assets seem to have become a "hot potato" and cannot be realized legally, openly and transparently in China. However, this predicament has now welcomed a breakthrough solution. Recently, the Beijing Public Security Bureau announced the launch of a new mechanism for handling virtual money involved in cases—collaborating with the Beijing Equity Exchange to innovatively "borrow" a compliant licensed exchange in Hong Kong to publicly liquidate the virtual money involved in cases and ultimately remit the funds to the national treasury. The establishment of this "Beijing model" not only provides a benchmark for law enforcement agencies nationwide, but also cleverly utilizes the unique advantages of "one country, two systems," highlighting Hong Kong's indispensable bridging role in the global Web3 landscape. "Borrowing the Hong Kong" model Before discussing new models, it is essential to understand the old dilemmas. In the past, public security agencies across China seized a vast amount of virtual money such as Bitcoin, Ethereum, and Tether (USDT) after solving various cases. However, handling these assets faces two major challenges: Inability to directly realize cash in China: Since the Notice on Further Preventing and Handling the Risk of Speculation in Virtual Currency Transactions issued by the People's Bank of China and other ten ministries and commissions in 2021 has clearly defined virtual currency-related business activities as illegal financial activities, all domestic virtual currency exchanges have been banned. This makes it impossible for law enforcement agencies to auction or sell property (e.g., real estate, vehicles) through public platforms in China, just as they do with traditional property involved in the case. High risk of cross-border disposal and lack of legal sources: If you try to dispose of it through an offshore platform or over-the-counter (OTC) transaction, you will face extremely high risks. First of all, there is a lack of clear legal basis and supervision, and the operation process is not transparent, which can easily breed corruption or cause the loss of state-owned assets. Second, the price of virtual currencies fluctuates dramatically, and the value of assets may shrink significantly during the long and uncertain cross-border disposal process. In addition, there are issues such as counterparty risk, difficulty in repatriation of funds, and the possibility of triggering secondary money laundering.

These difficulties severely affect the recovery effectiveness of the assets involved in the case, making it difficult to break through the "last mile" in combating crime. The confiscated Virtual Money often can only be stored long-term in cold wallets and cannot be converted into tangible national fiscal revenue. To solve this problem, the Legal Affairs Division of the Beijing Public Security Bureau conducted in-depth research and exploration, and ultimately reached a cooperation agreement with the Beijing Equity Exchange (referred to as "North Exchange"), jointly signing the "Business Cooperation Framework Agreement for the Disposal of Involved Virtual Money" to establish a brand new disposal model.

The core of this model is to include the virtual money involved in the case into the category of "physical submission" and to design a complete and compliant disposal process. Step 1: Commission by Public Security Organs. The public security organs will formally commission the seized and confiscated virtual money involved in the case to the Beijing Property Exchange, which has the qualifications for the disposal of state-owned assets, in physical form. Step 2: Technical processing by professional institutions. The Beijing Stock Exchange selects reliable third-party professional service institutions based on their expertise to conduct technical testing, receive, and securely transfer the involved virtual money. This step ensures the technical safety and traceability of the assets. Step 3: Cashing out through Hong Kong publicly. This is the most critical link in the entire process. The received virtual money will be publicly sold on a compliant licensed Virtual Asset Trading Platform (VATP) in Hong Kong. Choosing a licensed exchange in Hong Kong ensures the legality, compliance, and transparency of the entire cashing out process, maximizing asset value at a fair market price. Step 4: Currency exchange and submission. The funds obtained after liquidation (usually in foreign currencies such as US dollars or Hong Kong dollars) will be legally exchanged into RMB after approval from the State Administration of Foreign Exchange of China, and transferred into a special account for case-related funds held by the public security organs. Ultimately, this fund will be formally submitted to the Chinese treasury as confiscated income, completing the entire disposal loop.

It is reported that this innovative model has been successfully applied in a case investigated by the Shunyi Public Security Bureau in Beijing, fully proving the security, compliance, and feasibility of the mechanism. Of course, its significance goes far beyond solving a problem at the level of law enforcement operations; it also brings about far-reaching impacts in multiple aspects: Enhance the deterrence of fighting crime: The establishment of smooth asset disposal channels means that criminals can effectively recover and deprive the illegal gains transferred and hidden through virtual currency, which greatly enhances the crackdown and deterrence of related criminal activities. Ensure the security of state-owned assets: The disposal of the virtual currency involved in the case through an open and transparent market-oriented method can preserve the value of state-owned assets to the greatest extent and avoid value loss and integrity risks that may occur in the process of opaque disposal. A major positive for Hong Kong's Web3 hub: This move is undoubtedly a huge endorsement of the trust of mainland authorities in Hong Kong's licensed exchanges. It means that Hong Kong's compliance platforms will likely undertake sizable asset disposal business from mainland authorities, which will greatly enhance the liquidity, market credibility and international status of these platforms, and is a milestone event in Hong Kong's development into a global virtual asset centre. Subtle Shift in Official Attitude: While this in no way means that Chinese mainland will ease its ban on private virtual currency transactions, it shows that Chinese officials are taking a more pragmatic and mature approach to virtual currencies as an objectively existing asset class. The move from a simple "one-size-fits-all" ban to the establishment of specialized, compliant channels to manage and dispose of the assets associated with them is a huge step forward in itself and can be seen as a "de facto recognition" of the attributes of virtual currency assets in specific areas (enforcement and disposal of state-owned assets).

Advantages of "One Country, Two Systems"

It is worth noting that the success of this new model in China is largely due to the full utilization of Hong Kong's unique institutional advantages under the "one country, two systems" framework. First of all, Hong Kong has established a clear and continuously improving regulatory framework for Virtual Money. The Hong Kong Securities and Futures Commission (SFC) issues licenses to qualified Virtual Money trading platforms and conducts strict oversight of their operations. This provides a legal and safe "liquidity outlet" for assets involved in mainland cases. Secondly, Hong Kong, as an international financial center, has an independent customs zone and financial system, allowing for the legal trading of Virtual Money. This forms an effective complement to the strict prohibitions in the mainland. The mainland's "ban" and Hong Kong's "regulation" create a clever synergy in this context. Therefore, Hong Kong plays a dual role as a "super connector" and a "firewall" in this model. It connects global liquidity for assets that cannot be handled in the mainland while ensuring compliance and safety throughout the process through its own regulatory system, preventing risk spillover. In summary, the new model of "borrowing a path through Hong Kong" pioneered by the Beijing police is a highly intelligent institutional innovation. It not only efficiently addresses the long-standing challenges in law enforcement work but also represents a perfect collaboration between the mainland and Hong Kong within the grand framework of "One Country, Two Systems." In the future, as this model may be promoted nationwide, Hong Kong's key position as a gateway between China and the global Virtual Money market will be unprecedentedly strengthened. This also indicates that under China's strict regulatory policies, a unique "Chinese-style" Virtual Money management pathway, centered in Hong Kong and connected with the global market, is gradually taking shape.