- China’s prosecutorial authority proposed reforms to tackle crypto money laundering.
- The paper recommends recognizing blockchain evidence and expanding investigative powers.
- Authorities have also cited major challenges in tracing anonymous transactions.
China’s prosecutorial authorities have outlined a broader legal framework for tackling cryptocurrency-related money laundering. They argued that existing laws and investigative methods are struggling to keep pace with blockchain-based financial crime.
In a paper titled “Systematically Solve the Legal System Dilemma of Money Laundering Using Virtual Currency,” legal experts Yang Yingjie, Guo Shaoyou, and Liu Xinqi examined how cryptocurrencies have become increasingly attractive for laundering illicit funds because of their decentralized design, pseudonymous transactions, and ability to move assets across borders.
The paper says these features have expanded the scale of crypto-based money laundering globally while exposing gaps in China’s legal system involving criminal classification, evidence collection, and asset recovery.
Existing Laws Face New Challenges
The authors said China’s Anti-Money Laundering Law has removed restrictions on predicate offenses, but Article 191 of the Criminal Law still limits money laundering charges to seven specific underlying crimes.
As a result, proceeds from many crimes laundered through cryptocurrencies are often prosecuted under separate laws covering the concealment or hiding of criminal proceeds rather than money laundering itself.
To address this, the paper proposes stronger judicial guidance, wider use of blockchain analysis during investigations, and mandatory reviews of potential money laundering charges alongside investigations into the original criminal offense.
Prosecutors should also become involved earlier in major investigations to guide evidence collection and determine the real purpose behind crypto transactions.
The authors also recommend strengthening supervisory reviews, correcting cases where money laundering investigations were not opened, and adjusting performance standards so prosecutors place greater emphasis on recovering stolen assets and pursuing independent money laundering charges.
Digital Evidence Requires Different Rules
According to the paper, cryptocurrency investigations face major technical hurdles because criminals use privacy coins, crypto mixers, decentralized exchanges, encrypted communications, and cross-chain transfers to hide transaction trails.
These methods make it difficult to identify wallet owners, collect cross-border evidence, and rebuild complete fund flows using traditional investigative techniques.
The authors propose allowing courts to recognize blockchain records as authentic when transaction data can be independently verified on public blockchains and hash values remain unchanged.
They also recommend giving formal evidentiary status to blockchain analysis reports prepared by qualified forensic firms while requiring courts to examine the reliability of the analytical methods behind those reports.
The paper further suggests introducing legal presumptions in certain cases. Investigators could infer criminal intent when suspects use privacy-focused tools, rapidly sell large crypto holdings through unusual transactions, or repeatedly move large amounts of cryptocurrency through anonymous wallets without a legitimate explanation.
The authors also called for clearer legal standards governing technical investigative methods such as blockchain monitoring, traffic analysis, and network penetration testing, while maintaining safeguards for personal information and cybersecurity.
Recovering Crypto Assets Remains Difficult
The paper identifies asset recovery as another major obstacle. China’s restrictions on cryptocurrency circulation leave authorities with limited options after seizing digital assets.
At the same time, there are no unified procedures covering private key management, valuation methods, or liquidation of seized crypto during criminal proceedings.
Cross-border recovery presents an additional challenge because countries apply different legal standards to cryptocurrencies, making international asset freezes and confiscations more difficult.
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