Recently, a client consulted Lawyer Liu. He wanted to engage in virtual currency judicial disposal business, but he didn’t know what qualifications were required to do this business. After answering this client’s offline consultation for nearly an hour, we organized the relevant content into this article for reference by friends with similar needs; at the same time, it can also help mainland judicial authorities select qualified disposal companies in the judicial disposal business of virtual currency involved in the case.
I. Current Status of Judicial Disposal in the Mainland
As the number of criminal cases involving virtual currencies continues to increase, judicial authorities have a better understanding of virtual currencies. The professionalism in the judicial disposal of virtual currencies has long since gotten rid of the extensive model of the original stage. Judicial authorities in various places are paying more and more attention to the compliance requirements of judicial disposal. Lawyer Liu also receives inquiries from judicial authorities and disposal companies about compliance disposal models from time to time.
As far as we know, the domestic judicial disposal business is still in the "quasi-compliance" era. In the process of representing criminal cases involving virtual currencies by myself and our team of lawyers, we found that there are still many judicial disposals that are paid in RMB within the country. This is essentially a domestic subject (natural person or legal person) directly purchasing the virtual currency involved in the case from the judicial authorities in RMB, which seriously violates the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" jointly issued by ten ministries and commissions of the State in September 2021 (hereinafter referred to as the "9.24 Notice"), which prohibits the exchange of virtual currency and legal currency in China, which is essentially an illegal financial activity .
In addition, although some disposals are carried out overseas, problems arise when the overseas disposal funds enter the country. A common pattern is that the reported name of the funds is inconsistent with the actual source of funds. For example, a disposal company converts the funds that are actually overseas virtual currency disposal funds into RMB in the name of goods trade or service trade, capital, etc. This also involves providing false settlement materials to banks and other issues.
II. Introduction to Judicial Disposal Model
In the current disposal business, after several years of exploration, we and our partners have explored a disposal model that complies with current domestic regulatory policies. Combined with other current disposal models, we have summarized the more compliant paths in current judicial disposal:
The mainstream model is: the domestic company, as the disposal company, does not directly participate in the exchange of virtual currency and legal currency. It is only responsible for accepting the entrustment of the judicial authorities, and then entrusting it to the overseas company. The overseas company will dispose of it on the compliance disposal platform under the premise of complying with the local laws, regulations and regulatory policies; the funds after disposal and realization are settled into the country through compliant channels and transferred to the special fiscal account by the domestic company.
Some companies adopt a parent-subsidiary model, where the overseas parent company is responsible for the actual disposal business, and the domestic subsidiary and the judicial authority sign a entrustment agreement. After the overseas parent company completes the disposal on the local compliant virtual currency trading platform, the parent company transfers the funds to the subsidiary (cross-border RMB or foreign exchange settlement), and the subsidiary then transfers the disposal funds to the judicial authority or a special fiscal account.
There are also disposal companies that conduct auctions overseas, and there are also overseas banks that directly participate in the disposal business in mainland China under the conditions of complying with overseas regulatory requirements. In addition, we understand that there are also disposal companies that can directly negotiate with Tether to recover, dispose of and realize the USDT involved in the case, etc.
These disposal modes are numerous and the compliance points are different. In this article, we will not discuss which method is the most compliant. Friends who have such needs can also contact Lawyer Liu directly.
III. Qualification requirements for mainland disposal companies
Regardless of the above disposal options, at present, a domestic main company is required to be the contracting party with the judicial authorities. Of course, in practice, there are also overseas companies that can directly accept the entrustment of the mainland judicial authorities for disposal, but based on the contact between our team and the judicial authorities, most judicial authorities are reluctant to sign disposal agreements directly with overseas companies (after all, the judicial disposal of virtual currency is a judicial activity), but prefer to entrust domestic disposal entities (although according to Article 9 of the "Government Procurement Law", "services purchased for use outside China" do not need to purchase domestic services).
Therefore, according to the relevant legal provisions such as the Government Procurement Law, as well as the practical experience our team has accumulated in serving judicial authorities and disposal companies in judicial disposal business, we recommend that domestic disposal companies (or other entrusted entities) must at least have the following qualifications or capabilities:
First, the domestic disposal company is not involved in any legal disputes. Specifically, it includes but is not limited to any criminal offenses, civil lawsuits and enforcement cases as defendants, administrative penalties, etc.;
Second, the contracting party, foreign exchange settlement party and payment party within the country must be the same party. It is not recommended that the disposal company lend out the "foreign exchange settlement channel" to prevent criminals from laundering money in the name of judicial disposal;
Third, the location of the overseas joint disposal entity allows virtual currency transactions, and the overseas disposal entity has a good anti-money laundering, anti-terrorist financing, and anti-tax evasion system design, which meets the review requirements of domestic financial institutions for cross-border capital flows;
Fourth, the disposal company must ensure that the on-chain path of the virtual currency disposed of overseas can be tracked in real time to ensure that the virtual currency involved cannot be transferred back to the country again (however, based on the globalization of the blockchain network, the decentralization and anonymity of virtual currency, this is indeed difficult to implement in practice);
Fifth, it should be able to provide legal opinions issued by law firms at home and abroad on the disposal business, demonstrating that the disposal business complies with the requirements of local laws, regulations and regulatory requirements both at home and abroad.
4. Final Thoughts
The judicial disposal of the virtual currency involved in the case is a business that is both normal and abnormal: what is normal is that this business is essentially a judicial disposal activity of property involved in a criminal case; what is abnormal is that my country has not currently publicly recognized the property value of virtual currency in judicial activities (only in the 2013 regulatory policy documents and the 2021 industry association regulations, virtual currency is considered a "virtual commodity", but the "9.24 Notice" in 2021 with the participation of the "two highs and one ministry" did not continue the conclusion on the attributes of virtual commodities).
In 2024, the Supreme People's Court publicly launched a bidding for a research project on the judicial disposal of virtual currencies. Currently, some units have won the bid and have begun research on the project. The future model of judicial disposal of virtual currencies has not yet been determined, but we judge that the disposal business model should undergo major adjustments or changes by next year (2026) at the latest.
