In recent years, we can see that many legal experts, scholars, lawyers, and judicial system case handlers have discussed how to legally and compliantly deal with virtual currencies. Lawyer Shao has also shared relevant views (➡️ " Without a court ruling, the police should not deal with the virtual currency involved! ").
Regardless of what kind of disposal process the public security organs adopt to comply with regulations, in practice, there is a sufficient and necessary prerequisite for the case-handling units to deal with virtual currency : the parties involved (suspects/defendants in criminal cases) need to take the initiative to return the stolen money and voluntarily hand it over.
The issue that this article wants to discuss is that the virtual assets involved in the case have been frozen by public security and judicial authorities. If the parties refuse to cooperate with the investigators to transfer their virtual currency from the exchange or digital wallet to the wallet address controlled by the investigators, even if there is an effective court judgment in the future, can the virtual currency involved be enforced?
Author: Lawyer Shao Shiwei
0 1
General disposal process of virtual currency involved in the case
In simple terms, the process for the judicial disposal of virtual currency involved in the case by the case-handling unit (currently handled by the public security department, not the court enforcement bureau in practice) is as follows:
The case-handling unit freezes the virtual currency involved in the case (optional, as the parties may cooperate and voluntarily hand it over at the first opportunity) ➡️The parties cooperate in transferring assets to the account designated by the case-handling unit ➡️The parties cooperate with the case-handling unit to authorize a third-party disposal company to convert the virtual currency involved in the case into legal tender.
1. Freeze
Two situations need to be distinguished here. One is that the assets of the parties are in a virtual currency exchange (such as centralized exchanges such as Binance and EURUSD), and the other is that the assets of the parties are stored in a digital wallet.
Whether it is Binance, OKX or other mainstream virtual currency trading platforms, they have launched special law enforcement request systems. Domestic police can submit law enforcement requests and freeze the accounts involved through these systems.
(Source: EUREX official website)
In this way, the case-handling unit can freeze the party’s account in the exchange, thereby restricting the transfer of assets in the account.
If the assets of the parties are stored in a digital wallet, the domestic public security can contact the issuer of USDT, Tether, to freeze the assets. For example, the Hubei Jingmen police cracked a cross-border online gambling case involving a turnover of 400 billion yuan (the nation’s “first virtual currency case” [1]). According to reports, “because the platform used virtual currency for all settlements, the public security organs contacted the virtual currency issuer and froze the relevant virtual currency accounts involved in the case.”
Through the above methods, the case-handling unit completed the first step in the disposal of virtual currency assets: freezing.
2. Transfer and monetization
Generally speaking, the legal process of confiscating funds in criminal cases is that the public security organs take criminal compulsory measures such as sealing, seizing, and freezing the property involved in the case through legal procedures. After the case is transferred for review and prosecution, the prosecutor will put forward opinions on the handling of the property involved. After the case is transferred to the court, if the court finds that the property involved is illegal income or should be recovered after review, it should make a decision and write it in the judgment. After the judgment takes effect, if the defendant does not take the initiative to return the stolen money, the judge will transfer the case to the court execution bureau for compulsory execution according to law.
However, due to the special characteristics of virtual currencies (difficult to keep, volatile currency prices, etc.), and virtual currency transactions are currently considered illegal financial activities in China, law enforcement officers converting the virtual currencies involved into legal tender may also be suspected of condoning virtual currency transactions, which is contrary to China's current policy of combating virtual currency speculation. Therefore, in practice, the disposal of virtual currencies is mostly handled by the public security during the investigation stage , and even in the execution stage after the court judgment, it is generally handled by the public security.
Continuing from the above, after the case-handling unit has frozen the virtual currency of the parties involved, the next step is to ask the parties involved to voluntarily return the stolen money and make compensation , voluntarily transfer the virtual currency to the address designated by the public security, and ask the parties to sign a virtual asset disposal agreement under the witness of the public security organs, and ask the parties to authorize a third-party disposal company to convert the virtual currency into legal currency.
The current ways for third-party disposal companies to realize cash include: online OTC transactions through exchanges, finding suitable buyers for offline transactions, cooperating with foreign trade companies, using fictitious export trade names, etc., having overseas companies remit funds and then using the SAFE settlement process to bring the funds “legally” into the country.
0 2
Question: If the party refuses to cooperate, will the above process still work?
Let’s talk about the account assets in the exchange first. According to the “Procedures for the Public Security Organs to Handle Criminal Cases”, the freezing period is 6 months, but it can be renewed before the expiration date, and there is no limit on the number of renewals.
Mainstream virtual currency exchanges generally cooperate with domestic law enforcement agencies to carry out freezing .
But are there any virtual currency exchanges that, based on the effective criminal judgments of domestic courts, cooperate with judicial authorities to deduct the virtual currency in the parties' accounts involved in the case to the address designated by the case-handling unit? According to Lawyer Shao's own case handling practice and the information he has learned from public information, it seems that there is no such information.
Therefore, if the parties refuse to cooperate with the investigation unit to transfer and dispose of the virtual currency in the exchange, the investigation unit may only be able to freeze the assets in the account.
So what if the assets are in the wallet? Take the Plustoken case, the largest case in the cryptocurrency circle, as an example (for details of the case, see ➡️ " Explaining the Law with Cases丨From the 40 Billion Cryptocurrency MLM Case, How Can Web3 Games Avoid MLM Risks? "), it was reported that in August 2024, hundreds of wallets that had been dormant for 3.3 years were transferring a large amount of about $2 billion in Ethereum. Because the transferred ETH did not match the amount listed in the verdict, and after the case, the leader who hosted the Plustoken case in 2022 was investigated for bribery, some people judged that it might be that people who had been released from prison began to look for their previous coins.
If this speculation is true, it means that some wallet addresses were previously unknown to the investigating authorities, or even if they were known, they did not know the private keys and other information.
Therefore, regardless of whether the assets of the parties are in a virtual currency exchange or a digital wallet, the current judicial disposal of virtual currency is actually based on the premise that the parties actively cooperate in the transfer of virtual currency.
0 3
Discuss the significance of this issue
In the past six months, issues such as distant-water fishing and profit-seeking law enforcement have been widely discussed. Lawyer Shao has previously said that due to the large amount of funds involved in cryptocurrency cases, it is not uncommon for them to be "manufactured under jurisdiction" and face profit-seeking law enforcement.
In my country, although there is no concept of "plea bargaining" like in the United Kingdom and the United States in the existing legal system, for example, lenient treatment for confession of guilt and signing a reconciliation agreement with the victim are, to some extent, essentially similar to the effects achieved by plea bargaining.
If it is an ordinary criminal case, for the general case handling unit, if the parties do not cooperate, then they do not cooperate. At most, it will be a problem that cannot be handled and the court will make a direct judgment.
However, for cases that may be driven by economic interests, the primary issue is disposal and realization . At this time, from the perspective of defense, the topic discussed in this article can also be regarded as a negotiation strategy, although, for the parties involved, this is obviously a helpless move.
[1] The first virtual currency case in China has been solved! https://mp.weixin.qq.com/s/SrpguHfXZTNzvC--rueHvg
