A New "Pockeт Crime" Emerges in the Crypto Community: How to Save Yourself?
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A New "Pockeт Crime" Emerges in the Crypto Community: How to Save Yourself?
Times are evolving; whether blockchain technology will trigger further financial innovation in the future remains unknown. Only by surviving can one plan for development.
Navigating Web3 tides with focused insightsAccording to relevant information, Zhao, CEO of a certain cryptocurrency exchange, was taken into police custody on suspicion of the crime of concealing or disguising proceeds of crime and illegal gains, and the case has now entered the prosecution review stage. It is evident that criminal risks arising from the anonymity and decentralization inherent in the crypto industry are no longer limited solely to money laundering offenses—they are showing signs of expansion. In this context, Team Sa reminds practitioners and participants to clearly understand these emerging legal risks by further analyzing the offense of concealing or disguising proceeds of crime and illegal gains.
Why Is Money Laundering Considered a "Catch-All" Charge?
In terms of when they were codified into China's Criminal Law, the offense of concealing or disguising proceeds of crime and illegal gains predates the specific crime of money laundering. The latter was established as a special provision targeting particular crimes such as drug-related offenses and financial crimes. According to international anti-money laundering organizations, China’s criminal legislation against money laundering includes both the charge of money laundering and that of concealing or disguising proceeds of crime and illegal gains. While money laundering charges have become commonplace in the crypto space, the offense of concealing or disguising proceeds of crime is often overlooked—even leading some industry insiders to believe OTC platforms cannot be prosecuted under this statute. Team Sa emphasizes that concealing or disguising proceeds of crime falls within the broad definition of money laundering, and when assessing criminal liability, OTC platforms enjoy no special exemption based on their business model.
Differences Beyond Upstream Crimes
From a legal perspective, many consider the money laundering offense and the offense of concealing or disguising proceeds of crime to be overlapping provisions (i.e., statutory竞合). As previously noted by Team Sa, one key distinction lies in the fact that money laundering requires the upstream crime to belong to a specifically defined category, whereas the offense of concealing or disguising proceeds of crime imposes no such restriction. Additionally, the conduct constituting money laundering is clearly defined as any act that conceals or disguises the origin and nature of criminal proceeds through: (1) providing bank accounts; (2) assisting in converting property into cash, financial instruments, or securities; (3) facilitating fund transfers via wire transfer or other settlement methods; (4) assisting in remitting funds overseas; or (5) using other means to conceal or disguise the source and nature of illicit gains.
In contrast, the behaviors covered under the offense of concealing or disguising proceeds of crime include harboring, transferring, purchasing, selling on behalf of others, or otherwise concealing or disguising such assets. This provision is notably broader and less precise, lacking detailed enumeration of specific acts.
Moreover, the crime of money laundering requires that the perpetrator alters the source and nature of the illicit funds, while the offense of concealing or disguising proceeds only requires concealment or disguise without mandating a change in the nature of the funds.
Legal Ambiguity: Advantage or Risk?
The ambiguity surrounding the offense of concealing or disguising proceeds of crime manifests in two aspects: first, the wide range of actionable behaviors results in a low threshold for criminal liability; second, it remains unclear how legally to treat acts that alter the nature of funds, since current laws do not directly address this issue.
Regarding the first point, the low threshold increases criminal exposure, especially given the expansive catch-all clause ("other methods"), which significantly widens the scope of prosecution under this charge.
As for the second, strictly speaking under the principle of legality in criminal law, acts involving changes in the nature of funds should fall under the money laundering charge. However, the applicability of money laundering charges depends heavily on the type of upstream crime—although recent amendments show a trend toward broadening the scope of qualifying upstream offenses. Meanwhile, the offense of concealing or disguising proceeds of crime, despite having a more lenient standard regarding upstream crimes, does not explicitly mention altering the nature of funds.
Team Sa believes that although, strictly adhering to legal texts, there may be no explicit basis to penalize acts that change the nature of funds under this charge, changing the nature of illicit funds typically indicates increased social harm. Criminal law, as an instrument of social governance, will not ignore objectively harmful conduct. Due to the anonymity and decentralization of virtual currencies, converting illicit proceeds into cryptocurrencies and then back into fiat currency inevitably alters the nature of those funds. Such actions are not beyond legal reach—they occur not in a lawless frontier but on a beach riddled with hidden dangers.
How Can One Defend Themselves?
When suspected of concealing or disguising proceeds of crime, judicial authorities may apply a "presumption" standard to determine whether the suspect "knew or should have known" the illicit origin of the funds. Under such circumstances, neutral platforms often struggle to prove innocence. To preserve defenses for crypto industry practitioners, Team Sa recommends at minimum the following measures:
Fully comply with anti-money laundering obligations;
Strengthen KYC procedures to screen users and mitigate risks at the entry point;
Proactively conduct compliance assessments, clearly define business boundaries, and retain favorable evidence;
If holding entities such as a Singaporean foundation, Japanese financial license, or Hong Kong financial permit, operate only those business models recognized as lawful under mainland Chinese law—never test the limits of legality.
Final Thoughts
The challenges in the crypto industry reflect tensions between legal frameworks and real-world practices. Completely eliminating the crypto sector is unlikely, as long as demand exists, supply will follow. Nevertheless, industry participants must understand basic legal principles and respect prohibited boundaries. At the same time, times are evolving—the future may bring new financial innovations driven by blockchain technology. Only those who survive can hope to thrive. May you all avoid becoming tools for money laundering, carefully assess risks, and endure through this winter.
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