New Developments and Thoughts on the Judicial Disposal of Involved Virtual Money

Recently, there have been some new developments in the judicial disposal of the involved virtual money. This has particularly attracted widespread attention in the industry after the Beijing Municipal Public Security Bureau's Legal Affairs Division announced a new model. Many judicial authorities and disposal companies have inquired, hoping to understand the specific details of this new model, as well as whether domestic judicial disposal must go through similar intermediary institutions. At the same time, some people hope to assess the future trends of judicial disposal in mainland China. This article will analyze these issues one by one.

1. New Model Analysis

The Beijing Equity Exchange (referred to as "BJE") is at the core of this new model, with its controlling shareholder being the Beijing State-owned Assets Management Co., Ltd. BJE has been authorized as the online judicial auction platform for courts at all levels across the country and as the disposal platform for assets involved in criminal proceedings in Beijing. However, in its auction announcements on the official website, the focus is still primarily on the disposal of traditional assets involved in cases, and there have yet to be any projects for the disposal of Virtual Money.

According to public information, the Beijing Stock Exchange signed a委托处置协议 with the Beijing Municipal Public Security Bureau, which was subsequently delegated by the Beijing Stock Exchange to a domestic third-party disposal company. This third-party company is responsible for conducting disposal, monetization, and fund settlement work overseas.

In fact, this model does not bring any substantial innovation or breakthrough, and still follows the domestic and foreign joint disposal model of the "Disposal 3.0 Era".

2. Discussion on the Necessity of Intermediary Institutions

Considering the current regulatory provisions regarding Virtual Money in our country, domestic third-party disposal companies have already become a "temporary compromise" in judicial activities. Therefore, introducing additional intermediary structures seems unnecessary.

The controversy surrounding the judicial handling of domestic virtual money cases mainly stems from the "Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation" (referred to as the "9.24 Notice") jointly issued by ten national ministries including the "Two Highs and One Department" on September 15, 2021. The notice clearly stipulates that activities related to virtual money are considered illegal financial activities, and it is strictly prohibited to conduct exchange services between legal currency and virtual money.

This regulation has no exceptions, which means that in mainland China, no entities, including judicial authorities, are allowed to conduct exchange services between virtual money and fiat currency. However, the disposal and realization of the involved virtual money inevitably involves converting the involved virtual money into Renminbi.

Since 2018, the disposal and monetization of the virtual money involved in the case has gone through a process from direct involvement of public security organs finding third parties for onshore monetization, to entrusting third parties for offshore monetization. This evolution is mainly aimed at circumventing the prohibition on domestic entities directly participating in virtual money and fiat currency exchange business as stated in the "9.24 Notice".

3. Future Development Trend Prediction

Currently, there are differences in the disposal models of involved virtual money by judicial organs in different parts of the country. Some places still use the original model of "Disposal 1.0", where the mainland judicial organs entrust domestic entities to directly cash out within the country. This practice not only violates the provisions of the "9.24 notice", but may also bring legal risks regarding funds, and could even involve issues such as money laundering and illegal currency exchange.

Although there is a relatively compliant "Disposal 3.0" model, many judicial authorities or disposal companies are not aware of it. In practice, the factors considered by the entrusting party are diverse, and compliance may be just one of them. However, non-compliant disposal methods are tantamount to planting a time bomb in judicial activities, which will eventually lead to problems.

In the first half of 2024, the Supreme Court launched several research projects, including "Judicial Disposal of Involved Virtual Money," indicating that the highest level has also noticed the complexity of this field and the urgent need for unification.

Regarding the future development direction, there may be the following three trends:

1. Under the condition that the "9.24 notice" remains unchanged, continue to maintain the current disposal model, primarily adopting the compliant "Disposal 3.0" model, but inevitably some non-compliant disposal situations will occur.

2. Modify "9.24 Notification" to allow judicial authorities to directly participate in disposal and monetization abroad.

3. Modify "9.24 Notice" to establish a unified disposal platform in the country (which may be a central or provincial platform), where banks, traditional judicial auction platforms, or local property exchanges provide disposal services for judicial authorities.

Regardless of the approach taken in the future, ensuring compliance and transparency in the disposal process will be key.