Hubei police crack the first nationwide ‘virtual currency case’, with a transaction volume of 400 billion.

Hubei police crack first nationwide 'virtual currency case' with 400 billion transaction volume.

On July 18th, it was reported that the main suspect, Qiu Moumou, involved in a cross-border online gambling case with a transaction volume of 400 billion yuan, has been brought to trial by the Shaoyang County Public Security Bureau in Jingmen City, Hubei Province. Police found that all transactions by the participants were settled using a virtual currency.

The task force followed the clues and successfully identified multiple virtual currency accounts involved in the case. The task force coordinated with the virtual currency issuing institution to freeze the relevant accounts, preventing the flow of virtual currency worth 160 million US dollars (over 1 billion yuan) into the hands of the suspect group. In October 2022, the People’s Court of Shaoyang County made a judgment to confiscate some of the frozen virtual currency in accordance with the law. This case became the first case of “virtual currency confiscation” in China through a court judgment.

This passage is not long, but it contains a huge amount of information. Among them, two sentences are estimated to make friends in the cryptocurrency circle tremble.

Tremor 1: How can a decentralized virtual currency, with the private key in my hands, be frozen?

Tremor 2: When the court confiscates virtual currency assets, how can they be cashed out? Does the court hoard coins or dump them?

Today, let’s discuss this article. It is necessary to first make a disclaimer: the views of Lawyer Honglin are for reference only.

1. How was the virtual currency frozen?

The public news did not specifically mention which virtual currency it was, but based on the description of the cooperation between the issuer and the public security in freezing the virtual currency, we can probably know that it is USDT.

Many newcomers to the cryptocurrency circle may think that USDT is a decentralized virtual currency just like Bitcoin, but it is not. Tether has nothing to do with the ideal decentralized cryptocurrency that we envision. Its issuance is not based on any mining mechanism or decentralization, but on the verbal commitment of a commercial company.

This commercial company is called Tether. USDT is the token issued by Tether based on the stable value currency USD (referred to as USDT). 1 USDT = 1 USD, and users can exchange USDT for USD at any time on a 1:1 basis.

Tether strictly adheres to the 1:1 reserve guarantee, that is, for every 1 USDT token issued, there is a fund guarantee of 1 USD in its bank account. But whether the money is actually there or how much is there, no one knows. After all, it does not disclose its true financial situation to the public. So it is completely a black-box operation of a private company, and this private company is the largest trading pair for all virtual currencies worldwide.

It is precisely based on this point that I have always felt that the next big thunder in the cryptocurrency circle is most likely Tether. After all, relying on a centralized commercial company to make verbal promises for decentralized global cryptocurrency trading is absolutely ridiculous. So my friends, don’t hoard USDT.

Where there are people, there is a community, and where there is a community, there are rules. As a commercial institution, if any judicial authority within the global scope requires the company to cooperate in relevant judicial work, this commercial company will actively cooperate.

Therefore, whether your USDT is on a centralized exchange or in a decentralized wallet, Tether can be remotely controlled by the Tether company. There are two common ways to do this:

The first is marking (commonly known as toxic marking). Tether company marks the USDT involved in the case technically, telling the entire network that it is not clean. Any toxic-marked USDT that flows into any mainstream centralized exchange will trigger the exchange’s risk control mechanism, resulting in the freezing of the corresponding digital asset account. Sometimes, not only the toxic-marked USDT will be frozen, but also other digital assets under the account. If you accidentally receive toxic-marked USDT in a clean account during the transaction, congratulations, you’ve been hit.

The second is directly freezing the USDT by Tether company. Once the USDT is frozen, it loses its circulation ability and is stuck in a wallet without movement.

From the description of the news press release, it seems that the frozen USDT in this case should be the second type. So jokingly, after this wave of news exposure, criminal organizations around the world are estimated to be quite disgusted with USDT.

Originally, I bought virtual currency for the sake of my private key and asset security. Who can bear it when a third party can remotely freeze it?

2. How will the court handle virtual currency?

Similar to the case in Hubei, this is not an isolated case. According to public information, in 2021, public security agencies cracked down on and governed the network black and gray industry and the new channel for virtual currency money laundering. A total of 259 related cases were solved nationwide, and virtual currency worth more than 11 billion yuan was confiscated.

According to Article 300 of the Criminal Procedure Law, “People’s courts shall, after trial, order the confiscation of illegal gains and other property involved in a case, except for returning the property to the victim in accordance with the law…” Therefore, in this case, the court confiscated the virtual assets without any problem.

In judicial practice, virtual currencies obtained by public security agencies through “voluntary return of stolen goods” by the parties involved and virtual currencies confiscated and disposed of by courts through judicial judgments are generally not held, but will be sold as soon as possible. However, it is generally not appropriate for the government to speculate on currencies, after all, it would be a bit embarrassing to carry out KYC. Therefore, it is usually entrusted to third-party security companies for handling.

The first type is exchange OTC. This security company directly sells virtual currency through mainstream cryptocurrency exchanges and converts it into RMB through OTC transactions. After deducting the service fee (generally more than 5% of the total transaction amount), the funds are transferred to the account of the judicial authority or the local financial department designated by the judicial authority.

The second type is offline transactions. A third-party company commissioned by the judicial authority will find buyers in places like Shenzhen and conduct cash transactions directly. After deducting the service fee, the cash is then handed over to the judicial authority or the local financial department designated by the judicial authority.

The third type is cooperation with foreign trade companies. By fabricating export trade or fictitious cross-border technical services, overseas companies remit money and exchange it into RMB through the State Administration of Foreign Exchange. After deducting the service fee, the funds are transferred to the account of the judicial authority or the local financial department designated by the judicial authority.

I believe that many friends who see these three models will immediately understand the process.

However, the legality and rationality of these three operating methods under the legal and policy framework of virtual currency regulation in China is indeed a matter for discussion.

But it is undeniable that, based on the principle of practicality, these dirty tasks should not be left to the judicial authorities. It is enough to pay a service fee (although a bit high) to a professional organization to handle them, so that virtual currency can be converted into legitimate Chinese yuan to subsidize local finances and the national treasury.

Alright, enough gossiping. I hope everyone’s virtual currency will be safe and sound.

After all, according to Chinese law, the state does not encourage cryptocurrency speculation, but legally held virtual currency is protected by law. Without a valid court judgment, no law enforcement agency has the right to dispose of or sell your virtual currency.

We will continue to update Blocking; if you have any questions or suggestions, please contact us!


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