China Proposes Tougher Crypto AML Rules Amid Blockchain Evidence Standards Debate

Chinese prosecutors have proposed reforms to tackle cryptocurrency money laundering in China. The paper 'Systematically Solve the Legal System Dilemma of Money Laundering Using Virtual Currency' recommends recognizing blockchain evidence and expanding investigative powers.

The authors argue that existing laws and investigative methods are struggling to keep pace with blockchain-based financial crime, citing major challenges in tracing anonymous transactions. They propose stronger judicial guidance, wider use of blockchain analysis during investigations, and mandatory reviews of potential money laundering charges alongside original criminal offenses.

Prosecutors should also become involved earlier in major investigations to guide evidence collection and determine the real purpose behind crypto transactions. The authors recommend strengthening supervisory reviews, correcting cases where money laundering investigations were not opened, and adjusting performance standards so prosecutors place greater emphasis on recovering stolen assets and pursuing independent money laundering charges.

The paper identifies asset recovery as another major obstacle, citing China's restrictions on cryptocurrency circulation and the lack of unified procedures for private key management, valuation methods, or liquidation of seized crypto during criminal proceedings. Cross-border recovery presents an additional challenge due to different legal standards applied by countries, making international asset freezes and confiscations more difficult.