Chinese prosecutors call for more proactive approach to investigating crypto money laundering

Chinese prosecutors are calling for a more proactive, targeted approach to investigating cryptocurrency-related money laundering, according to an article published over the weekend.

"While virtual currencies improve transaction efficiency, their decentralized, anonymous, and cross-border circulation characteristics also provide unprecedented convenience for money laundering crimes," according to an article on the official website of China's top prosecutorial authority, the Supreme People’s Procuratorate (SPP).

The paper argues China's current legal framework has failed to keep pace with digital asset technologies, making it harder to investigate money laundering, collect evidence and recover stolen assets.

In particular, the authors singled out the use of mixers, privacy coins and decentralized exchanges, arguing that existing investigative methods struggle to trace transactions and gather evidence.

The authors, including two SPP officials and a Xiangtan University professor, also argue that people should be presumed to have intended to launder money if they use mixers or privacy coins. They say quickly moving large amounts of cryptocurrency under suspicious circumstances or making frequent, high-value transactions through unexplained anonymous wallets should also be treated as signs of money laundering.

Although not mentioned in the paper, Tornado Cash is probably the most widely recognized mixer, while Monero and Zcash are the most famous privacy coins. Tornado Cash and other crypto mixers have been at the center of several lawsuits and enforcement actions in the U.S. and Europe in recent years. 

Earlier this year, the U.S. Treasury Department told Congress that crypto mixers can serve valid financial privacy purposes in a 32-page report, a notable shift from the agency's previous sanctioning of Tornado Cash in 2022.

For the most part, China prohibits cryptocurrency trading and services while authorities actively investigate and prosecute crypto-related crimes. Last year, the People's Bank of China (PBoC), the country's central bank, reaffirmed its stance that digital asset operations are illegal in the country.