China: Shandong Province’s New Crypto Confiscation Policy Raises Questions
In a recent announcement by the Shandong Provincial Finance Department, an interesting development has emerged in China’s approach to handling confiscated cryptocurrencies. The notice, issued on August 25, 2023, outlines a new process for disposing of confiscated assets, including cryptocurrencies. While this initiative signifies the government’s evolving stance on digital assets, it raises several crucial questions and challenges.
The Legal Landscape
The announcement comes in the form of a notice known as the “Work Process for the Disposal of Confiscated Items in Shandong Province (Trial),” referred to as the “Notice.” It’s important to note that this document is considered a local government regulation, allowing provincial authorities to create regulations in accordance with higher-level laws and regulations. Lawyer Liu Yang has scrutinized the sections relating to virtual currencies and offered his insights.
Cryptocurrency Disposal Protocol
Article 36 of the “Notice” introduces a protocol for disposing of confiscated prepaid cards and virtual currencies. It stipulates that negotiations can occur with the issuer of the prepaid card or virtual currency, with the recovery price agreed upon by both parties. Importantly, this price should not be less than 80% of the face value or balance of the virtual currency, and both parties must sign a recovery agreement.
Ambiguity Surrounding Virtual Currencies
One major point of contention raised by Lawyer Liu Yang is the lack of clarity in the definition of “virtual currency.” The “Notice” does not specify whether it encompasses virtual digital currencies such as Bitcoin, Ethereum, and Tether. If these cryptocurrencies are included, it creates several regulatory challenges.
Firstly, negotiations can only occur with the issuer of virtual digital currencies, which means finding the corresponding foundation or entity responsible. Secondly, the requirement that the recovery price must not be less than 80% of the actual amount raises questions about the willingness of issuers to participate and the feasibility of judicial authorities directly engaging with overseas entities.
Lawyers are inclined to believe that the “Notice” is likely referring to highly centralized virtual currencies with domestic issuers like Q Coin and Doubi.
What If Virtual Digital Currencies Are Excluded?
The absence of a clear definition for “virtual currency” in the “Notice” poses another problem. Article 40 states that if the prescribed disposal methods are not suitable for confiscated items, law enforcement agencies should propose alternative disposal plans to the finance department. This means that without a clear definition, the fate of virtual digital currencies could remain uncertain.
Advance Disposal and Legal Risks
The “Notice” allows for the disposal of certain confiscated items before they are officially determined to be confiscated, but under specific conditions. Article 45 mentions “financial assets such as bonds, stocks, and fund shares with large market price fluctuations.” Lawyer Liu Yang argues that virtual digital currencies, like Bitcoin, do not meet these criteria.
However, judicial authorities often engage in advance disposal based on the “voluntariness of the suspect (defendant, party).” Article 46 requires the consent of the right holder or a written application approved by the law enforcement agency head for the first disposal. If the right holder doesn’t agree, the authorities cannot proceed with disposal. This creates a challenge, as the volatile nature of cryptocurrencies makes it difficult to revert to the original state once disposed of.
China’s evolving approach to handling confiscated cryptocurrencies, as outlined in the Shandong Provincial Finance Department’s notice, raises various legal and operational questions. The lack of clarity in defining virtual currencies and the challenges associated with their disposal indicate that further guidance and regulations are needed to address the intricacies of the crypto landscape within China.
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