Hong Kong Offers Beijing Legal Route to Sell Seized Crypto

The Chinese mainland has introduced a new, legally compliant mechanism for disposing of cryptocurrencies seized in law enforcement cases. This approach allows authorities to convert digital assets into real money through licensed exchanges in Hong Kong while adhering to the mainland's strict regulations on virtual currencies, which prohibit trading cryptocurrencies on the mainland itself. The Beijing Municipal Public Security Bureau (PSB) has collaborated with the China Beijing Equity Exchange (CBEX), a state-owned trading platform, to establish an official protocol for such disposals[para. 1][para. 2].

Under this new mechanism, the Beijing PSB and its subordinate bureaus can entrust the CBEX to manage seized virtual currencies. CBEX then selects professional service institutions to verify, accept, and manage the transfer of these assets. As direct conversion of cryptocurrencies into cash is banned on the mainland, the assets are publicly sold through one of ten licensed crypto exchanges in Hong Kong. The proceeds from the sale undergo approval by the State Administration of Foreign Exchange before being transferred to a designated special case account and ultimately deposited into the state treasury[para. 3][para. 4].

This method was recently piloted successfully by the PSB in Beijing's Shunyi district. While this is Beijing's first public disclosure of the process, sources report that internal guidelines from China’s Ministry of Public Security have encouraged this practice since the previous year. The move is seen as a pioneering model potentially informing similar frameworks in other regions seeking compliant methods for handling seized digital assets[para. 5][para. 6].

The legal and policy significance of this approach is noteworthy. By utilizing Hong Kong’s regulated exchanges—which are subject to rigorous anti-money laundering checks—the Beijing PSB maintains compliance with existing bans within mainland China while ensuring global legitimacy for these transactions. Furthermore, arrangements between mainland and Hong Kong courts under the "one country, two systems" principle allow for mutual judicial assistance in resolving asset disputes, including those involving cryptocurrencies. This ensures robust legal support for asset recovery and dispute resolution[para. 7][para. 8].

To enhance asset security during the disposal process, the selected institution must pay a deposit equal to 110% of the value of the seized assets, safeguarding state interests in case of malfeasance. The deposit is returned to the institution once the PSB receives the sale proceeds[para. 9].

Mainland China has progressively intensified its crackdown on cryptocurrencies since 2017, banning initial coin offerings, shutting down local trading platforms, outlawing crypto mining, and prohibiting financial institutions from providing any crypto-related services[para. 10]. Conversely, Hong Kong has positioned itself as an emerging international hub for virtual asset trading. The Hong Kong Securities and Futures Commission (SFC) has announced new frameworks for virtual asset regulation, including over-the-counter and custodian services, and has expanded its range of virtual asset products[para. 11].

The Hong Kong Legislative Council recently passed the Stablecoins Bill, setting the stage for a licensing system for stablecoin issuers. Since June 2023, the SFC has required all virtual asset trading platforms operating locally or marketing to local investors to obtain an SFC license, with ten platforms now licensed, including OSL Exchange and HashKey Exchange[para. 12][para. 13][para. 14]. HashKey reportedly discussed illicit asset disposal with Beijing authorities in 2024, though it is unclear whether it participated in the recent Shunyi case. The specific platforms involved in the disposal case have not been disclosed[para. 15][para. 16].