In Depth: How China’s Crypto Ban Makes Disposing of Seized Assets a Lot Harder

China’s comprehensive ban on cryptocurrency trading has created significant hurdles for authorities trying to deal with confiscated digital assets, especially as cryptocurrencies have become increasingly involved in financial crimes such as fraud and money laundering. The lack of clear legal provisions for the seizure, conversion, and restitution of digital assets has resulted in many asset recovery efforts stalling. Judicial officials have highlighted a pressing need for procedural frameworks enabling the rightful disposal of these seized assets, yet the current legal landscape provides no such tools or guidance [para. 1][para. 2][para. 3].

Under the current system, judicial authorities do not possess the direct authority to liquidate digital assets, nor do they have standardized procedures to guide such activities. In response, some local authorities have resorted to using overseas trading platforms—often involving third-party institutions to handle the sale of cryptocurrencies on foreign exchanges. This approach introduces substantial risks and opportunities for misconduct, given the absence of centralized regulations and procedural guidelines, thus potentially undermining the integrity of the asset disposal process [para. 3][para. 4].

Additional complications arise when digital assets linked to criminal cases reside on overseas exchanges, as cooperation from these platforms is inconsistent. Some exchanges are uncooperative or slow to respond to requests for asset transfer or disposal, hampering efforts to repatriate assets and conclude criminal investigations [para. 5].

China’s crackdown on the crypto sector began in earnest in 2017, with a prohibition on initial coin offerings, the closure of local trading platforms, and a ban on financial institutions providing crypto-related services. Despite these measures—and successive bans on mining activities—digital assets have remained a common tool in criminal enterprises. Between 2020 and 2023, the amount of funds involved in crypto-related criminal cases surged from approximately 21 billion yuan ($3 billion) to 431 billion yuan ($60 billion), even as the number of cases declined. The average amount per case skyrocketed from under 7 million yuan to over 1 billion yuan, indicating the increasing scale and sophistication of these crimes. The Ministry of Public Security has repeatedly warned about criminals’ evolving use of virtual currencies [para. 6][para. 7][para. 8][para. 9].

Facing a growing backlog of seized assets, Chinese authorities have begun experimenting with new strategies. Some public security bureaus (PSBs) have cooperated with foreign banks and licensed European exchanges, while others have partnered with state-owned entities such as China Beijing Equity Exchange (CBEX). Through these mechanisms, professional service institutions verify, accept, transfer, and sell seized assets via licensed crypto platforms in Hong Kong. In parallel, collaborations among CBEX, the Ministry of Public Security, and major banks aim to establish overseas channels for asset disposal [para. 10][para. 11][para. 12][para. 13].

Despite these experimental efforts, concerns persist regarding the security and transparency of fund disposal. Unregulated third-party service providers charge commissions ranging from 3% to 30%, putting recovered funds at risk and opening the door to potential bribery or unfair practices. The lack of unified standards for these fees remains a significant issue [para. 14][para. 15][para. 16][para. 17].

Interacting with overseas exchanges presents especially thorny challenges, as fragmented demands from multiple Chinese agencies can overwhelm an exchange, while unlicensed foreign platforms may be disinclined to cooperate. Exchanges may worry that helping authorities undermine client trust and their own business models. Some exchanges benefit from keeping frozen assets on their platforms, as this inflates reported liquidity. Altogether, the current situation exposes the urgent need for China to develop comprehensive legal and procedural frameworks for managing seized digital assets efficiently and transparently [para. 18][para. 19][para. 20][para. 21][para. 22][para. 23][para. 24][para. 25][para. 26].