Mainland involved virtual currencies will be liquidated and confiscated through Hong Kong

In response to the difficulties faced by mainland China in directly liquidating virtual currency assets involved in cases in recent years, on June 8, according to an article disclosed by the "Law Qing Garden" public account operated by the capital's public security legal system, the Beijing Municipal Public Security Bureau's Legal Affairs Division and the Beijing Equity Exchange (referred to as "Beijing Stock Exchange") have explored a new cooperative mechanism for the disposal of virtual currencies involved in cases.

According to the information disclosed in the article, the Legal Affairs Division of the Beijing Municipal Public Security Bureau recently held a signing ceremony for the cooperation in the disposal of virtual currencies involved in cases with the Beijing Stock Exchange and signed the "Framework Agreement on Business Cooperation for the Disposal of Virtual Currencies Involved in Cases," incorporating virtual currencies involved in cases into the category of "physical disposal," and establishing a judicial disposal model for virtual currencies involved in cases that is subject-qualified, process-compliant, price-fair, and safe and reliable.

This innovative cooperation mechanism has been in preparation for a year, and the Beijing Stock Exchange has now completed the disposal of virtual currencies involved in a case from the Shunyi Public Security Sub-bureau using this model. Relevant analysis forecasts indicate that if the related mechanism is promoted to other regions across the country, it could provide a relatively unified standard for the disposal of virtual assets for law enforcement agencies.

The key channel forming this "closed loop" model is the public liquidation and sale through a compliant licensed exchange in Hong Kong. With the collaboration of multiple institutions, the processes of virtual currency detection, price inquiry, and foreign exchange settlement can be compressed to within 24 hours.

Specifically, in 2017, the Beijing Municipal Public Security Bureau and the Beijing Municipal Finance Bureau began to establish a "green channel" for the physical submission to the national treasury, allowing public security agencies to transfer case-related property that needs to be submitted to the treasury as physical assets to the Beijing Stock Exchange designated by the finance department for disposal. In this innovative overseas disposal model, the specific operation involves the public security agency entrusting the disposal of the virtual currency involved in the case to the Beijing Stock Exchange. After accepting the entrustment, the Beijing Stock Exchange selects professional service institutions to conduct detection, receipt, transfer, and other operations for the virtual currencies involved in the case, and publicly liquidates and sells them through a compliant licensed exchange in Hong Kong. After fulfilling the national foreign exchange management approval procedures, the foreign exchange settlement is transferred to the public security agency's special account for case-related funds and submitted to the treasury.

Regarding the transaction prices, the aforementioned article also pointed out that a reserve price will be set according to the Ministry of Finance's "Management Measures for Confiscated Property," and the transaction will be made at the best quote after price inquiry to avoid adverse consequences that may arise from extreme market conditions, ensuring that the transaction price is fair. In addition, the service institutions selected by the Beijing Stock Exchange must provide a performance bond of 110% in advance, and the entire disposal process will be recorded and filmed.

On June 9, relevant analysts in Hong Kong pointed out that selling and liquidating virtual currencies involved in cases through licensed exchanges in Hong Kong does not violate national regulations prohibiting domestic transactions and can also apply to the Hong Kong courts for assistance in execution in case of disputes, in accordance with the Supreme Court's "Judicial Assistance Arrangement."

This plan is therefore considered to have multiple advantages, including solving the two major problems that relevant law enforcement agencies in mainland China have long faced: "the inability to directly dispose of and liquidate virtual currencies involved in cases domestically" and "the high risks of cross-border disposal," reflecting the strategic value of Hong Kong in connecting mainland China with the global virtual currency ecosystem Since 2021, mainland China has completely banned virtual currency trading and mining, and the mechanism for converting seized virtual currencies into traditional currencies is relatively lacking. Taking the recently public PlusToken Ponzi scheme as an example, the relevant ruling shows that law enforcement agencies have seized over 194,000 Bitcoins, 830,000 Ethereum, and 1.4 million Litecoins, among others. The seized virtual currencies will be handled according to the law, and the proceeds will be confiscated and turned over to the national treasury. However, the specific disposal of the relevant virtual currencies has not been disclosed.

According to relevant analyses from the legal community in mainland China, the model for handling virtual assets has roughly developed into three periods in recent years: directly through over-the-counter (OTC) transactions via exchanges or privately, through third-party disposal companies for overseas liquidation, and the current new exploratory phase.

Regarding the pricing of virtual asset liquidation, on August 25, 2023, the Shandong Provincial Department of Finance and 17 other departments jointly released the "Shandong Province Disposal Work Procedures for Seized Items (Trial)," which pointed out that prepaid cards and virtual currencies confiscated by law enforcement agencies can be negotiated with the merchants that issued the prepaid cards and virtual currencies. The merchants can offer to buy back the items, with the buyback price agreed upon by both parties, which should not be less than 80% of the face value or balance of the virtual currency or prepaid card, and both parties will sign a buyback agreement.

The establishment of the aforementioned disposal cooperation mechanism is expected to make the handling process of the relevant seized virtual currencies in mainland China clearer. This opportunity is also believed to bolster Hong Kong's efforts in recent years to establish itself as an international virtual asset center.

In Hong Kong's financial ecosystem, compliant licensed exchanges will be officially established starting in 2024. On June 1 of that year, the licensing system for virtual asset service providers (VASP) in Hong Kong will be officially implemented, requiring all virtual asset trading platforms operating in Hong Kong to obtain licenses from the Hong Kong Securities and Futures Commission (SFC) under the Anti-Money Laundering Ordinance. Central virtual asset trading platforms that operate in Hong Kong or actively promote their services to Hong Kong investors must obtain licenses from the SFC and be regulated by it, including licenses under the Securities and Futures Ordinance for Type 1 (Securities Trading) and Type 7 (Providing Automated Trading Services), as well as the license for operating virtual asset trading platforms under the Anti-Money Laundering Ordinance.

As of now, there are seven licensed virtual asset trading platforms in Hong Kong: OSL, Hashkey, HKVAX, HKbitEX, Accumulus, DFX Labs, and EX.IO.

In February 2025, the Hong Kong Securities and Futures Commission pointed out in its ASPIRe roadmap that a key focus for future development in Hong Kong will be to expand the types of virtual asset products and services. This aims to meet the needs of different categories of investors while ensuring investor protection and enhancing the competitiveness and attractiveness of Hong Kong's virtual asset market internationally According to a recent report by Caijing, the Financial Services and the Treasury Bureau of the Hong Kong Special Administrative Region Government is about to publish its second policy declaration on the development of virtual assets, which is expected to form a more stable complementary relationship with the aforementioned Securities and Futures Commission of Hong Kong's roadmap, thereby laying the foundation for the diversified and orderly development of virtual assets locally.

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