How to Determine "Subjective Knowledge" in Money Laundering Crimes Involving Virtual Money? The Shanghai Court Has Provided a "Standard Answer".

Introduction

On December 17, the Second Intermediate People's Court of Shanghai published an article titled “Legal Uniformity in Cases Involving Virtual Currency Crimes” on its official account. This article was mainly organized by the Second Intermediate Court of Shanghai and the Law School of Renmin University of China, under the guidance of the Shanghai High Court and the Chinese Criminal Law Research Association, to discuss cases related to virtual currency crimes.

Actually, this seminar took place in November, but the Second Intermediate People's Court chose to release this at this timing, which is somewhat clever - recently, thirteen ministries and seven associations have successively issued documents to regulate or even crack down on virtual currency activities.

Virtual currencies, especially stablecoins (such as USDT), have seen a surge in cases being treated as “tools of crime” or “objects of crime” in current judicial practices. According to the seminar cases and trend opinions released by the Shanghai Second Intermediate People's Court, this will undoubtedly set the tone for the standards of identifying virtual currency crimes that are in the “grey area” (at least in the Shanghai region).

For crypto practitioners and legal professionals, this is not only a court judgment guide but also a risk checklist regarding where the “red line” is. Today, we will first share cases related to money laundering crimes involving virtual currencies and the court's views on how “subjective knowledge” is determined. In the future, Lawyer Liu will continue to write about “how to determine the completion of virtual currency money laundering crimes” and “the relevant content of illegal operations involving virtual currencies.”

1. Virtual currency money laundering crimes, case introduction and court views

The court listed two cases:

Case One: Cai had a large amount of U coins, which he sold online at a price 10% higher than the market price, making a profit of 1 million yuan. In the end, the court found that the money others used to buy U from Cai was fraudulent funds (in a fundraising fraud case); Cai himself also admitted that selling U at a high price online was abnormal.

Second case: Yang engaged in over ten thousand USDT buy-sell transactions on TG at a price 5 cents per unit above the market price within six months, making a profit of 1.2 million yuan. Ultimately, the court found that 4.8 million yuan of the funds Yang received from selling USDT originated from fraudulent sources.

What differences do you think exist between these two cases? Do both individuals constitute a crime?

The court's viewpoint is quite interesting, leaning towards the conclusion that both Cai and Yang cannot be recognized as having “subjective knowledge”, meaning that neither of them constitutes the crime of money laundering.

II. Court's Reasoning

First, regarding the subjective knowledge judgment of the crime of money laundering, it must be limited to specific seven types of upstream crimes and their proceeds. Cai only admitted that the price at which he sold USDT was abnormal but did not know that he was assisting in financial fraud (which is one of the seven types of crimes of money laundering). The court actually has a more refined theoretical argument. Given that this article is a legal popularization article, Lawyer Liu will not elaborate in detail, but will briefly introduce the court's viewpoint. As for friends who want to see the detailed argument process, you can refer to the previous article from the Second Intermediate Court.

Second, although there are two types of determination for the “subjective knowledge” of money laundering crimes: knowing or ought to know, “ought to know” is not the same as “may know.” In practice, it is not permissible to conduct an analogical broad interpretation. Regarding what constitutes “ought to know,” it should be based on a comprehensive examination and judgment of the circumstances in which the party has handled the criminal proceeds and their profits, the types, amounts, transfer, and conversion methods of the criminal proceeds and their profits, the abnormal situations of trading behaviors and fund accounts, in conjunction with their occupational experience, relationships with upstream criminal personnel, and other evidence in the case.

Thirdly, in cases involving money laundering crimes related to virtual currencies, it is necessary to “comprehensively consider the abnormal situations such as the actor's choice to transfer or convert funds through virtual currencies, transaction behaviors, fund accounts, amounts, frequencies, etc., especially their professional experience, the information they are exposed to and receive, as well as their relationships or communication records with upstream criminals, in order to correctly determine whether they possess subjective knowledge.”

Fourth, regarding Yang, the court believes that although Yang engaged in high-frequency, small-value trading of USDT and earned a small profit margin, he did not significantly exceed the reasonable profit range and has not reached the level of presumed knowledge. Ultimately, the court also determined that Yang did not engage in the criminal act of “running points” money laundering (which does not constitute a concealment offense).

Three, written at the end

In the view of Lawyer Liu, the two cases listed by the Shanghai court illustrate well that when a party engages in the buying and selling of virtual currencies, especially stablecoins like USDT, in the absence of evidence such as prior collusion, clear warnings, specific instructions, or abnormal communications between the parties and upstream criminal actors, and by considering other factors such as the background and professional experience of the parties involved in USDT transactions, their relationship with upstream criminal actors, and whether they have fulfilled reasonable due diligence obligations, it is generally possible to cautiously determine whether the party has subjective knowledge to prevent unreasonable phenomena of objective attribution of guilt.

However, theories are always beautiful; only the parties involved and their defense lawyers truly understand how cruel reality can be. The author hopes that in the future, courts everywhere will take a good look at the perspectives of the Shanghai Second Intermediate Court when handling virtual currency money laundering cases.