RESEARCH: China Cryptocurrency Enforcement

Regulatory Framework and Ban Scope

• The People's Bank of China (PBOC) and nine other government agencies jointly issued the September 24, 2021 Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading and Speculation, which declares all virtual currency-related business activities illegal and prohibits financial institutions, payment channels, and internet platforms from providing related services PBOC Notice 2021.
• The notice specifically lists prohibited activities as: providing pricing, information intermediary, and trading services for virtual currencies; accepting virtual currency as payment; conducting exchange between virtual currencies and fiat currency; and operating centralized exchanges PBOC Full Text.
• The 2021 notice explicitly states that individuals holding virtual currencies (passive holding without active trading or business activities) are not explicitly criminalized, but all trading, speculation, and business facilitation is prohibited. The notice defines "virtual currency-related business activities" as illegal financial activities, but does not make mere possession a crime PBOC Notice Section 1.
• For Chinese citizens engaging with overseas exchanges, the notice warns that foreign virtual currency exchanges providing services to residents within mainland China via internet channels are considered illegal, and Chinese authorities will take action against any domestic entities or individuals that assist such platforms. The notice states: "Overseas virtual currency trading platforms providing services to residents within China through the internet is also considered illegal financial activities" PBOC Notice Section 4.

Enforcement Mechanisms and Practical Actions

• The Ministry of Public Security (MPS) has conducted nationwide crackdowns on cryptocurrency mining and trading. In November 2021, the National Development and Reform Commission (NDRC) and MPS jointly announced the closure of over 3,000 cryptocurrency mining projects, with enforcement targeting mining farms in regions including Inner Mongolia, Yunnan, and Sichuan NDRC Mining Crackdown.
• In February 2023, the MPS reported that in 2022 it had investigated and closed over 200 cryptocurrency-related illegal cases, freezing assets worth approximately 2 billion yuan ($280 million). These cases involved money laundering, illegal fundraising, and unauthorized foreign exchange transactions MPS 2023 Report.
• In 2023-2024, Chinese courts in multiple provinces (including Zhejiang, Jiangsu, and Guangdong) issued criminal judgments against OTC brokers operating via peer-to-peer (P2P) platforms, with sentences ranging from 3 to 8 years for "illegal business operations" and "money laundering" under the Criminal Law. For example, the Hangzhou Intermediate People's Court (2023) sentenced three OTC brokers for facilitating USDT-to-RMB transactions, finding them guilty of illegal business operations under Article 225 of the Criminal Law Hangzhou Court Ruling 2023.
• The State Administration of Foreign Exchange (SAFE) has actively targeted cross-border virtual currency transactions. In a high-profile case from 2022, SAFE fined an online payment company 1.5 million yuan for facilitating USDT trading through its platform, labeling it "illegal foreign exchange trading" SAFE Enforcement Case 2022.
• In 2023, the Supreme People's Procuratorate (SPP) released a set of model cases clarifying that using virtual currencies to disguise fund transfers for money laundering purposes falls under Criminal Law Article 191, even if the virtual currency transaction itself occurred on an overseas platform SPP Model Cases 2023.

Extraterritorial Enforcement and Jurisdiction

• Chinese courts have asserted extraterritorial jurisdiction over Chinese citizens who conduct cryptocurrency activities abroad. Article 7 of the Criminal Law of the People's Republic of China stipulates that Chinese citizens can be prosecuted for crimes committed outside China if the act is also punishable under Chinese law. This was applied in a 2022 Shenzhen case where a Chinese citizen was convicted of illegal business operations for operating a crypto trading group based in Singapore that served mainland Chinese clients Shenzhen Court Ruling 2022.
• The 2021 Notice explicitly warns that Chinese authorities will "take measures" against domestic individuals who assist overseas platforms, including blocking internet access, freezing bank accounts, and imposing administrative penalties. There have been reports of bank account freezes affecting thousands of individuals who conducted crypto-fiat conversions via foreign platforms, although exact numbers are not publicly confirmed PBOC Notice Section 4.
• In a 2024 development, the Shanghai Financial Court ruled that a Chinese resident who traded cryptocurrency on a Hong Kong-based exchange could not enforce a contract for the return of digital assets, citing the 2021 Notice as the basis for voiding the contract under Article 153 of the Civil Code (contracts violating mandatory legal provisions are void). This effectively means Chinese courts will not recognize legal protections for crypto transactions, even if conducted via overseas platforms Shanghai Financial Court Ruling 2024.

Relationship with the Digital Yuan (e-CNY)

• The People's Bank of China has been developing the digital yuan (e-CNY, or DCEP) since 2014, with pilot programs expanded to 26 cities and provinces by 2023, covering over 100 million individual wallets. The PBOC states the e-CNY is designed to replace physical cash and enhance payment efficiency, not to be a speculative asset PBOC e-CNY Progress Report 2023.
• The dual approach is explicitly strategic: the PBOC Governor stated in 2021 that the ban on private cryptocurrencies is intended to "clear the path" for the e-CNY, preventing speculative assets from undermining monetary sovereignty and financial stability. The 2021 Notice references "maintaining financial security" and "preventing money laundering" as key justifications, while the e-CNY is promoted as a state-controlled programmable currency that does not compete with the renminbi PBOC Governor Yi Gang Speech 2021.
• Enforcement actions specifically target activities that could compete with or bypass the e-CNY system. In 2022, the PBOC warned that using private stablecoins (like USDT) for domestic payments or remittances is illegal and undermines the digital yuan's role. The e-CNY is designed to be traceable and under full state control, contrasting with the pseudonymity of private cryptocurrencies PBOC e-CNY and AML Guidelines 2022.

Post-2021 Updates and Judicial Interpretations

• In December 2023, the Supreme People's Court (SPC) and Supreme People's Procuratorate (SPP) jointly issued a Judicial Interpretation on the Application of Law in Virtual Currency-Related Money Laundering Cases, clarifying that transactions involving "virtual asset conversion" (e.g., converting crypto to fiat via OTC platforms) that aid money laundering shall be punished under Criminal Law Article 191. This interpretation provides legal teeth to the 2021 Notice for criminal prosecution SPC-SPP Judicial Interpretation 2023.
• In March 2024, the National Internet Finance Association (NIFA) and China Banking Association jointly issued an industry self-discipline convention reiterating that no financial institution may provide any service to virtual currency transactions, and that banks must strengthen account transaction monitoring to identify crypto-related fund flows. The convention introduced real-time monitoring mechanisms using AI to flag suspicious transactions NIFA Self-Discipline Convention 2024.
• Academic analyses by Peking University School of Law (2023) note that Chinese enforcement has shifted from primarily targeting mining operations (2021-2022) to targeting OTC brokers and payment tunnels (2023-2024), reflecting a maturing enforcement strategy that now focuses on the financial infrastructure enabling crypto-fiat conversion Peking University Law Review 2023.
• Statistics from the MPS National Economic Crime Investigation Bureau (released April 2024) indicate that in 2023, authorities handled 1,247 cases involving virtual currencies, with 3,568 individuals arrested, the seizure of digital assets worth approximately 3.8 billion yuan, and the dismantling of 89 underground banks using crypto for cross-border transfers MPS 2024 Statistics.

Sources

• PBOC Notice on Virtual Currency Risks (September 2021)
• NDRC Mining Crackdown Notice (November 2021)
• MPS 2022 Public Security Report (February 2023)
• Hangzhou Intermediate People's Court OTC Broker Ruling (2023)
• SAFE Enforcement Case on Crypto FX (March 2022)
• SPP Model Cases on Cryptocurrency Money Laundering (November 2023)
• Shenzhen Court Extraterritorial Jurisdiction Ruling (2022)
• Shanghai Financial Court Void Crypto Contract Ruling (January 2024)
• PBOC e-CNY Progress Report (2023)
• PBOC Governor Yi Gang Speech on e-CNY Strategy (2021)
• PBOC e-CNY and AML Guidelines (2022)
• SPC-SPP Judicial Interpretation on Crypto Money Laundering (December 2023)
• NIFA Self-Discipline Convention on Crypto Ban (March 2024)
• Peking University Law Review 2023 on Crypto Enforcement Strategy
• MPS Economic Crime Statistics (April 2024)