Text | Caijing reporter Yan Qinwen Zhang Yingxin
Editor | Yuan Man
This article comes from Caijing Magazine, the original title: "Convicting Virtual Currency Transactions: 24 Platforms Suspend Service to Chinese Customers, Relevant Judicial Documents Are in the Making"
"If you don't stop, you may face conviction and sentencing." The person in the head of the virtual currency trading platform couldn't hide his anxiety.
Following the characterization of virtual currency transactions as illegal, Chinese regulators are still upgrading their clean-up actions—improving judicial guidance documents.
On the evening of September 24, ten ministries and commissions including the People's Bank of China, the Cyberspace Administration of China and the Public Security Bureau jointly issued the "Notice on Further Preventing and Dealing with the Risk of Hype in Virtual Currency Transactions" (hereinafter referred to as the "Notice of the Central Bank").
This regulatory document, which is called "the strictest in history" by people in the currency circle, not only re-emphasizes that virtual currency-related business activities are illegal financial activities, but also clarifies for the first time that overseas virtual currency exchanges provide services to Chinese residents through the Internet. It is also illegal financial activity.
On the same day, 11 departments including the National Development and Reform Commission jointly issued the "Notice on Rectifying Virtual Currency "Mining" Activities" (hereinafter referred to as the "Notice" of the Development and Reform Commission), and virtual currency "mining" was completely banned.
Subsequently, a number of platforms involved in virtual currency-related businesses, including Huobi Global (hereinafter referred to as "Huobi"), successively stated that they would stop providing services to customers in mainland China.
As of the press time of the "Caijing" reporter, although the other two of the three major virtual currency exchanges have not made a clear statement (the industry usually refers to Huobi, OKEx, and Binance together as the three major domestic virtual currency exchanges), but in mainland China The liquidation of related businesses has become a general trend. According to incomplete statistics from Caijing reporters, about 24 virtual currency-related platforms have announced the suspension or restriction of services to customers in mainland China.
It is worth noting that with the issuance of the Central Bank's "Notice", relevant departments have begun to study how to implement regulatory requirements. A number of insiders close to the supervision told the reporter of Caijing that after the central bank’s “Notice” was issued, the public security, procuratorate and legal agencies are conducting research on virtual currency exchanges and “mining” and other related situations, exploring the specific path of conviction and sentencing, and the follow-up is expected to Relevant judicial interpretations shall be issued in due course.
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Hearing the wind and retreating: the local local exchanges accelerated the deregistration
After stopping the registration of new users in mainland China on the evening of September 24, Huobi once again stated on September 26 that it plans to complete orderly withdrawals under the premise of ensuring the safety of user assets before 24:00 on December 31, 2021. . This means that after this time, users in mainland China will not be able to use this trading platform.
On October 2, Huobi announced the clearing and withdrawal process for existing users in mainland China for currency and OTC transactions.
In fact, the liquidation of Huobi’s related businesses in mainland China has already been put on the agenda. A Huobi insider told the Caijing reporter that as early as May this year, Huobi had formulated a relevant liquidation plan, which was originally scheduled to take one year, that is, to complete the liquidation before June 30, 2022. However, with the issuance of the "Notice" by the central bank, Huobi's withdrawal plan was also implemented half a year in advance.
Coincidentally, some virtual currency exchanges have already made preparations for offline related businesses.
"After the Spring Festival this year, we have already made preparations. For example, which product the supervision requires us to offline, we can immediately offline. The original plan was to offline related businesses before the end of the year, but as soon as the central bank's "Notice" was issued, we felt The situation is not good, so we quickly implemented the liquidation plan at the end of September.” An insider of a virtual currency exchange that has announced the closure of services in mainland China revealed.
Strong regulation is not coming without a trace. On May 18 this year, the China Internet Finance Association, the China Banking Association, and the China Payment and Clearing Association jointly issued the "Announcement on Preventing Hype Risks in Virtual Currency Transactions" (hereinafter referred to as the Association's "Announcement"), directly denying the currency attributes of virtual currencies. Point out that relevant institutions are not allowed to conduct business related to virtual currency.
Immediately following May 21, Liu He, member of the Political Bureau of the CPC Central Committee, vice premier of the State Council, and director of the Finance Committee, clearly stated at the 51st meeting of the Financial Stability and Development Committee of the State Council that he would resolutely prevent and control financial risks and crack down on Bitcoin "mining" and transactional behavior.
Since then, regulators in many places have issued risk warnings and carried out clean-up and rectification of relevant institutions and activities.
On June 21, the relevant departments of the central bank interviewed some banks and payment institutions on the issue of banks and payment institutions providing services for virtual currency transaction hype, and asked them not to provide account opening, registration, transaction, clearing, settlement and other products for related activities or service.
In July thereafter, the Beijing Local Financial Supervision Administration and the Central Bank’s Business Management Department issued the “Risk Warning on Preventing Virtual Currency Trading Activities” (hereinafter referred to as the “Risk Warning”), warning relevant institutions within their jurisdiction not to engage in virtual currency-related business activities. Provide business premises, commercial display, marketing publicity, paid diversion and other services. At the same time, financial institutions and payment institutions within the jurisdiction shall not directly or indirectly provide customers with virtual currency-related services.
At that time, people in the industry who were close to local financial supervision told the reporter of Caijing that the relevant warnings were contained in the "Notice on Preventing Bitcoin Risks" and "Announcement on Preventing Financing Risks of Token Issuance" issued by the central bank and other seven ministries and commissions, and The association's "Announcement" and other content have been mentioned many times, and this warning is accompanied by further crackdowns.
According to the source, after the "Risk Warning" was issued, some virtual currency exchanges within the jurisdiction of Beijing received a regulatory notice requesting the deregistration of the company. As a result, some leading virtual currency exchanges have canceled some affiliated companies. "Since then, the situation began to ease. Until the central bank's "Notice" was issued, local financial supervision once again conducted a thorough investigation, the crackdown was intensified, and the relevant entities of virtual currency exchanges were accelerated to cancel."
Caijing reporter noticed that on July 22 this year, Beijing Huobi Tianxia Network Technology Co., Ltd. (hereinafter referred to as "Huobi Tianxia") planned to apply for deregistration due to resolution to dissolve. According to public information, Huobi Tianxia was established on December 18, 2013, and was the domestic operating entity of Huobi.com.
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Broken wrists in China: 24 platforms stop serving Chinese customers
In fact, earlier in 2013 and 2017, the central bank issued several documents with relevant departments, clarifying that virtual currency is a virtual commodity, all financial institutions are not allowed to carry out virtual currency-related businesses, and no organization or individual is allowed to illegally engage in token trading. Issue financing activities. Since then, the relevant regulatory authorities have also issued a document to remind the risk and gradually increase the rectification efforts.
Many people in the currency circle recalled that the last time it brought a big shock to the industry was the "94" document in 2017 (Reporter's Note: On September 4, 2017, the Central Bank and other seven ministries and commissions jointly issued the "On the Prevention of Token Issuance" Announcement on Financing Risks"). The document clearly identifies ICO (tokens) as "suspected of illegal sale of token tickets, illegal issuance of securities, illegal fundraising, financial fraud, pyramid schemes and other illegal and criminal activities", and requires the cessation of all token issuance and financing activities.
"The big bull market that year was led by ICOs. After being banned, the currency circle collapsed. Some small exchanges ran away directly, and the big exchanges announced the closure of the network." A person in the currency circle recalled.
The Caijing reporter noted that at that time, Huobi (then known as Huobi.com) also issued a transaction suspension announcement saying that only the RMB transaction business would be suspended, and the rest of the business would not be affected.
Therefore, moving the server and registration place overseas became the choice of the virtual currency exchanges that were active in China at that time, "but in fact it was 'export to domestic sales'." Some people in the currency circle bluntly said that after the last time the exchanges went overseas, , did not shut down services to users in mainland China.
Faced with frequent regulatory warnings, why didn't domestic virtual currency exchanges shut down collectively like this time?
Several people in the currency circle told the Caijing reporter that while repeatedly emphasizing that virtual currency-related business activities are illegal financial activities, the Central Bank’s “Notice” determined that overseas virtual currency exchanges provide services to Chinese residents through the Internet as illegal financial activities. At the same time, it also stipulates that the domestic staff of relevant overseas virtual currency exchanges should be held accountable according to law. This is the key to shocking the industry.
The central bank's "Notice" pointed out that "for domestic staff of relevant overseas virtual currency exchanges, and legal persons and unincorporated persons who know or should know that they are engaged in virtual currency-related businesses, but still provide them with marketing, payment and settlement, technical support and other services Organizations and natural persons shall be held accountable according to law."
Previously, there was no clear certainty about the domestic staff of overseas exchanges, and institutions with registration places and servers outside the country can also provide services for users in mainland China. The release of the Central Bank's "Notice" means that the above behaviors will face targeted supervision.
"For example, if you know that this company is a virtual currency exchange or an illegal currency-related business, but you still choose to work here, it is actually participating in illegal financial activities. This is the same as the original P2P platform. If this If the platform is subsequently filed, there is a high probability that your previous salary will be refunded because it is an illegal asset. From this point of view, the central bank's "Notice" will have a great shock to the psychology of many employees." A head virtual currency exchange Insiders told Caijing reporter.
In addition to clarifying that domestic personnel of overseas exchanges cannot evade legal responsibilities, Xiao Sa, a partner of Beijing Dacheng Law Firm, also wrote an article pointing out some points that need to be paid attention to in the Central Bank's "Notice": directly stating that USDT is a virtual currency and is not subject to China's legal responsibilities. Legal protection; providing "pricing services" for virtual currencies is also illegal and will be banned in the future; the "information intermediary" model of virtual currency transactions is no longer in a gray area and has been classified as illegal; contracts involving virtual currency investment transactions are invalid, the reason It is a violation of public order and good customs; the focus of crackdown on crimes has gradually changed from the previous crimes of organizing and leading pyramid schemes to crimes of illegal business operations and fraud.
"Compared to the crime of organizing and leading pyramid schemes, the Central Bank's "Notice" identifies related virtual currency transactions as illegal financial activities, so its focus gradually shifts to criminal activities such as illegal business operations and financial fraud. This shows the type and nature of the virtual currency industry that will be cracked down in the future. The type of business will change. Based on this, I think DeFi (reporter's note: encrypted assets, financial smart contracts and agreements built on a smart contract platform) business may become the target of public criticism." Xiao Sa further pointed out.
According to incomplete statistics from Caijing reporters, as of press time, about 24 platforms involved in virtual currency-related businesses have announced the suspension and restriction of services to customers in mainland China. This includes exchanges such as Huobi, BiONE, CoinEX, AEX, and Matcha, as well as mining pools including SparkPool, BeePool, and TokenPocket, etc. wallet. In addition, Bitmain also announced that starting from October 11, its Antminer will stop shipping to mainland China (excluding Hong Kong and Taiwan).
"Before I heard that a document with a very strong crackdown would be issued at the end of August, so we shorted Bitcoin and Ethereum. Unexpectedly, it rose again in September, which caused us to lose a lot. After that, we thought that the so-called crackdown The very strong article will not be issued again, and I never thought it would finally come." An insider of a virtual currency exchange told a reporter from Caijing.
It is worth noting that on the same day that the Central Bank’s “Notice” was issued, 11 departments including the National Development and Reform Commission also jointly issued the “Notice” of the National Development and Reform Commission, and virtual currency “mining” was completely banned.
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Hidden worries about exit: stagnant water
The market is concerned about whether the virtual currency industry will completely withdraw from China.
"Most of them will definitely announce their withdrawal, but it is hard to say whether they will actually withdraw. At present, some virtual currency exchanges have a vague attitude. The reason behind this is that some exchanges have a small number of domestic customers, and on the other hand It is because the actual controller behind the exchange is already in a foreign country, and domestic regulatory requirements cannot affect it, and the final decision is whether to protect the business or the team.” The insider of the above-mentioned leading virtual currency exchange told the reporter of Caijing.
At present, apart from Huobi’s announcement that it will withdraw related businesses, Binance and OKEx, the other two major domestic virtual currency exchanges, have not publicly stated their positions. As for the direction of future business development, OKEx did not respond as of the press time of the Caijing reporter.
He Yize, the co-founder of Binance, responded to the reporter of Caijing that Binance moved out of China in 2017, and its current users are mainly overseas users, and it is a compliant trading platform overseas. And other countries to submit relevant license applications.
There are also people in the currency circle who still have hope for future development, saying that the current strict supervision may change in the future. "Now we must cater to the supervision, and we may adjust it after the limelight passes." The above-mentioned person in the currency circle said.
It is worth noting that while Huobi and other virtual currency exchanges have announced their withdrawal from related businesses, some exchanges are still vigorously attracting new customers. According to the screenshots provided by some virtual currency trading platform users to the Caijing reporter, in the WeChat Moments of internal employees of a leading virtual currency exchange, it can be seen that "Huobi.com has issued an announcement to clear away mainland users, you need to register XX Users of the platform can contact me and enjoy a permanent 20% discount on the handling fee" and other similar words.
At the moment, for some virtual currency exchanges that choose to withdraw, they may face a lot of challenges.
A person in the currency circle told the Caijing reporter that Huobi has a lot of users in China, and this withdrawal can be said to be a self-revolution.
As for how many domestic users are involved, Du Jun, the co-founder of Huobi Group, said in a reply to the Caijing reporter that the number of customers affected by the cancellation plan has not yet been counted. In the short term, users in mainland China will have a certain impact on the company's revenue.
Another internal manager of a virtual currency exchange told the reporter of Caijing that although the international business share has been expanded and the domestic business is gradually shifting to the direction of blockchain technology in accordance with regulatory requirements, the application of blockchain technology in It is difficult to make substantial breakthroughs in the short term, so there are indeed many internal doubts about whether these transformed businesses can support the company's new development.
In addition, the hidden risks in the exit process of virtual currency exchanges also need to be paid attention to.
"The impact of the exit of the exchange is not all positive." Someone in the currency circle told the reporter of Caijing that when the funds do not go through the exchange, the crime on the chain will become more hidden accordingly, and the address cannot be traced. The exchange also has KYC (Know your customer, that is, enhanced review of account holders) and AML (Anti Money Laundering, anti-money laundering) mechanisms, which can cooperate with relevant departments to conduct investigations. If "one stick" is destroyed, these cooperation effectiveness may be reduced.
Some people in the industry also reminded that it is necessary to guard against the risk of thunderstorms in the exit process of some virtual currency exchanges. "Some exchanges use users' funds or make a lot of high-risk products. At this time, they may withdraw from the business and run away directly. There was a similar situation in the P2P platform before. When the industry is in the ebb tide, many P2P platforms rely on supervision. The tightening of the environment and the tide of bank runs are used as excuses to run away directly, causing a lot of losses to users." A practitioner in the virtual currency industry said.
Che Ning, deputy director of the Research Center for the Rule of Law and Sustainable Development of China University of Political Science and Law, further pointed out that the Central Bank's "Notice" listed the provision of services by overseas exchanges to the mainland as illegal financial activities, which will involve domestic people operating overseas platforms and foreign people There are different situations such as providing services to the country; "mining" also has problems such as Chinese citizens participating in "mining" abroad, and how to investigate and implement the legal responsibility of cross-border personnel remains to be discussed. In the future, China should strengthen international judicial cooperation, enhance the extraterritorial enforcement of relevant laws and regulations, and jointly crack down on related illegal activities.
