The Supreme People's Procuratorate released a classic case of virtual currency money laundering: purchasing Bitcoin miner keys and transferring them overseas

On March 19, 2021, the Supreme People's Procuratorate and the People's Bank of China jointly released a typical case of punishing virtual currency money laundering crimes. The case shows that Chen from Hangzhou knew that the upstream funds came from financial fraud crimes, but still transferred the fundraising fraud funds overseas by bank transfers and bitcoin exchange. His behavior constituted money laundering and he was sentenced to two years in prison and a fine of 200,000 yuan.

According to the China Judgments Online website, Chen Haibo, without obtaining permission from relevant state departments, publicly advertised on the Internet, promising fixed returns or fabricating high expected returns, in order to attract general public to invest in the "Malacca Bitcoin Fund" and "Player Network", and was suspected of illegally obtaining investment funds by means of fictitious transactions, tampering with data, and restricting cash withdrawals.

From late October to early November 2018, the defendant Chen Moumou knew that her ex-husband Chen Haibo was being investigated by public security organs for suspected fund-raising fraud and had fled to Hong Kong. Chen Moumou transferred RMB 3 million of suspected criminal proceeds to Chen Haibo. She also sold a vehicle purchased by Chen Haibo with the stolen money at a low price for more than RMB 900,000, which she transferred to Bitcoin "miners" in exchange for Bitcoin keys, and sent the keys to Chen Haibo for him to exchange and use overseas.

According to observations by CoinHolmes, an anti-fraud situational awareness system under PeckShield, this case shows a new method of purchasing Bitcoin "miner" keys for money laundering.

Bitcoin mining is the process of bookkeeping, which is to confirm transactions that occur in the Bitcoin system within a period of time and record them on the blockchain. People who mine are called "miners." Mining requires a lot of computing power. As a reward, miners who successfully grab the right to bookkeeping will receive Bitcoin rewards.

Miners will receive two kinds of rewards for mining. One part is the block reward. According to the Bitcoin protocol, for each new Bitcoin block, the Bitcoin network will generate N Bitcoins, which will be paid to the miner who created the block as a reward for maintaining the Bitcoin network. Among them, the value of N was 50 when Bitcoin was born, and it has been halved approximately every four years since then. It is currently 6.25. The Bitcoin network controls the total amount of Bitcoin in this halving method. The block reward is the first transaction recorded in each block.

The other part is the transaction fee, which is the sum of the transaction fees of all transactions in the current block.

In mining rewards, the output address of the block reward transaction is the miner's direct payment address, which is called the miner's wallet by default. In order to obtain higher computing power and block rewards, multiple miners can form a mining pool to enhance their computing power. The mining pool will issue rewards to miners.

When the mining pool issues rewards, it will first transfer all the mining rewards to the address of the next-level sorting wallet according to a certain amount or other rules, and then distribute the rewards through different sorting wallets. As shown in the following figure:

According to CoinHolmes, with the implementation of the Anti-Money Laundering Law and the Card Cutting Operation, traditional money laundering channels have suffered a heavy blow, and virtual currencies, which are anonymous, transnational, and difficult to track, have become an important channel for money laundering. Under pressure from law enforcement agencies in various countries, virtual currency trading platforms have also upgraded their anti-money laundering risk control strategies to meet the requirements of relevant law enforcement agencies.

According to CoinHolmes anti-fraud experts, previously, many virtual currency trading platforms had loose anti-money laundering risk control systems. For example, they may only know that the other party is a real-name account in Beijing, bound to an Alipay account, and connected to an ICBC card, but they do not know that it is used for gray industries such as running points and money laundering. The purpose of sellers selling virtual currencies is to launder funds, but for buyers, they just think it is speculation, so the key point of rectification is that virtual currency trading platforms strengthen anti-money laundering efforts.

The strengthening of supervision has forced money launderers to turn to virtual currency OTC transactions. Generally, the seller provides a virtual currency payment address, and after the transfer is confirmed, the payment can be counted and checked in person. Compared with on-site transactions, OTC merchants generally do not ask about the buyer's source of funds and identity information, and there is no upper limit on the amount.

However, this kind of peer-to-peer transaction between strangers also brings potential risks. CoinHolmes has found that there have been many virtual currency over-the-counter robberies in Hong Kong, China recently, and there have been cases of money laundering platforms running away with the money in mainland China.

"Purchasing Bitcoin keys from miners is a relatively new way of money laundering on the market. Generally speaking, the block rewards obtained by miners through mining have a clean background, and few people would think that the block rewards would be used to launder money after they change hands. This transaction looks like a regular transaction. Furthermore, if this block is not mined by a mining pool but by an individual miner, this miner may be overseas, which will also cause great difficulties for relevant law enforcement agencies to handle the case." CoinHolmes anti-fraud expert explained.

It is worth noting that in Chen's money laundering case, the Shanghai People's Procuratorate warned the Shanghai headquarters of the People's Bank of China of the risk of money laundering in the virtual currency field and suggested strengthening anti-money laundering supervision and financial intelligence analysis in new fields. This case is of reference significance for exporting China's experience in virtual currency money laundering to the international community, that is, whether money laundering is carried out through traditional or new virtual currency and other means, as long as the upstream crime is verified to be true, even if it has not been judged according to law, or criminal liability is not pursued according to law, it will not affect the identification and prosecution of money laundering crimes.