Lawyer's Interpretation of the 1128 Regulatory Meeting: Focus on Cracking Down on Illegal Currency Exchange and Money Laundering Activities Involving Stablecoins, No Policy Shift

The People's Bank of China recently held a "Coordination Meeting on Cracking Down on Virtual Currency Trading Speculation" (i.e., the 1128 meeting) in conjunction with multiple departments, reiterating the policy on prohibiting virtual currency business activities as stated in the September 24, 2021 notice.

Lawyer Xiao Za's team pointed out that, as is well known, China has a relatively strict foreign exchange control system, where generally, each person can exchange no more than 50,000 US dollars per year. Now, with the stablecoin market gradually expanding, application scenarios continuously increasing, and the number of cryptocurrency businesses surging, many capital outflow demands have been addressed by stablecoins such as USDT and USDC. Furthermore, there are even cases where stablecoins facilitate money laundering or concealment of criminal proceeds for upstream crimes. In judicial practice, there have been bold foreign trade merchants who used USDT and USDC to circumvent United Nations sanctions, assisting sanctioned countries in foreign trade.

The focus of this meeting was: first, to guide the judicial ruling trend back, curbing the tendency of courts to handle cryptocurrency-related contracts leniently; second, to crack down on serious violations such as illegal foreign exchange, money laundering, and assisting sanctioned countries in trade using stablecoins like USDT and USDC. In addition, Lawyer Xiao Za believes that this meeting does not represent a policy shift and will not affect Hong Kong's open policy towards virtual assets. Currently, a pattern of "Mainland restrictions, Hong Kong openness" has formed, with clear regulatory intentions: financial innovation can be pursued, but it must be compliant and promoted within designated areas and frameworks. For domestic practitioners, they should remain vigilant about legal red lines, operate in compliance, and avoid complacency.