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The Supreme People's Procuratorate (SPP) has released a classic case of virtual money laundering: buying Bitcoin "miner" keys to divert funds overseas

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This case is of reference significance to export China's experience in virtual money laundering to the international community.

The Supreme People's Procuratorate Releases a Classic Case of Virtual Money Laundering: Buying Bitcoin Miners' Keys and Transfers them Overseas

Original source: Peckshield

On March 19, 2021, the Supreme People's Procuratorate and the People's Bank of China jointly issued a typical case of punishing virtual currency money laundering crime. The case showed that Chen in Hangzhou knew that the upstream funds were derived from financial fraud, but he still transferred the fraudulent funds overseas by bank transfer, exchanging Bitcoin and other ways. His behavior constituted the crime of money laundering, and he was sentenced to two years in prison and fined 200,000 yuan.

Chen haibo, according to China's judicial documents network, in the case of permission has not obtained the relevant state departments, publicity through the network, the promise of fixed income or fictional higher expected returns, don't attract particular social public investment "malacca currency fund" and "player net", and through the fictitious transactions, manipulate data, restrict withdrawal currency suspected of illegal access to investment capital.

From late October 2018 to early November 2018, the defendant Chen knew that her ex-husband Chen Haibo was under investigation by the public security organs on suspicion of fund-raising fraud and fled to Hong Kong. Chen transferred 3 million yuan of the stolen money obtained by the suspected crime to Chen Haibo. After selling the car bought by Chen Haibo with the stolen money at a low price, he transferred all the proceeds of more than 900,000 yuan to the Bitcoin "miners" in exchange for Bitcoin keys, which were then sent to Chen Haibo for his exchange overseas.

According to CoinHolmes, an anti-fraud situational awareness system owned by Peckshield, the case highlights a new way to launder money by purchasing Bitcoin "Miner" keys.

Bitcoin mining is the process of accounting, which is the process of confirming transactions that have taken place in the Bitcoin system over a period of time and recording them on the blockchain. The miners are called "miners". Mining requires a lot of computing power, and as a bonus, miners who successfully snatch the bookkeeping rights are rewarded with bitcoin.

Miners get two kinds of rewards for mining. One is a block reward. Under the Bitcoin protocol, each new block is generated by the Bitcoin network and N bitcoins are paid to the miners who created the block as a reward for maintaining the network. The value of N, which was 50 at the time of Bitcoin's creation, has been halved roughly every four years since then, and is now 6.25, the way the Bitcoin network controls the total amount of bitcoins. Block bonuses are the first transactions recorded per block.

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

In the mining bonus, 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 calculation power and block bonus, multiple miners can form a pool to increase their calculation power. Miners will be rewarded by the pool.

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

According to CoinHolmes observation, with the "anti-money laundering law" and "card breaking action" into effect, traditional money laundering channels have suffered a heavy blow, anonymous, transnational, difficult to track the virtual currency has become an important channel of money laundering. Under the pressure of law enforcement agencies in various countries, virtual currency exchange platforms have also upgraded their anti-money laundering risk control strategies in response to the requirements of relevant law enforcement authorities.

According to the anti-fraud expert of Coinholmes, previously, many virtual currency trading platforms had looser 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 a Alipay account, and connected to an industrial and commercial bank card, but they do not know that it is used for grey industries such as scoring and money laundering. Sellers sell virtual currency for the purpose of laundering money for nothing, but for buyers, they just think it is speculation. Therefore, the key point of rectification is to strengthen the anti-money laundering efforts of virtual currency trading platforms.

The increased regulation is forcing money launderers to turn to virtual currencies. For over-the-counter transactions, the seller generally provides a virtual currency collection address. After the transfer is confirmed, the receipt and payment can be counted and checked face to face. Compared with exchange transactions, OTC merchants generally do not ask about the source of funds and identity information of buyers, and there is no limit on the amount.

However, this kind of peer-to-peer transaction between strangers will also bring potential risks. CoinHolmes found that there have been a number of virtual currency OTC transaction robberies in Hong Kong recently, and money laundering platforms have run away in mainland China.

"Buying Bitcoin keys from miners is a relatively new money-laundering method on the market today. In general, the block reward that miners receive from mining has a clean background. Few people would think that the block reward would be used to launder money after the change of ownership. On the surface, the transaction looks like a regular transaction. Moreover, if the block was excavated by an individual miner rather than a pool, the miner may be located outside the country, which will make it very difficult for the relevant law enforcement agencies to handle the case." "Explains CoinHolmes, an anti-fraud expert.

It is worth noting that in Chen's money laundering case, the Shanghai People's Procuratorate reminded the Shanghai headquarters of the People's Bank of China of the risk of money laundering in the field of virtual currency, and suggested strengthening the supervision of anti-money laundering and financial intelligence analysis in the new field. The case for output of China to the international community in the significance of reference to the experience on the virtual money laundering, namely both by traditional and new type of virtual currency means such as money laundering, verified in upstream crime, even if not in accordance with the law referee, or not shall be investigated for criminal responsibility in accordance with law, shall not affect the cognizance of money laundering and prosecution.