The Supreme Court of China has declared that virtual asset transactions are 'illegal fundraising,' clearing the way for legal action against the cryptocurrency industry. While the People's Bank of China and a number of other top-level agencies deemed crypto transactions to be illegal fundraising in September 2021, the court order explicitly classifies them as a crime and establishes the appropriate penalties.

Crypto to be a crime in China

Suspects would be prosecuted under Article 176 of China's criminal legislation, which stipulates prison penalties of three to ten years and fines of RMB 50,000 (USD 7,900) to RMB 500,000 (USD 79,000) for crimes involving substantial sums of money, according to Thursday's verdict. According to the criminal legislation, less serious offences will be tried with less than three years in prison and fines ranging from RMB 20,000 (USD 3,160) to RMB 200,000 (USD 31,600).

Neither is fundraising by any other name off the hook. According to the court, online lending and financial leasing that are considered fundraisers could be prosecuted with illegally absorbing public funds. The new legal interpretation, which is set to go into effect on March 1, 2022, aims to "punish illicit fundraising activities in accordance with the law while protecting national financial security and stability." 

It's part of China's fight against financial fraud and money laundering. In 2017, the Chinese government also prohibited all forms of capital raising through the issuance of digital tokens known as initial coin offerings, forcing many Chinese cryptocurrency investors to park their investments abroad.

The Financial Stability and Development Committee of the State Council, the nation's cabinet, stated in May 2021 that it would "crackdown on bitcoin mining and trading behavior and resolutely prevent the transfer of individual risks to society."

Earlier court rulings have taken a consistent anti-crypto currency stance. A Beijing court ruled late last year that bitcoin mining contracts were invalid, implying that the judicial system has no intention of recognizing and protecting cryptocurrency-related interests.

The new standards declared all cryptocurrency transactions illegal in mainland China and barred foreign cryptocurrency exchanges from providing any of their services. Since then, state regulators have continued to implement the policies, removing the majority of the country's centralized mining and trading.