Shanghai court successfully disposed of Crypto Assets: realized over 90,000 FIL through Hong Kong.

Since the comprehensive ban on virtual money trading in mainland China in 2021, a tricky legal and practical dilemma has presented itself to judicial authorities across the country: how to handle the large amounts of encryption discovered and seized in various cases? These digital assets have clear property attributes, yet cannot be valued and liquidated through legal channels in the mainland. This has created a significant "legal vacuum," resulting in hundreds of millions worth of assets involved in cases remaining in a "dormant" state for a long time, unable to be effectively converted into national fiscal revenue or refunded to victims.

However, a recent case from Shanghai seems to provide a strong example to break this deadlock. It is reported that the judicial authorities in Shanghai successfully sold and converted more than 90,000 pieces of Filecoin (FIL) crypto assets that were seized through specific channels via a compliant exchange in Hong Kong. This operation not only marks another major city in China, following Beijing, successfully exploring a cross-border disposal path for the seized digital assets, but also reveals that behind strict regulation, a more pragmatic and grand national-level strategy is quietly taking shape.

legal vacuum

To understand the groundbreaking significance of Shanghai's move, it is first necessary to review the common "growing pains" faced by various regions on this issue. The case of Henan Province is highly representative. As a populous province in China, Henan's legislative and judicial authorities have formally reviewed draft regulations regarding the management of involved assets. During the review process, they acknowledged that Virtual Money has property attributes and should be regarded as involved assets, a consensus that has already been reached in judicial practice.

However, the challenge lies in how to "manage" and "dispose". The Legal Affairs Committee of the Henan Provincial People's Congress clearly pointed out in its review report that, due to the comprehensive ban on Crypto Assets trading in mainland China, all legitimate trading platforms no longer exist. In this context, if local authorities were to legislate their own disposal methods, it would not only face huge challenges at the technical level (such as secure custody, accurate valuation, and compliant settlement), but it could also potentially conflict with the national financial security policies.

Therefore, the conclusion reached by the Henan authorities is that local legislation to deal with such new types of involved assets is "untimely." They have chosen a more cautious "wait-and-see" strategy and publicly called for central agencies such as the Ministry of Public Security to lead the establishment of a unified legal and disposal framework at the national level. Henan's position reflects the general mindset of most provinces: faced with this highly sensitive and complex new issue, it is better to temporarily shelve it than to act rashly, to avoid triggering unpredictable legal and financial risks. This collective "wait-and-see" has turned a large number of seized Crypto Assets into a "hot potato" within the judicial system.

Beijing model

In stark contrast to Henan's cautious wait-and-see approach, Beijing, as the capital, took the lead in making a bold innovation and attempt. Faced with the same dilemma, Beijing's law enforcement agencies did not choose to wait idly but instead creatively designed and established a complex cross-border disposal channel.

According to the disclosed information, the operational model of the Beijing police can be described as ingenious. They first entrusted the seized Crypto Assets to an authoritative state-owned institution—the Beijing Property Exchange. Subsequently, the North Exchange coordinated with professional third-party service providers responsible for the technical detection, reception, and secure transfer of these digital assets. After the assets were securely transferred abroad, they were listed for sale through a virtual asset exchange in Hong Kong that holds a compliant license. The proceeds in HKD or USD, after receiving approval from the foreign exchange management department, were exchanged for RMB and ultimately deposited into the police's account for legal confiscation or reimbursement to the victims of the case.

The successful practice in Beijing shines like a light into the dark area of the "legal vacuum." It proves that, despite the mainland's prohibition on trading, it is entirely possible to revitalize the "frozen" digital assets through a meticulously designed, multi-party collaboration, and a legal and compliant cross-border path. The core of this "Beijing model" lies in cleverly leveraging Hong Kong's unique position as an international financial center and licensed crypto trading hub.

Copyable process

If the Beijing case is a successful "ice-breaking" example, then Shanghai's recent action of disposing of more than 90,000 FIL coins marks that this model has evolved from a one-time "exception" into a standardized process that can be replicated and promoted.

According to official website news, the assets disposed of in Shanghai this time include over 90,000 Filecoin (FIL), with a total estimated value reaching several hundred thousand dollars based on recent market prices. The successful handling of this case is significant far beyond the value of the assets themselves. It indicates that: The replicability of the model: As China's economic and financial center, the rigor and influence of Shanghai's judicial system are beyond doubt. Shanghai's successful replication and execution of this cross-border disposal process strongly proves that the "Beijing model" is not an insurmountable isolated case but has the potential to be promoted to other regions of the country with strong judicial capabilities. Maturation of operations: From Beijing to Shanghai, this complex collaboration chain involving mainland judicial authorities, state-owned property exchanges, professional service providers, Hong Kong compliant exchanges, and foreign exchange management departments has clearly become more smooth and mature. Clear judicial signals: Shanghai's actions have sent a clear message to judicial authorities across the country—when facing cases involving crypto assets, there are no longer only the options of "waiting" and "shelving." A practical and viable disposal path that has received high-level tacit approval already exists.

It is foreseeable that with the spread of the Shanghai case, more provinces and cities will follow suit in the future, gradually clearing the backlog of Crypto Assets in cases. A nationwide network for the disposal of involved digital assets, centered around Hong Kong, is taking shape.

Hong Kong "interface"

By linking the difficulties in Henan, the innovations in Beijing, and the practices in Shanghai, a grander national-level strategic picture emerges. While China strictly prohibits encryption activities in the mainland, it is methodically shaping Hong Kong into a strategic "interface" for addressing related historical issues and maintaining connections with the global digital asset ecosystem.

This strategy can be described as "killing three birds with one stone." First, it addresses the practical problem of disposal. It provides the mainland judicial system with a legal and compliant channel to handle the vast amount of involved assets, avoiding the disguised loss of state-owned assets.

Secondly, it has created considerable fiscal revenue. These originally unmanageable "dead" assets can be directly converted into RMB funds by monetizing them in Hong Kong, supplementing the national treasury or being used for people's livelihoods, achieving the transformation of "waste into treasure."

Lastly, and most importantly, it has strengthened Hong Kong's strategic position. By directing the disposal of all involved crypto assets to licensed exchanges in Hong Kong, Beijing has not only injected real liquidity and business volume into Hong Kong's crypto market but has also, on a global scale, endorsed Hong Kong's position as a regulated and trustworthy "global Web3 center" through practical actions. This differentiated layout of "the mainland prohibits, Hong Kong opens" perfectly illustrates the new application of "one country, two systems" in the digital finance era, ensuring that China, while strictly controlling domestic risks, has not completely decoupled from global technological and financial innovations.

In summary, from the confusion in Henan to the pioneering trials in Beijing, and then to the successful replication in Shanghai, China's attitude towards the involved crypto assets has undergone a profound transformation. The once-existing "legal vacuum" is being filled by a highly pragmatic, flexible, and strategically wise cross-border administrative solution. In the future, handling crypto assets through Hong Kong may become a new normal in China's judicial practice, and this process will undoubtedly have far-reaching impacts on the financial interactions between mainland China and Hong Kong, as well as on the global regulatory landscape of Virtual Money.