Author: Liu Honglin
On June 5, the Legal Affairs Office of the Beijing Public Security Bureau published an article on its official account 'Law Youth Garden', detailing the innovative 'Beijing model' of the Beijing Public Security Bureau—disposing of virtual currencies involved in cases through compliant licensed exchanges in Hong Kong, achieving a closed loop from on-chain to off-chain, which is both legal and compliant as well as efficient and secure.
According to the article from 'Law Youth Garden', the Legal Affairs Department of the Beijing Public Security Bureau and the Beijing Property Exchange have explored a new channel: the public security agency first entrusts the physical virtual currencies involved in the case to the Beijing Property Exchange for inspection, reception, and transfer, and then publicly monetizes and sells them through compliant licensed exchanges in Hong Kong (such as OSL Exchange, HashKey Pro). After completing the transaction, the funds undergo the national foreign exchange management approval procedures and are eventually settled into a special account for case funds at the public security agency, remitted to the national treasury. As of now, the Beijing Property Exchange has disposed of a cumulative total of 5.468 million items of involved property.
According to information shared by Lawyer Liu Yang from Beijing (public account: Zhongben Law. Recommended to follow!), there are several key details behind this chain.
First, the First Research Institute of the Ministry of Public Security provides full technical support, and the disposal process is recorded and filmed to ensure safety and compliance. This work is specifically carried out by a wholly-owned subsidiary under the First Institute, Beijing Zhongtianfeng Security Protection Technology Co., Ltd.
Secondly, the banks cooperating with Zhongtianfeng Company for disposal are within the CITIC Bank system, including the CITIC Bank Beijing branch, as well as CITIC Bank's Hong Kong branches, trust institutions, and non-bank financial institutions. The necessity for participation from trust institutions and other non-bank entities arises because banks can only conduct interbank business and cannot directly open accounts at Hong Kong exchanges for disposal operations. Zhongtianfeng Company and CITIC Bank have developed a 'virtual currency disposal repatriation clearing system', which has now been deployed and launched on the police intranet and has been reported to the People's Bank of China and the State Administration of Foreign Exchange for record approval.
Thirdly, the cooperation between the Beijing Public Security Bureau and the Beijing Property Exchange is not an isolated case; for example, the Suzhou Public Security Bureau has cooperated with the local state-owned asset company, Suzhou Bida Digital Asset Service Center. This indicates that the model has strong replicability.
The 'Beijing model' addresses the long-standing issue of involved virtual currencies being unable to be monetized directly within the country and responds to the risks and challenges of cross-border disposal in judicial practice. By completing monetization through compliant licensed exchanges in Hong Kong, along with strict regulatory approvals, it allows the involved virtual currencies to 'cleanly' transition from on-chain back to off-chain, smoothly entering the national treasury, which is commendable from both legal and regulatory perspectives.
However, a close reading of the operational chain of the 'Beijing model' reveals a core link: compliant licensed exchanges in Hong Kong are the key part of this chain and the most trusted disposal scenario.
So the question arises: why can Hong Kong become an ideal landing point for this type of cross-border disposal?
Previously, Lawyer Honglin discussed this topic in detail in (Mankun Lawyer | The Largest Demand for Hong Kong Cryptocurrency Exchanges is Actually from the Mainland). Interested friends can read further.
Overall, the local user base of Hong Kong's virtual asset market is actually quite limited. Although the Hong Kong regulatory authorities established a virtual asset trading licensing system early on and allowed compliant exchanges to provide services to professional investors and even retail clients, the local market has continually struggled to support a complete trading ecosystem due to the challenges of difficulty in bank account openings, insufficient understanding of virtual assets, and limited user scale.
Theoretically, Hong Kong licenses can target global users, but in reality, international users are mostly firmly bound to platforms like Coinbase and Binance. It is evident how difficult it would be for Hong Kong exchanges to attract global users. Rather than competing with knives in the global market, it is better to leverage the advantages of being an 'institutional interface' and effectively serve those 'atypical markets'—especially mainland China.
Opportunities arise from the resolute attitude of mainland China towards virtual currencies: there will not and cannot be a comprehensive opening of virtual currency investment and public trading markets to retail investors.
The core reason behind this is not just that the virtual currency market is 'high risk' or 'technologically immature', but rather stems from a higher-level institutional arrangement—China's foreign exchange management system. As long as the capital account remains in a non-freely convertible state, tools like crypto assets, which inherently have cross-border capital flow attributes, cannot be released at will. This is not a decision that any department can make alone, but a rigid institutional red line.
Therefore, rather than competing for retail investors, the truly wise Hong Kong exchanges should study opportunities within the 'institutional interlayer': judicial disposal and cross-border wealth management, both of which are among the most typical scenarios.
And these are precisely the biggest market opportunities for cryptocurrency exchanges in Hong Kong.
In recent years, virtual currencies have appeared more frequently in criminal cases and civil and commercial disputes. Property division ruled by courts and virtual currencies seized by public security require a compliant trading exchange to complete a 'from on-chain to off-chain' closed loop, and Hong Kong can just play this role. It is close to the Chinese judicial system and has a mature licensing system, which can ensure compliance while solving practical problems.
Due to work reasons, Lawyer Honglin has participated in several judicial disposal projects involving virtual currencies and has learned about several pilot documents from provincial public security departments regarding the judicial disposal of cryptocurrency cases. Without involving sensitive information, Lawyer Honglin can provide a few examples to help everyone better understand the professionalism and complexity of this mechanism.
For example, when handling virtual currency management in case investigations, it is required to promptly employ signal interference and other means to disconnect the network of involved wallets to prevent suspects from transferring assets. The involved virtual currencies must be transferred to qualified custodians to avoid funds being secretly transferred by others using private keys or mnemonic phrases.
In the disposal phase, public security agencies also require that non-stablecoin currencies be first exchanged for stablecoins, then monetized with offshore legal tender while retaining a complete transaction list and vouchers to ensure fair pricing, traceable processes, and auditable transactions.
For overseas involved virtual currencies, it is necessary to entrust overseas qualified custodians or disposers to assist in completing freezing and monetization operations. These institutions must hold local financial regulatory licenses and meet China's compliance requirements, and can only be designated for cooperation after verification by the cybersecurity department of the Ministry of Public Security.
After the funds are monetized, similar to the Beijing model mentioned at the beginning of this article, it is necessary to complete international balance of payments declaration and restoration declaration with the central bank and the State Administration of Foreign Exchange, and only then can the funds enter domestic accounts for currency exchange and disposal.
This comprehensive regulatory system not only ensures the legality and compliance of judicial disposal but also leaves ample retraceability and security guarantees for future audits.
The existence of such internal regulations not only indicates the high importance that judicial authorities place on the disposal of virtual currencies but also reflects a dual defense for national financial security and data security. It further proves that the disposal of cryptocurrencies is not just a concern for the public in the crypto space, but also a systemic project at the national level.
The core hub of this project is Hong Kong.
To some extent, whether Hong Kong can become a global cryptocurrency financial center ultimately does not depend on technology or user numbers, but rather on whether it can continue to play the role of a 'compliant intermediary' within China's institutional boundaries. After all, the Beijing model has clearly told us: in a legally compliant judicial disposal and capital repatriation system, Hong Kong's role is indispensable.
