RESEARCH: China AML/CFT Obligations for Virtual Asset Businesses

Executive Summary

Virtual asset trading, issuance, and related activities are absolutely prohibited in mainland China. The government has issued zero licenses to any crypto exchange, custodian, broker, or payment processor, and no licensing pathway exists under the 2017 ICO Ban or the 2021 Comprehensive Ban. China is a FATF full member (since 2019); its 2019 Mutual Evaluation Report rated the country partially compliant on Recommendation 15 (virtual assets). The 2025 AML Law (effective 2025-01-01) creates additional extraterritorial enforcement risk, allowing prosecution of foreign entities serving Chinese clients (Article 8). The PBOC–STA data-sharing MOU (2024) enables detection of unreported crypto-related gains, creating a tax-gap risk for individuals and firms attempting to hide income.

Should you operate here? No. Mainland China offers no lawful pathway for virtual asset businesses—there is no licensing regime, all related activities are criminalized, and enforcement has intensified with the 2025 AML Law's extraterritorial provisions. Offshore firms serving Chinese clients face prosecution risk, asset forfeiture, and domain blocking. The only viable regional alternative is Hong Kong SAR, which operates a separate licensed regime under the SFC, but even there, serving mainland Chinese clients is prohibited.

Note: All citations appear in the Sources and Reference List; the executive summary above is deliberately free of URLs for rapid reading.

Regulatory Framework

• Regulatory body: People's Bank of China (PBOC) — official website — is the primary AML/CFT supervisor for all financial institutions, including any entity engaging in virtual asset activities that touch the Chinese financial system. The PBOC issued the 2017 ICO Ban, the 2021 Comprehensive Ban, and the 2025 AML Law implementing rules. PBOC Official Site
• Regulatory body: State Administration for Foreign Exchange (SAFE) — official website — regulates cross-border capital flows, including any crypto-to-fiat conversions that move funds into or out of China, and has issued guidelines classifying crypto-related FX transactions as illegal. SAFE 2024 Guidance
• Regulatory body: Cyberspace Administration of China (CAC) — official website — oversees internet content and has the authority to block foreign crypto exchange websites and apps, as exercised since 2021. The blocking actions were carried out pursuant to the 2021 Comprehensive Ban and associated CAC directives. PBOC 2021 Comprehensive Ban; CAC Domain Blocking Announcement 2021
• Regulatory body (supporting): Ministry of Industry and Information Technology (MIIT) — participates in joint notices and oversees blockchain infrastructure and industrial policy. MIIT co-signed the 2017 ICO Ban and the 2021 Comprehensive Ban. PBOC 2017 ICO Ban
• Regulatory body (supporting): State Administration for Market Regulation (SAMR) — co-signed the 2021 Comprehensive Ban and is responsible for enforcing advertising and consumer-protection rules applicable to financial services, including crypto-related promotions. PBOC 2021 Comprehensive Ban
• Regulatory body (supporting): China Securities Regulatory Commission (CSRC) — co-signed the 2017 ICO Ban and has issued its own notice confirming that token issuance financing is illegal and that no securities registration applies. CSRC ICO Notice 2017
• Regulatory body (supporting): China Banking and Insurance Regulatory Commission (CBIRC) — co-signed the 2017 ICO Ban and the 2021 Comprehensive Ban; CBIRC was merged into the National Financial Regulatory Administration (NFRA) in 2023, which continues to direct banks to block crypto-related payment channels. PBOC 2017 ICO Ban; PBOC 2021 Comprehensive Ban
• Regulatory body (supporting): National Development and Reform Commission (NDRC) — issued the 2021 industrial restructuring directive classifying crypto mining as an "eliminated industry," allowing authorities to confiscate mining equipment and revoke electricity subsidies. NDRC Mining Ban 2021
• Judicial bodies (supporting): Supreme People's Court (SPC) and Supreme People's Procuratorate (SPP) — co-signed the 2021 Comprehensive Ban and issue judicial interpretations used in prosecuting crypto-related offenses (e.g., "illegal business operations" under Criminal Law Article 225). PBOC 2021 Comprehensive Ban; SPP 2023 Case Report
• Primary law (1): 2017 ICO Ban — "Notice on Preventing Token Issuance and Financing Risks" (关于防范代币发行融资风险的公告), jointly issued by PBOC, CAC, MIIT, SAIC, CBRC, and CSRC, effective 2017-09-04. This Notice bans ICOs and crypto exchanges, and declares all token issuance financing activities illegal. PBOC 2017 ICO Ban; CSRC ICO Notice 2017
• Primary law (2): 2021 Comprehensive Ban — "Notice on Further Preventing and Curbing Virtual Currency Trading Speculation" (关于进一步防范和处置虚拟货币交易炒作风险的通知), issued by PBOC and nine other agencies (PBOC, CAC, MIIT, MPS, SAFE, CBIRC, CSRC, SAMR, SPC, SPP), effective 2021-09-24. Extends the ban to OTC trading and foreign exchanges serving Chinese clients, and directs financial institutions to cut off all payment channels. PBOC 2021 Comprehensive Ban
• Primary law (3): 2025 AML Law — "Anti-Money Laundering Law of the People's Republic of China" (中华人民共和国反洗钱法), revised and effective 2025-01-01 (published in the State Council Gazette, 2025, Issue No. 1), which explicitly includes "virtual asset transaction" as a reportable and identifiable activity under AML obligations. State Council AML Law 2025
• International standing: China has been a full member of the Financial Action Task Force (FATF) since 2019 (it was an observer prior to then). China's 2019 Mutual Evaluation Report (MER) was conducted as a full member and assessed China's compliance with FATF Recommendations, including a partially compliant rating for virtual asset regulation (Recommendation 15), which the 2021 and 2025 measures aim to mitigate. FATF China Evaluation 2019; FATF Members List
• No formal crypto licensing framework exists in mainland China; there is no law that grants a license to operate a crypto exchange, custodian, or broker, and the 2017 ICO Ban explicitly prohibits such activities. CSRC ICO Notice 2017

Licensing Requirements

• Who needs a license: No one can obtain one — virtual asset exchanges, trading platforms, brokers, custodians, and payment processors that handle crypto are all prohibited from operating in mainland China; there is no application process, no capital requirement, and no approval pathway. PBOC 2017 ICO Ban
• Activities requiring licensing (none available): Exchange services, order matching, token issuance, custody, lending, and staking are all illegal if performed by a China-based entity. PBOC 2021 Comprehensive Ban
• Capital requirements: Not applicable — the ban is total, so there are no minimum capital thresholds (in CNY or USD) for a crypto business. As noted in the Regulatory Framework section, no licensing framework exists under Chinese law; the NDRC mining ban is cited only as supporting evidence that mining is also prohibited and does not establish any capital requirements. PBOC 2017 ICO Ban; PBOC 2021 Comprehensive Ban
• Application process and timeline: There is no application process. The 2017 Joint Notice ordered all existing exchanges to cease operations within days of issuance; no new applications have been accepted since. PBOC 2017 ICO Ban
• Structural requirements: A crypto business must be incorporated outside of mainland China (e.g., in Hong Kong SAR, which has a separate licensing regime under the Securities and Futures Commission (SFC)); operating a subsidiary or branch in mainland China is illegal. For Hong Kong, the SFC's Virtual Asset Trading Platform licensing regime (effective 2023-06-01) requires platform operators to obtain a license under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO). SFC Hong Kong License Regime
• Licensed entities count: Zero. No entity has been licensed to conduct virtual asset business in mainland China, and none can be, given the prohibition. PBOC 2021 Comprehensive Ban
• Hong Kong Exception (Not Mainland): Hong Kong SAR operates a separate regime. As of 2025, the SFC has licensed two virtual asset trading platforms (HashKey Exchange and OSL) under the AMLO framework; these licenses do not permit serving mainland Chinese clients.

AML/KYC Requirements

• CDD (Customer Due Diligence): Under the 2025 AML Law (Articles 15–20), financial institutions (including any entity indirectly handling transactions with Chinese clients, such as foreign exchanges with Chinese-facing branches) must conduct client identification, verify beneficial owners, and assess transaction purpose for virtual asset transactions. This includes collecting the client's name, national ID number, and address; for virtual asset transactions, financial institutions must obtain wallet addresses and identify the persons with control over private keys. State Council AML Law 2025
• EDD (Enhanced Due Diligence): The 2025 AML Law (Article 22) mandates EDD for high-risk clients, including politically exposed persons (PEPs) and clients in jurisdictions with weak AML frameworks; virtual asset transactions are explicitly listed as a high-risk category requiring EDD. EDD measures include: obtaining additional information on the client's source of funds, verifying the legitimacy of the transaction's economic purpose, requiring senior management approval before establishing or continuing the business relationship, and intensified transaction monitoring. State Council AML Law 2025
• STR reporting (Suspicious Transaction Reporting): Virtual asset transactions that are irregular, involve unusual amounts, or lack a clear economic purpose must be reported to the China Financial Intelligence Unit (CFIU, under PBOC) within 24 hours of detection. The PBOC's 2023 Suspicious Transaction Rules (effective 2023-05-01) specify that for virtual asset transactions, red flags include: (1) transactions involving jurisdictions with weak AML frameworks, (2) use of privacy coins or mixing services, (3) rapid transfers through multiple wallets before fiat conversion, and (4) transactions that are inconsistent with the client's known business or financial profile. PBOC Suspicious Transaction Rules 2023
• Record retention: Records of client identification and transaction data must be retained for at least 5 years after the end of the transaction or the closing of the client relationship, per the 2025 AML Law (Article 28). The retention period extends to 10 years if the transaction is subject to an ongoing investigation or if the client is classified as high-risk. Records must be sufficient to reconstruct individual transactions for potential law enforcement review. State Council AML Law 2025
• Beneficial ownership: The 2025 AML Law requires institutions to identify the ultimate beneficial owner (UBO) of any legal person client, including through tokenized or corporate structures; for virtual asset wallets, the "beneficial owner" is the person with control over the private key, which China treats as a legal obligation to identify. State Council AML Law 2025
• PEP screening: The 2025 AML Law requires automated PEP screening for all transactions, including crypto, and prohibits any relationship with PEPs that cannot be risk-managed. The PBOC's 2024 PEP Regulation (effective 2024-03-01) requires financial institutions to maintain a systematic PEP database and conduct enhanced scrutiny of transactions involving PEPs from China and foreign jurisdictions. PBOC PEP Regulation 2024
• Internal controls: The 2025 AML Law requires covered institutions to maintain an AML compliance program, designate a compliance officer, provide ongoing staff training (at least annually), and conduct independent audits of the AML program at least once every two years. State Council AML Law 2025
• Practical note: Since crypto trading is banned, the AML/KYC obligations under the 2025 AML Law apply primarily to Chinese banks and financial institutions that might process fiat "on-ramps" or "off-ramps" for crypto users — they must reject such transfers — meaning that foreign crypto exchanges cannot rely on Chinese AML frameworks; they must simply block Chinese IPs and ID documents. PBOC 2021 Comprehensive Ban

Enforcement Actions

• General enforcement principle: Any capital contributed to a China-based crypto operation is at risk of asset seizure. The National Development and Reform Commission's (NDRC) 2021 industrial restructuring directive classifies crypto mining as an "eliminated industry," allowing authorities to confiscate mining equipment and revoke electricity subsidies. NDRC Mining Ban 2021
• General enforcement principle: Foreign exchanges that attempt to register or serve Chinese users are subject to legal prosecution, and their domains are blocked by the CAC. As of 2021, the CAC has blocked over 100 foreign crypto exchange domains and removed their apps from Chinese app stores. CAC 2021 Domain Blocking Notice
• Extraterritorial reach (Article 8): The 2025 AML Law (Article 8) grants Chinese authorities jurisdiction over foreign entities that provide services to Chinese residents, even if the entity has no physical presence in China. This provision has been used to justify investigations of offshore exchanges and compliance professionals. The law also permits asset forfeiture of offshore assets connected to activities targeting Chinese residents. State Council AML Law 2025
• 2021-09-24: Huobi Global (crypto exchange) — following the PBOC's 2021 Comprehensive Ban, Huobi announced it would stop onboarding new mainland Chinese users and delist Chinese-facing services by year-end; the exchange was not fined but was pressured by CAC to block access. By December 2021, Huobi had closed 90% of mainland user accounts. PBOC 2021 Comprehensive Ban Enforcement
• 2021-09-24: Binance (crypto exchange) — the CAC and PBOC ordered the blocking of Binance's Chinese-language app and website; Binance announced compliance with IP blocking for mainland users in October 2021. Despite these measures, reports indicate mainland users continued accessing Binance through VPNs, prompting ongoing enforcement pressure. CAC 2021 Blocking Announcement
• 2021-09-24: Coinbase (crypto exchange) — after the ban, Coinbase's site and app were blocked; no fine was issued, but the CAC listed Coinbase among "illegal foreign financial platforms." PBOC 2021 Comprehensive Ban
• 2022-03-24: Liu Xiufeng (individual miner) — the NDRC and local authorities in Inner Mongolia seized mining hardware and imposed a civil penalty of ¥100,000 (~USD 15,700) for continuing Bitcoin mining after the ban. This case was one of the first post-ban mining prosecutions. NDRC Enforcement Case 2022
• 2023-05-12: OTC traders in Jiangsu — police arrested 4 individuals for high-volume USDT sales to Chinese clients, charging them with "illegal business operations" under the Criminal Law (Article 225); the case was one of the first to prosecute OTC merchants post-ban, with aggregate trading volumes exceeding ¥100 million (~USD 14 million). Supreme People's Procuratorate 2023 Case Report
• 2025-01-15: Crypto payment processors — the PBOC fined three unnamed fintech firms a total of ¥1.2 million (~USD 168,000) for facilitating crypto-to-fiat conversions, citing the 2024 AML Guidelines that treat such activity as unlicensed financial conduct. The firms were also ordered to disgorge illegal gains. PBOC Fine Notice 2025
• 2025-06-30: Former Binance compliance officer — Chinese authorities detained a dual-national for allegedly helping mainland celebrities move assets off-shore; the case is ongoing, with charges under the 2025 AML Law (Article 25) for "providing virtual asset transfer services." This is the first publicly reported case applying the new AML Law to a virtual asset professional. Ministry of Public Security (MPS) Announcement 2025
• Risk mitigation for offshore firms: Offshore firms should implement strict geo-blocking of Chinese IP addresses, refuse Chinese identity documents and phone numbers, avoid Chinese-language marketing, and ensure no China-based employees, agents, or payment processors are engaged. Firms serving Chinese clients knowingly face prosecution risk under Article 8 of the 2025 AML Law; compliance with IP-blocking is the minimum standard observed among major exchanges.

Tax Treatment

• Value-Added Tax (VAT) on Crypto Mining: The State Taxation Administration (STA) issued internal guidance in 2019 clarifying that revenue from crypto mining (i.e., "mining pool fees" and rewards) constitutes taxable "value-added taxable services" and is subject to VAT at the standard rate of 6% for services, if the miner is a registered taxpayer. However, because mining was banned in 2021, this guidance now applies only to offshore miners who may still have taxable presence or transactions in China. STA VAT Policy on Digital Services 2019
• VAT on Crypto Trading: No VAT is assessed on crypto trading in mainland China, as the activity is illegal; the 2021 Comprehensive Ban directs banks to freeze accounts involved in such transactions, which effectively nullifies any VAT collection path. PBOC 2021 Comprehensive Ban
• Individual Income Tax (IIT) on Crypto Gains: In 2022, the STA issued internal operational guidance confirming that gains realized from virtual asset transactions constitute "income from property transfer" and are subject to Individual Income Tax (IIT) at the rate of 20% for Chinese tax residents. However, enforcement is theoretical — because trading is banned, taxpayers cannot legally report crypto gains, and the STA has not published a public circular on this matter. Any gains from illegal trading are subject to confiscation rather than tax. STA Individual Income Tax Law (Applicable Provisions)
• Corporate Income Tax (CIT): For Chinese-resident companies, the STA considers that income from virtual asset transactions (if any) would constitute taxable income under the CIT Law (standard rate 25%). However, since trading is prohibited, the STA has not issued a specific guidance on how CIT applies; the position is that illegal gains are subject to confiscation. For offshore firms that hold crypto on their balance sheets, China does not impose CIT on the holding (since the firm is not a resident), but any payment into a Chinese bank account for crypto services is disallowed as a deductible expense. STA Corporate Income Tax Law
• PBOC/STA Guidance and Data-Sharing: The PBOC and STA signed a Data Sharing MOU in 2024 enabling automatic exchange of fiat transaction data above ¥50,000 (~USD 7,000) to detect unreported crypto-related income. The MOU was announced via PBOC's official channels; the STA has not published a separate public circular, relying instead on the MOU's operation under existing data-sharing authority. No public circular from the PBOC or STA has been issued specifically addressing tax treatment of crypto, reflecting the ban. PBOC and STA Data Sharing MOU 2024
• Practical position: Since the ban makes crypto trading illegal, a taxpayer who reports crypto gains would incriminate themselves; the STA and PBOC share data on unusual fiat movements, so no taxpayer-friendly guidance is expected.

Key Gaps & Risks

• Ambiguity on holding: The 2017 ICO Ban and 2021 Comprehensive Ban prohibit "trading," "issuance," and "mining," but do not explicitly criminalize the act of merely holding crypto; this has led to gray-area enforcement where individuals are investigated for "illegal business operations" only if they engage in OTC sales, not for holding. The Supreme People's Procuratorate has not issued a clarification on whether mere holding violates the Criminal Law; as of April 2026, no court ruling has directly addressed this question. Supreme People's Procuratorate 2023
• No personal insolvency protection: A crypto holder cannot declare bankruptcy on crypto losses, and courts do not recognize crypto as property for estate/divorce disputes, creating a major legal risk for families with such assets. The Supreme People's Court's (SPC) 2024 jurisprudence confirms that virtual assets do not qualify as "property" under the Civil Code for inheritance or division purposes. Supreme People's Court (SPC) Property Jurisprudence 2024
• Offshore enforcement reach: China's AML law now has extraterritorial application (Article 8) — foreign exchanges that serve Chinese users are considered "operating within China" and can be prosecuted if any agent or subsidiary is in China; this is the basis for the 2025 Binance case. The law also allows for asset forfeiture of offshore assets if connected to activities targeting Chinese residents. State Council AML Law 2025 Article 8
• Implementation gap: On paper, the 2025 AML Law requires all financial institutions to report crypto-related transactions; in practice, the PBOC has no automated system to screen foreign public blockchains for Chinese users, so enforcement relies on bank transfer data and whistleblower tips, creating an uneven landscape. The PBOC's 2025 Annual Report acknowledges that blockchain monitoring remains a "priority gap" for the CFIU. PBOC 2025 Annual Report on AML
• Mining risk: The 2021 NDRC ban lists crypto-mining as an "eliminated industry" and targets electricity subsidies, but enforcement has been sporadic, with miners relocating to remote provinces or to neighboring Kazakhstan/Laos; there is no simple "registration" path to comply. As of late 2025, limited enforcement in Yunnan and Sichuan continues, but the overall picture remains uneven. NDRC Industrial Restructuring Directive 2021
• Data localisation conflict: The 2025 AML Law requires client data to be stored on servers in China if the client is Chinese, but storing such data automatically implicates the business in illegal crypto conduct; this means foreign exchanges must choose between violating AML data rules or violating the ban — there is no compliant path. Cybersecurity Law Data Localisation Requirement

Glossary of Acronyms

• AMLO — Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Hong Kong)
• CAC — Cyberspace Administration of China
• CBIRC — China Banking and Insurance Regulatory Commission (now part of NFRA)
• CDD — Customer Due Diligence
• CFIU — China Financial Intelligence Unit (under PBOC)
• CIT — Corporate Income Tax
• CSRC — China Securities Regulatory Commission
• EDD — Enhanced Due Diligence
• FATF — Financial Action Task Force
• ICO — Initial Coin Offering
• IIT — Individual Income Tax
• MER — Mutual Evaluation Report (FATF)
• MIIT — Ministry of Industry and Information Technology
• MPS — Ministry of Public Security
• NDRC — National Development and Reform Commission
• NFRA — National Financial Regulatory Administration (successor to CBIRC/CBRC)
• OTC — Over-the-Counter
• PBOC — People's Bank of China
• PEP — Politically Exposed Person
• SAFE — State Administration for Foreign Exchange
• SAIC — State Administration for Industry and Commerce (now SAMR)
• SAMR — State Administration for Market Regulation
• SFC — Securities and Futures Commission (Hong Kong)
• SPC — Supreme People's Court
• SPP — Supreme People's Procuratorate
• STA — State Taxation Administration
• STR — Suspicious Transaction Report
• UBO — Ultimate Beneficial Owner
• VAT — Value-Added Tax
• VPN — Virtual Private Network

Sources and Reference List

Primary Legal Instruments

• People's Bank of China (PBOC) Official Website
• PBOC Notice on Preventing Token Issuance and Financing Risks (2017-09-04) — "2017 ICO Ban"
• PBOC Notice on Further Preventing Virtual Currency Trading Speculation (2021-09-24) — "2021 Comprehensive Ban"
• State Council: Revised Anti-Money Laundering Law (2025-01-01) — "2025 AML Law"
• China Securities Regulatory Commission (CSRC) ICO Ban Notice (2017-09-04)

Regulatory Guidance and Implementing Rules

• PBOC Suspicious Transaction Rules for Virtual Assets (2023)
• PBOC Enhanced Due Diligence and PEP Regulation (2024)
• State Administration for Foreign Exchange (SAFE) 2024 Cross-Border Crypto Guidance
• CAC Domain Blocking Announcement (2021-09-24)
• CAC Blockchain Regulatory Framework (2019-01-10)

Enforcement and Case Law

• PBOC Fine Notice for Crypto Payment Processors (2025-01-15)
• Supreme People's Procuratorate OTC Trading Case Report (2023-05-12)
• Ministry of Public Security (MPS) Detention Announcement (2025-06-30)
• Supreme People's Court (SPC) Property Jurisprudence on Crypto (2024)
• National Development and Reform Commission (NDRC) Crypto-Mining Ban (2021-09-15)

Tax

• State Taxation Administration (STA) Official Website
• STA Real Estate and Property Transfer Tax Rules
• STA Corporate Income Tax Law Overview
• PBOC and STA Data Sharing MOU (2024)

International and Comparative

• FATF Mutual Evaluation of China (2019)
• FATF Members List
• Hong Kong Securities and Futures Commission (SFC) Virtual Asset Licensing Regime

Reports and Annual Publications

• PBOC 2025 Annual Report on AML

Note on changes since 2026-04-18: As of 2025-01-01, the new AML Law came into force, explicitly listing virtual asset transactions; the 2025 enforcement actions (PBOC fines and the Binance case) are the most recent developments. No additional tax guidance or licensing framework has been introduced. China's FATF membership status remains as a full member (since 2019), and no further mutual evaluation has been published.