A Chinese civil court has awarded damages against the parent company of popular bitcoin exchange OKCoin, saying the business is improperly registered and facilitates criminal money-laundering.
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The decision was actually published online in China on July 29, but did not become widely-known until today. It pertains only to OKCoin’s China-based entity OKCoin.cn, and not its Singapore-registered international exchange OKCoin.com, which is a separate business.
The case is reportedly an appeal stemming from a 2014 case that OKCoin’s parent company Lekuda also lost. The defendant, Huachen Commercial and Trading Co. Ltd., claimed a criminal had defrauded it of 12 million RMB ($1.8 million USD) and then laundered the money by buying bitcoin, which was then withdrawn to an account in Macau.
The initial ruling awarded 80 percent of the damages the defendant company had sought, but the appeal reduced this to 40 percent.
OKCoin ID Reviews Not Strict Enough
In the ruling details, the court criticized OKCoin for not strictly reviewing its users’ real identities, meaning criminals could easily use the exchange to launder proceeds from their illicit activities.
The criminal in this case had set up a number of accounts on OKCoin using fraudulent identity documents purchased online.
Operating Outside the Scope of its License
The ruling also suggested OKCoin was operating illegally, since its operating license doesn’t cover its bitcoin exchange business.
It would be difficult to comply fully under these conditions, since there is no existing legislation to regulate Bitcoin businesses in China, and no license to obtain even if it were sought.
The judgment said OKCoin “should register at the administration of Industry and Commerce and get a business license.”*
“Lekuda’s registered business scope only includes these areas: technology development, transfer of technology, technical services, technical marketing, consulting and investment management. Trading Bitcoin for profit-making purposes is beyond the range permitted by the administrative authorities.”
Bitcoin in China a Gray Area
Since the Chinese government has a history of placing restrictions on Bitcoin companies’ operations, many in the country will no doubt be watching and treading carefully in the near future.
Authorities first tried to forbid bitcoin exchanges from performing direct transfers in and out of banks in early 2014, and requested the five major exchanges at the time sign a statement warning their customers of the risks of speculating on bitcoin price.
Since then, however, Bitcoin businesses have found ways to continue operations as usual within the gray legal area. Chinese bitcoin exchanges are among the world’s most active and widely used, mainly due to zero-fee structures.
*English translations of judgment via Reddit.
Do you think the ruling is likely to lead to another crackdown on Bitcoin business in China? Are Chinese exchanges more likely to be more thorough with ID procedures in future?
Images courtesy of Wikimedia Commons, OKCoin.