This article is an original work by Lawyer Shao Shiwei and represents only the author's personal views. It does not constitute legal consultation or legal advice on any specific matter. For article reprinting | legal consultation | business exchange, please contact: sswls66
On June 12, 2024, the Shanghai Procuratorate released the 2023 Shanghai Financial Prosecution White Paper and related cases. It stated:
Criminal methods in foreign exchange and illegal payment settlement cases are being reinvented, and the risks and hidden dangers of using virtual currencies to transfer assets across borders have become prominent.
Lawyer Shao also noted in previous articles that illegal business operations involving virtual currencies manifest as the payment settlement type and the foreign exchange trading type. A comparison of the annual Shanghai Financial Prosecution White Papers released by the Shanghai Procuratorate from 2021 to 2023 allows one to perceive longitudinally the intensity with which judicial authorities punish such cases.
Author of this article | Lawyer Shao Shiwei
01
Overview of illegal business financial crimes released by the Shanghai Procuratorate over the past three years
The 2021 Shanghai Financial Prosecution White Paper noted that illegal business financial crimes exhibited characteristics such as using virtual currencies, game recharge card points and other intermediate tools as a bridge to achieve multi-level cross-border currency exchange.
In other words, e-commerce platforms are not only regarded by wrongdoers as tools for money laundering, but are also used for currency exchange. Therefore, the white paper summarized that e-commerce platforms had evolved intoa criminal model of profiting from both fake order brushing and illegal payment settlement.
The 2022 Shanghai Financial Prosecution White Paper noted that the number of illegal business financial crime cases continued to be high, the methods used were constantly being upgraded, an industrial chain was gradually formed, and some lawful business entities were consequently implicated.
The 2023 Shanghai Financial Prosecution White Paper, released on June 12, 2024, particularly emphasized the hidden dangers of using virtual currencies to transfer assets across borders.
In addition, the white paper also put forward relevant recommendations on such issues, for example, advancing legislation in emerging fields, studying the regulation of domestic and overseas institutions engaging in financial business, strengthening analysis and assessment of financial illegal and criminal activities carried out using new technologies and new business forms, and increasing [efforts against] those in the financial crime chainassociated personnel such as those providing funds, technology, and intermediary servicesthe intensity of prosecution.
02
Some Reflections
From the white papers published by the Shanghai procuratorial authorities over the past three years, it can be seen that financial crimes involving illegal business operations have consistently been a key category of cases targeted by the judicial authorities, and such illicit and gray-market activities have already formed industrialized chains.
Using virtual assets to effect disguised currency exchange and conduct fund payment and settlement, thereby achieving the purpose of cross-border asset transfer — in practice, judicial authorities across the country have continuously published numerous similar cases over the years. However, in this year's white paper, such criminal conduct is described only with"risk hazards"— is this not somewhat of an understatement?
On December 24, 2023, the State Administration of Foreign Exchange and Qingdao, Shandong, released a case: a major underground banking case involving virtual assets with an amount involved as high as RMB 15.8 billion, spanning 17 provinces and municipalities directly under the Central Government nationwide, was cracked.Article commentary: "The State Administration of Foreign Exchange Has Taken Action! More and More U Traders May Be Convicted of the Crime of Illegal Business Operations! — Qingdao Police Crack Underground Banking Case Involving RMB 15.8 Billion"
On December 27, 2023, the Supreme People's Procuratorate and the State Administration of Foreign Exchange jointly released typical cases involving virtual assets. Article commentary: "Is Buying and Selling U Illegal After All? Lawyer's Interpretation: Supreme People's Procuratorate and State Administration of Foreign Exchange Jointly Release Criminal Cases Involving Virtual Assets"
On April 7, 2024, Beijing police cracked a RMB 2 billion virtual-asset chain case. After tallying, the police found that the case involved funds exceeding RMB 2 billion in total and more than ten virtual-asset wallets used for illegal transactions. Article commentary: "From the Perspective of Two Virtual-Asset Personal Information Trading Cases Cracked by Police, What Lessons Can the Loan-Assistance Industry Draw?"
On May 16, 2024, Chengdu Public Security also released a virtual-asset case, cracking an underground banking money-laundering case involving RMB 13.8 billion. → "Amount Involved RMB 13.8 Billion! Chengdu Public Security Investigates and Cracks Major Underground Banking Case"
In addition, the white paper's recommendations mention "intensifying prosecution of associated persons in the chain of financial crime, such as those providing funds, technology, and intermediary services," and expressions such as advancing legislation, studying regulation, and strengthening analysis seem to convey a sense of the judicial authorities' "powerlessness" in the face of cross-border crimes involving virtual currencies.
More than a decade has passed since the 2013 Notice on Preventing Bitcoin Risks issued by five ministries and commissions. Apart from notices, announcements, and risk warnings issued every few years, no documents of a higher legal hierarchy, such as laws or administrative regulations, have appeared, and on a conservative estimate, they may be difficult to produce in the coming years as well. The issue of judicial disposal of virtual currency also faces numerous practical difficulties in practice.
Why does the recommendation mentionintensifying the pursuit of associated persons such as those providing "technology" and "intermediary services"? That is because servers and principal offenders are generally located abroad. Although China's judicial authorities provide for territorial jurisdiction and personal jurisdiction over extraterritorial crimes, compared with the hegemonism of the United States' long-arm jurisdiction over other countries, China, in line with the principle of respecting the sovereignty of other countries, has consistently maintained a rather passive attitude toward cross-border law enforcement. Another reason is that these behind-the-scenes persons are truly very difficult to catch. For example, two cases previously analyzed by Lawyer Shao → "An Acquaintance Introduces a Currency Exchange, Yet the 'Intermediary' Is Found to Be the Principal Offender and Sentenced to Eight Years—Is This Unjust? Do Not Introduce Others to Buy or Sell Foreign Exchange, lest You Be Found Guilty of Illegal Business Operations! (Part One)" and "From the Perspective of Two Virtual Currency Personal Information Trading Cases Cracked by the Police, What Lessons Can the Loan-Assistance Industry Learn?".
If the principal offenders physically abroad cannot be caught, then catch those domestically who provide technical support or introduce business and collect handling fees (according to criminal cases handled by Lawyer Shao in recent years, quite a few such persons have indeed been caught). The crime of illegal business operations, the crime of assisting information network criminal activities, the crime of concealing or disguising criminal proceeds, and the like—there is always one that can apply.
03
Vivid cases
At the same time as the release of the 2023 Shanghai Financial Prosecution White Paper, the Shanghai Procuratorate also released nine cases. This article discusses two typical cases (which are indeed typical, both being types of cases that occur frequently in practice).
1. The illegal business operations case of Zhan Moumou and others (illegal business operations of the payment settlement type)
Defendant Zhan Moumou, who had no payment settlement qualifications and knew that the relevant funds originated from gambling and fraud, acquired shell companies and cooperated with Shanghai H Company (which holds an internet payment settlement license) to connect upstream gambling fund channels and downstream false merchant settlement channels and engage in illegal fund settlement business. Upon investigation, the accounts involved settled gambling-related funds of more than RMB 4 billion.
Lawyer Shao's analysis: The 2022 white paper mentioned above also stated that "some lawful business entities have also been drawn into the vortex of the crime of illegal business operations." Obtaining an internet payment settlement license is not easy, and H Company's payment business volume was nearly RMB 100 billion, so it truly had no need to commit illegal or criminal acts. But "a thief within the household is hard to guard against" is exactly the point: H Company was indeed lax in supervising the lawfulness and compliance of cooperation between its senior executives and the company's clients. This case occurred precisely because Yang Mou, H Company's business development director, cooperated with Zhan Moumou, knowing that Zhan Moumou was engaged in illegal business, yet still helping him register merchants and circumvent H Company's routine supervision of the merchants involved, preventing the merchants involved from being shut down or having their quotas reduced for engaging in illegal fund settlement business.
2. The case of Xiao Moumou and others concealing or disguising criminal proceeds. Xiao Mou used an overseas encrypted chat application to communicate with an upstream party and transfer criminal proceeds for the upstream party. The specific fund flow was as follows: Xiao Mou contacted a USDT merchant to purchase USDT and paid it to an account designated by the upstream party; after receiving it, the upstream party sent Xiao Mou the corresponding amount of digital renminbi accounts; Xiao Mou then arranged for "runners" such as Wang Mou to withdraw the funds from ATMs. In addition, Xiao Mou also registered digital renminbi accounts himself for the upstream party's use. Through the above methods, Xiao Mou withdrew more than RMB 10 million in cash from more than 900 digital renminbi accounts, of which more than RMB 800,000 involved fraud-related funds.
Attorney Shao's Commentary:
This case is the first case involving money laundering through the digital renminbi. Its distinctive feature is the "linkage" between USDT virtual currency, whose legal tender status is not recognized in China, and the digital renminbi, the fiat digital currency launched by the central bank. In other respects, it is no different from other money-laundering offenses involving crypto assets.
Closing Remarks:
A longitudinal comparison of the white papers published by the Shanghai Procuratorate over the past three years, together with Attorney Shao's day-to-day case experience, shows that China's enforcement against money-laundering offenses involving crypto assets and illegal business operations involving crypto assets has been continuous.
From the perspective of ordinary individuals, particular attention should be paid to the statement in this year's white paper on "intensifying the pursuit and prosecution ofpersons associated with financial crime chains, such as those involved in funding, technology and intermediaries"In daily life, we need to strengthen our risk-prevention awareness so as to avoid becoming a "white glove" for others' illegal and criminal activities.
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