If your bank card is frozen because you received illicit funds while purchasing USDT, will returning the funds lead to unfreezing?
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The Pain Point in the Crypto Circle Is Cashing Out
Currently, lawyers receive many inquiries regarding the unfreezing of personal bank cards. These freezes often occur because the account holder inadvertently received illicit funds, such as proceeds from prostitution, gambling, drug trafficking, fraud, organized crime, or other illegal activities. For example, a significant number of crypto traders receive "black money" when selling virtual currency USDT (also known as "cashing out USDT"). Like a falconer pecked by their own falcon, they find their entire card, or even all personal accounts, frozen. The duration of the freeze varies: it can be as short as three days, as long as six months, or indefinitely.
When a bank card is frozen due to the receipt of illicit funds, aside from lamenting the lack of due diligence and misfortune, the recipient must compose themselves and promptly inquire with the bank and police about the unfreezing process. Investigating officers often state that the card will be unfrozen upon the return of the illicit funds, urging prompt action without delay.
At this point, recipients often have several questions: "My bank card was frozen because it received illicit funds; I am an innocent victim. Can I refuse to return the money? For instance, will it be automatically unfrozen upon expiration?" And, "Will returning the illicit funds definitely result in unfreezing?"
Analysis by Mankun Lawyers
First, regarding the final disposition of illicit funds, there is a certain order of priority: the bona fide recipient, the defrauded victim, and finally, the state/society as the residual claimant.
When a bank card is frozen due to the receipt of illicit funds, generally, only if the cardholder has a legitimate reason for receiving the money will they be exempt from the obligation to refund it.。The specific legal interpretation is that the receipt of funds must constitute a "bona fide acquisition." In layman's terms: although the money transferred to you was not legitimate, you were unaware of its illicit nature at the time of receipt, and you had a legal basis for receiving it, such as settlement payments for normal trade, collection of lawful debts, or economic compensation following layoffs. In such cases, the money may be "poison" to the sender but "sustenance" to you. Requiring an innocent and unaware party to bear the loss would impose an unbearable burden and result in unfair consequences.
Therefore, if there is a legitimate reason, even if illicit funds are received, no refund is required. However, without a legitimate reason, the funds must be refunded. The handling authorities will then return these funds to the victims. If there are no identifiable victims, such as in cases involving prostitution, gambling, or drugs where the funds are subject to confiscation, the funds will be directly turned over to the state treasury. In short, one must acknowledge mistakes to avoid being deceived again. Although you suffer a financial loss, you gain wisdom and improve your financial acumen.
Secondly, Setting Aside USDTSDTfor a moment, let us first discuss the conditions under which a bona fide recipient can avoid refunding funds when their bank card is frozen in typical scenarios.
Once a bank card is frozen due to involvement with illicit funds, the burden shifts to the recipient. To avoid refunding the funds and secure unfreezing, the recipient must prove that the funds were acquired in good faith.。For the determination of bona fide acquisition, the recipient mustsimultaneouslymeet the following conditions:
1. At the time of receipt, the recipient neither knew nor should have known that the funds were illicit. Even if the recipient learns of the illicit nature afterward, it does not negate the initial good faith;
2. The receipt of funds was not only lawful, but the consideration paid was also reasonable. The funds were not obtained gratuitously or at an unreasonably low price; that is, there was no element of free-riding or taking undue advantage;
Let us illustrate specific scenarios of bona fide acquisition with an example: Your company asks you to organize the annual party and advance the expenses. Afterward, based on the invoices and withdrawal applications you submitted, the company reimburses you and transfers the corresponding amount to your salary card. Upon receipt, you are happily enjoying hotpot and singing, reflecting that "the solution to a key problem is finding the key to the problem," when suddenly you are summoned by the police! The investigating authority informs you that the funds transferred by the company involve illicit money, your card has been frozen, and you must return the funds immediately to have it unfrozen; otherwise, you won't even be able to pay for your next hotpot meal. At this point, the aggrieved recipient must gather evidence: emails or chat records showing the company's delegation of tasks, sales and service contracts for goods and services purchased for the annual party, payment and communication records, bank statements, and various approval documents submitted according to the company's reimbursement process. Only by presenting these details can you prove that the advanced funds received from the company were rightfully yours, constituting a bona fide acquisition, and thus no refund is required. Other similar scenarios of bona fide acquisition of so-called illicit funds include lawful wage income and lawful returns from trading and investments.
Of course, if you cannot prove that the receipt of funds was well-founded, you cannot delay repayment and must return the money. Referencing specific legal provisions, such as Article 7, Item (2) of the"Opinions on Several Issues Concerning the Application of Law in Handling Criminal Cases Such as Telecommunications Network Fraud"jointly issued by the Supreme People's Court, the Supreme People's Procuratorate, and the Ministry of Public Security: "Funds within involved bank accounts or third-party payment accounts shall be promptly returned to the lawful property of victims with clear ownership rights. If it is indeed impossible to verify all victims due to objective reasons, but there is evidence proving that the account was used for telecommunications network fraud crimes, and the defendant cannot explain the lawful source of the funds, pursuant to Article 64 of the Criminal Law, such funds shall be identified as illegal gains and subject to recovery."
Thirdly, Continuing the Discussion on USDTSDTspecifically: If illicit funds are received when selling virtual currencies, is a refund required? How can the card be unfrozen?
As mentioned above, if the transaction or investment was lawful and normal, even if illicit funds were unfortunately received, no refund is required provided that the conditions for bona fide acquisition are met. However, business activities related to virtual currencies are in an awkward position in China. Simply put, while virtual currencies can be legally held as virtual property, investment and trading activities involving virtual currencies are not currently recognized by law. According to the notice jointly issued by the People's Bank of China and other ministries (the "924 Notice"), business activities related to virtual currencies are characterized as illegal financial activities. Specifically, exchange services between fiat currency and virtual currencies, and exchanges between different virtual currencies, are deemed illegal financial activities and are strictly prohibited. In judicial practice, sales contracts involving virtual currencies are often ruled invalid by courts. Therefore,although the proceeds obtained from selling virtual currencies should not be classified as illegal in the same manner as gambling proceeds, they currently exist in a state unprotected by law. Consequently, it is difficult to argue that the receipt of funds from cashing out USDT constitutes lawfully acquired funds.。
Although some viewpoints suggest that, unlike the absolute prohibition on platforms trading virtual currencies, peer-to-peer virtual currency transactions should be legally valid, current practical realities regarding the freezing and unfreezing of cards involved in USDT transactions indicate that individuals who inadvertently receive illicit funds while trading crypto are rarely recognized as having acquired them in good faith and lawfully.In short, the funds must be returned!
Finally, generally speaking, if the recipient returns the illicit funds in accordance with the steps required by the handling authorities, the bank card should be unfrozen.
However, situations where the card remains frozen cannot be ruled out, for example, due to the complexity of the criminal case involved or the heavy workload of the handling authorities, which may prevent the immediate use of the bank card. Therefore,after cooperating with the investigation and returning the illicit funds, one should inquire about the unfreezing status after a reasonable period.，If necessary, seek consultation from professionals rather than waiting passively and anxiously.
Recommendations from Mankun Lawyers
1. After your card is frozen, if the police officers are busy, they may ask you to wait.However, to expedite the process, you should actively contact the handling personnel and proactively clarify the source of funds. Since everyone is busy, facilitating others' work facilitates your own;
2. Do not harbor the illusion that the bank card freeze will be automatically lifted upon expiration.If you wait foolishly for six months, you may face another six-month extension of the freeze, or even direct deduction of funds. Return illicit funds when required; do not stubbornly resist. Promptly disassociate your lawful personal property from the illicit funds to clear suspicion;
3. Given the complexity of bank card freezing and unfreezing, do not engage in ineffective communication through rigid or unilateral approaches. Instead,promptly contact professional lawyers.Especially regarding the preparation, submission, and communication of evidentiary materials, it is advisable to entrust these tasks to lawyers—to improve efficiency, alleviate anxiety, and restore normalcy to your life as soon as possible.
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