Attorney Shao Shiwei | Case Notes | Does Receiving Foreign Exchange Funds in USDT Virtual Asset Transactions Automatically Constitute the Crime of Illegal Business Operations or the Crime of Concealing or Disguising the Proceeds of Crime?

Does receipt of funds from illegal foreign exchange transactions automatically constitute illegal business operations?

1. Why judicial authorities tend to handle such matters as illegal business operations

The reasoning of the handling authorities is that, since the upstream party has already been determined to have engaged in illegal foreign exchange trading, and the USDT trader received funds from this chain during the transaction, thereby objectively playing the role of “providing accounts to facilitate fund flows,” the trader should be deemed an accomplice to illegal business operations involving illegal foreign exchange trading.

However, Attorney Shao believes that the key issue is that even if the upstream criminal facts can be ascertained, it cannot be automatically presumed that the USDT trader constitutes an accomplice. It is necessary to specifically analyze the trader’s position, role, and degree of subjective awareness within the entire fund flow chain.

2. The logic for excluding criminal liability for illegal business operations as seen in typical cases

This issue was, inMay 2025, the Supreme People's Procuratorate and the State Administration of Foreign Exchange jointly released typical cases of reverse linkage between administrative enforcement and criminal proceedings in the foreign exchange sector, which already provided a highly representative sample of tiered handling.

In the case involving Chen Mouhong and Wu Mourong, who were suspected of the crime of illegal business operations, the judicial authorities ultimately adopted different approaches toward Chen Moumou and Wu Moulin (a married couple, hereinafter referred to as "A") and Chen Mouhong and Wu Mourong (relatives of A, hereinafter referred to as "B").

Case Summary:

Without actually engaging in import-export trade, A used individual businesses registered under the names of A and B to open multiple personal foreign exchange settlement accounts. Under the guise of fictitious trade, A made these accounts available to an underground banking syndicate for receiving foreign exchange. After converting the foreign exchange into RMB through banks, A transferred the RMB into domestic accounts designated by the underground banking syndicate. The amount involved totaled RMB 560 million, from which A derived profits of over RMB 760,000 in the form of service fees and rebates provided by banks for foreign exchange settlements.

In February 2024, Zhejiang public security organs transferred all four individuals to the procuratorate on suspicion of the crime of illegal business operations. Ultimately, the court held that A constituted thecrime of illegal business operations (with Chen Moumou sentenced to four years and eight months of fixed-term imprisonment)。

However, with respect to B, the procuratorate determined that although B had provided accounts, there was insufficient evidence to prove that B directly engaged in the illegal buying and selling of foreign exchange. Accordingly, the procuratorate issued adecision not to prosecuteagainst B. Although the amount of foreign exchange settled by B exceeded RMB 260 million, the two individuals were ultimately fined only a total of RMB 45,000.

Analysis:

Why do cases involving the provision of accounts to receive funds from underground banks result in such disparate outcomes?

The reason lies in the judicial authorities’ differing determinations regarding the actor’s degree of subjective knowledge, whether they directly participated in foreign exchange operations, and whether they actually derived profits therefrom.

In this case, A had direct communications with the underground bank, actively participated in fabricating trade backgrounds, clearly knew the purpose of the funds, and obtained stable returns. In contrast, although B provided an account, B did not directly participate in the core links of the foreign exchange chain, and there was no proof of clear profit-making; therefore, B was not found to have committed the crime of illegal business operations.

Accordingly, by reference to the above case, in the process of trading virtual assets with others, if the funds received are foreign exchange conversion proceeds transferred by an upstream underground bank, whether this constitutes the crime of illegal business operations likewise requires a layered determination:

In practice, USDT merchants and their customers are often not in direct contact; intermediaries frequently participate between the actual buyer and seller. The lack of direct interaction creates information asymmetry, which is why USDT merchants may receive funds from illegal foreign exchange transactions further up the chain when accepting RMB.

Therefore, in such circumstances, where there is no evidence proving that the USDT merchant knowingly provided assistance while aware that others were suspected of illegally buying and selling foreign exchange, the USDT merchant’s role and function are similar to those of B in the above case and should not constitute the crime of illegal business operations. The judicial authorities should instead hold accountable the aforementioned intermediaries, who may be suspected of jointly committing the crime of illegal business operations with the underground bank.

Furthermore, the above case demonstrates that the existence of profit is also a key factor for judicial authorities in inferring whether the actor possessed the requisite subjective knowledge for the crime of illegal business operations.

3. Does “spread income” equate to “profit” in the crime of illegal business operations?

Can the spread earned by USDT merchants from buying and selling virtual assets be characterized as “profit”?

Attorney Shao believes that the spread earned by USDT merchants from buying and selling virtual assets cannot be simply equated with the exchange rate differential income in cases of illegal buying and selling of foreign exchange. Although both involve the form of “buying low and selling high” and “earning spreads,” they differ fundamentally in legal nature and substantive conduct. The key lies in determining, on a case-by-case basis, whether the specific transactional conduct was for investment arbitrage or for providing disguised foreign exchange services to others.

If the actor’s purpose is to earn market price differentials of the virtual assets themselves, independently engaging in buying low and selling high, with profits derived from price fluctuations in the virtual asset market, and funds undergoing a one-way cycle of “fiat currency → virtual assets → fiat currency” within accounts under the actor’s control, such conduct constitutes lawful personal investment arbitrage.

However, if the actor uses virtual assets (such as USDT) as a medium and instrument to provide RMB-to-foreign-currency conversion services for others, thereby facilitating cross-border fund transfers, with profits derived from exchange rate differentials, handling fees, or service fees—substantively constituting remuneration for disguised foreign exchange trading activities—and helps upstream crimes effectively form a cross-border “mirror” foreign exchange loop of “onshore RMB → virtual assets → offshore foreign currency” or the reverse, thereby facilitating cross-border fund flows, such conduct is suspected of constituting the crime of illegal business operations involving the illegal buying and selling of foreign exchange.

Alternatively, could the conduct constitute the crime of concealing or disguising the proceeds of crime?

Even if, in an individual case, it cannot be proven that the USDT merchant had subjective knowledge of the upstream illegal foreign-exchange trading, thereby making it difficult to establish the crime of illegal business operations, may judicial authorities "settle for a lesser charge" and instead evaluate the conduct under the crime of concealing or disguising the proceeds of crime?

Under the latest judicial interpretation on the crime of concealing or disguising the proceeds of crime, which came into effect on August 26, 2025, the law provides a clear definition of "proceeds of crime": they refer to illicit money, illicit goods, or other property interests obtained through criminal activities.

When a USDT merchant "unfortunately" receives funds from upstream foreign-exchange transactions in the course of virtual-currency trading, judicial authorities often view this as "providing fund accounts" to assist the upstream parties in transferring funds. However, determining criminal liability hinges on two core prerequisites: whether the nature of the funds is clearly established, and whether the actor had "knowledge."

1. Have the funds been confirmed as "proceeds of crime"?

A prerequisite for the crime of concealing or disguising the proceeds of crime is the existence of "proceeds of crime." If a complete chain of evidence cannot be formed to prove that a specific sum is illicit money directly generated by upstream criminal conduct, mere "abnormal account transaction records" or "a large overall amount involved in the chain" are insufficient to presumptively conclude that a specific transaction involves proceeds of crime.

In practice, cases involving underground banks often involve transaction flows amounting to hundreds of millions or even billions of yuan, with severe commingling of funds. If the link between specific foreign-exchange participants, specific criminal facts, and specific transfer actions cannot be established, relying solely on "anomalies identified through big-data comparison" leaves room for dispute regarding the sufficiency of the evidence.

2. How is "knowledge" determined?

According to the latest judicial interpretation, "knowledge" includes both actual knowledge and constructive knowledge (i.e., ought to have known). However, determining constructive knowledge requires a comprehensive assessment based on factors such as the information accessible to the actor, abnormalities in the transaction, the scale of funds, and the actor's professional background.

If a USDT merchant engages in normal peer-to-peer USDT transactions with a counterparty, at prices consistent with market rates, where the counterparty exhibits no abnormal behavior and the funds do not display obvious characteristics of structuring, layering, or regulatory evasion, the subsequent discovery that the funds originated from an underground banking chain does not, by itself, justify inferring subjective knowledge on the part of the merchant.

Criminal-law evaluation emphasizes the actor's state of mind at the time of the conduct, rather than retroactive inference based on subsequent outcomes.

3. Does high-frequency trading necessarily give rise to an inference of generalized intent?

However, the reality in judicial practice is often less “ideal.” In judicial practice, USDT merchants engaging in large-volume, high-frequency fiat currency transactions are inherently exposed to elevated legal risks. If a USDT merchant has long engaged in the exchange business between USDT and RMB, particularly where counterparties are largely individuals with unidentified identities and complex fund flows, judicial authorities are likely to infer, based on the merchant’s professional experience, that the merchant possessed “general intent” regarding the illegality of the source of funds. Therefore, defense counsel must deconstruct the specific circumstances of each case on an individual basis:

Whether abnormal transaction characteristics exist?

Whether premium returns significantly above market levels exist?

Whether there are acts actively evading regulatory oversight?

Whether the actor was exposed to information sufficient to give rise to heightened suspicion?

Only on the basis of clarifying these issues one by one can a lawful assessment be made of the degree of “knowledge.”

Concluding Remarks

Merely buying and selling virtual assets to earn price spreads, while not prohibited under current policies and not deemed criminal conduct, concentrates risk primarily in the source of funds and the role played by the transactions within the overall chain.

Once funds enter underground banking networks, gambling- or fraud-related schemes, or illegal foreign-exchange chains, even if formally only a single peer-to-peer transaction is completed, the parties may become implicated in criminal cases.

Therefore, the legal determination in such cases usually depends not on the superficial appearance of the transactions, but on a comprehensive assessment of the actor’s status, role, and degree of “knowledge” based on the evidentiary record. The same transaction pattern may lead to markedly different outcomes under different evidentiary frameworks.

Accordingly, relying solely on an individual’s subjective claim of “lack of knowledge” is insufficient as a basis for determination. Particularly in cases involving large-volume, high-frequency transactions, judicial authorities often focus their review on whether the actor “should have known.” The determination of the nature of the case should be conducted through prudent analysis in light of the specific transaction context and evidentiary materials.