Attorney Shao Shiwei | Assisting Others with Currency Exchange, Charging Only RMB 300 for USD 100,000: Court Rules Illegal Business Operations, Sentences to 8 Years!

 

Introduction:

On December 27, 2023, the Supreme People’s Procuratorate and the State Administration of Foreign Exchange jointly issued the Typical Cases of Punishing Crimes and Illegal Acts Involving Foreign Exchange. The conduct in all eight cases was essentially carried out through “matched” foreign-exchange transactions (duiqiao).

Today we present another typical case: a father and daughter acted together to introduce others to buy and sell foreign exchange, and both were convicted of the crime of illegal business operations.

 

From Attorney Shao’s previous articles, readers are undoubtedly familiar with the proposition that “illegal buying and selling of foreign exchange may constitute the crime of illegal business operations.”

In addition, in the article titled “Arrested for Profiting from Spread in USDT (Tether) Trading: How to Conduct an Effective Criminal Defense? — Criminal Risks for OTC Merchants: The Crime of Illegal Business Operations (Part II),” Attorney Shao also noted that, “Generally, only two types of conduct—reselling foreign exchange or engaging in disguised foreign-exchange trading—may trigger criminal liability, whereas unauthorized trading andillegally introducing others to trade foreign exchange

are typically characterized asadministrative violations.” However, under certain circumstances, there remains a possibility of being deemed criminally liable.

In this case, the defendant’s defense was as follows:“I merely introduced clients who wished to purchase foreign exchange. Why am I being convicted of the crime of illegal business operations?”？

 

Author: Attorney Shao Shiwei

 

 

02

Service fee charged at only 0.04%: A “conscientious” scalper

Case overview (infographic version):

 

                                                                                                                                                         

Case overview (text version):

Zhang Mouhu (“Lao Zhang”) was responsible for identifying clients with foreign-exchange purchase needs and coordinating with cooperating underground banks. Zhang Mouxian (Lao Zhang’s daughter, “Xiao Zhang”) handled communications with the underground banks and clients regarding specific details such as currency types, amounts, and receiving account information. As illustrated by the fund flows, clients’ domestic RMB funds were remitted to the underground banks, which, upon receipt, paid the corresponding foreign currency to the clients’

 

designated overseas accounts. The Zhang father and daughter charged a service fee of RMB 300 per USD 100,000 (equivalent to 0.04%),collecting nearly RMB 200 million over a four-month period.。

 

Such offenses routinely involve sums amounting to hundreds of millions; I have become numb to these figures. After performing a simple calculation, I reached the following conclusion: Did they earn only RMB 80,000? Could this be considered significantly below the market rate?An eight-year sentence for RMB 80,000 is hardly worthwhile.…and it also implicated his daughter.

 

It is evident that, as a scalper intermediary, Lao Zhang was “qualified” in his dealings with clients (offering extreme discounts, engaging in low-price competition, and disrupting market order...), but as a father, he was unqualified (while others defraud their fathers, this individual defrauds his child...).

 

02

Attorney Shao’s Analysis:

1Why were the Zhang father and daughter, who merely acted as introducers, also convicted of the crime of illegal business operations?

In this case, the underground bank’s illegal trading of foreign exchange was characterized as the crime of illegal business operations, which is undisputed.

To answer the question raised at the beginning of the article, the parties argued in this case: “I only introduced clients who wanted to purchase foreign exchange; why was I convicted of the crime of illegal business operations?”

 

From the perspective of the criminal suspects, such a defense has certain positive significance. Under applicable legal provisions, merely exchanging foreign exchange for personal use, even if not conducted through financial institutions prescribed by the state, does not constitute a crime. Accordingly, finding buyers or sellers for individuals who exchange foreign exchange solely for personal use, without any profit-making purpose on one’s own part, also does not constitute a crime. However, the issue is that the Zhang father and daughter

clearly had a profit-making purpose.

 

Thus, in this case, did the Zhang father and daughter commit “illegally introducing the buying and selling of foreign exchange” or “disguised trading of foreign exchange”?

This depends on the roles played by the two individuals in this case. The foreign exchange transactions were ultimately carried out through the underground bank. Lao Zhang’s role was not limited to helping the underground bank find customers. The procuratorial organ held that “Zhang Mouhu and Zhang Mouxian accepted clients’ foreign exchange trading business in their own names, directly collected RMB from clients using bank accounts under their control, and independently decided

to deduct commissions proportionally to earn the spread.”

 

This description shows that Lao Zhang exercised substantial discretion in the transaction process. When soliciting customers for the underground bank, he acted in his own name, and he independently determined the collection accounts and the rebates deducted. He was not a mere “foot soldier” of the underground bank; in a sense, the underground bank was merely a tool he borrowed for profit-making purposes.

Therefore, it is difficult to characterize Lao Zhang as an accessory.

Furthermore, while this case formally involves introducing clients to underground banks, its substantive purpose is to complete "offsetting" transactions. Therefore,Lao Zhang's conduct constitutes "disguised foreign exchange trading." Although he did not participate in the overseas foreign currency redemption process, his actions can independently constitute the crime of illegal business operations in this case.。

 

2For crimes involving "offsetting" foreign exchange transactions, judicial authorities face significant challenges in evidence collection.

In "offsetting-type" foreign exchange trading, perpetrators achieve "balance across two locations" through account reconciliation. Funds circulate unidirectionally within and outside the country without physical cross-border movement. Consequently, how can the specific amount involved be verified? Moreover, among the hundreds of millions in transaction flows, how can the correlation between RMB and foreign currencies be substantiated?

 

Many clients "cleverly" believe that"I have deleted the chat records, so the police cannot uncover the evidence, right? Does this mean I am innocent? I demand a defense for acquittal."(→ These are indeed the exact words some clients have used when consulting lawyers.)

 

When confronted with such issues, I typically pose the following probing questions to these individuals:

First, can you ensure that all prior transaction and communication records have been deleted, and that they cannot be recovered even through technical means?

Second, can you ensure that all your upstream and downstream contacts, as well as co-defendants who communicated with you, have also accomplished the aforementioned first point?

Third, can you ensure that your upstream and downstream contacts and co-defendants will not disclose your involvement in an effort to secure merit-based leniency or sentence reduction (the prisoner's dilemma)?

Fourth, can you ensure that all witnesses related to this case will choose to withhold any facts in order to protect you?

 

If no rational argument can be made, and a not-guilty defense is insisted upon regardless, I can only choose to respect the other party’s fate...

 

There are methods and techniques for presenting defenses; pale assertions of innocence are meaningless.

 

In this case, in the absence of direct evidence of overseas fund transactions, the judicial authorities, by obtainingthe parties’ chat records, testimonies from client witnesses, domestic bank transaction statements, and testimonies and evidence from individuals involved in underground banking operations,ultimately determined that the two members of the Zhang family had illegally bought and sold foreign exchange in an amount equivalent to more than RMB 196 million.

 

 

Final Remarks:

Regrettably, the judgment in this case has not been published on the China Judgments Online website. Nevertheless, there are many points in this case worthy of reflection and study.

 

Recently, there has been considerable discussion regarding the discontinuation of public access to judicial judgments. The state-level decision to cease such publication may be driven by multiple considerations. Attorney Shao believes that one possible rationale could be concern about teaching wrongdoers how to evade criminal liability—after all, are the secrets to making money all written into the Criminal Law? (However, I personally find this rationale far-fetched, and as a

legal professional, I firmly oppose the removal of judicial judgments from online publication!)

 

Taking this case as an example, from the perspective of the defense counsel, under what circumstances does an intermediary constitute “illegally introducing the buying and selling of foreign exchange,” and under what circumstances does it constitute “disguised buying and selling of foreign exchange”? What conduct would render a person a principal offender or an accessory? What level of evidence is required for the above acts to meet the standard of “clear facts of the crime and reliable and sufficient evidence”? In determining the criminal amount,

for each transaction, which pieces of evidence can substantiate the criminal facts and which should be excluded? These and other issues are key considerations for defense counsel in striving to secure lighter or mitigated penalties for their clients.

 

The role of defense counsel is not to help clients “evade criminal liability,” but to ensure that their lawful rights are better protected.The same applies in this case. Even though the amount involved in the case was determined to be RMB 196 million, the relevant transactions subject to doubt were not recognized as such.

 

With respect to the portion of funds that entered underground banks through bank accounts controlled by Zhang Mouhu, such funds were neither recognized in the illegal foreign exchange trading case involving Wu Moupeng and others, nor was there any evidence, such as chat records or customer testimonies, to prove the purpose or nature of the funds. Consequently, these amounts were not included in the criminal sum. Ultimately, the Huishan District People’s Procuratorate determined that the amount of illegal foreign exchange trading by Zhang Mouhu and Zhang Mouxian

was equivalent to more than RMB 196 million.

(Principle that doubts should be resolved in favor of the defendant)