Attorney Shao Shiwei | Legal Commentary: Breakthrough in the Nation’s First Case of Illegal Fund Remittance Using Internationally Accepted Gift Cards

Introduction:

On September 26, 2024, the Shanghai Municipal Public Security Bureau held a press conference to announcedetails regarding the first case in China involving the illegal use of internationally accepted gift cards for fund remittance and exchange.Details of the relevant cases.

The business of selling foreign gift cards is widely practiced in China; a simple online search yields numerous introductions to profit models associated with gift cards.

Author | Attorney Shao Shiwei

Gao and others engaged in illegal currency exchange and profited from interest rate differentials through “offsetting foreign exchange transactions.” Given that internationally accepted gift cards are readily convertible, easy to liquidate, and enjoy global circulation, Gao used them as a medium for exchange to balance the RMB and foreign currency pools.

The specific modus operandi was as follows:

Gao instructed overseas personnel to purchase gift cards using foreign currency ➡️ sold them domestically through self-operated online stores ➡️ transferred the RMB proceeds from such sales into customers’ domestic bank accounts. Investigations revealed that Gao and others illegally facilitated currency exchanges totaling RMB 2 billion, thereby obtaining illegal profits of RMB 15 million.

[Commentary]

In this process, internationally accepted gift cards, by virtue of theirglobal circulation, transactional convenience, concealment of fund flows, and anonymity(possessing instrumental value similar to virtual currencies such as USDT), have been used as a medium for disguised foreign exchange transactions by underground banks and other illicit actors.

Attorney Shao has previously authored multiple articles on disguised foreign exchange transactions and mirror forex trading, which may constitute illegal business operations; thus, no further elaboration will be provided here. Using this case as a starting point, we will next discuss what internationally accepted gift cards are, and highlight Nigeria, the country with the most vibrant gift card industry.

1. What Are Internationally Accepted Gift Cards?

Internationally accepted gift cards are prepaid shopping cards issued by multinational corporations or e-commerce platforms in sectors such as digital products, gaming, cosmetics, and online retail. They can be used in most countries and regions worldwide. Transactions can occur without physical cards, conducted through the sale and purchase of card numbers and passwords.

N-Platform and P-Platform are overseas marketplaces for internationally accepted gift cards (P-Platform is currently closed). N-Platform (i.e., Noones) currently offers more than 130 types of gift cards, including popular brands such as Steam, Apple, Amazon, Sephora, Google, and Razer. N-Platform supports over 500 payment methods, including bank transfers, WeChat Pay, Alipay, and purchases using BTC, USDT, and USDC.

2. Why Is Nigeria’s Gift Card Market the Most Prominent?

The essence of the gift card business is discounted redemption (similar to the practices surrounding mooncake vouchers and crab coupons in China). While many countries engage in this activity, such as India and certain Southeast Asian nations, Nigeria remains the most notable. The reasons include the following:

• The country’s unique exchange rate policy has resulted in the coexistence of an official exchange rate and a black-market exchange rate (also known as the parallel exchange rate), with significant fluctuations. Converting gift cards into other countries’ currencies or virtual assets helps prevent substantial asset depreciation;

• Nigerian expatriates who have illegally migrated abroad for work earn U.S. dollars and, to facilitate remittances to their families, purchase assets with relatively stable value using their earnings;

• Local fraud, money laundering, and other illicit activities are prevalent, and gift cards are used as instruments of crime;

As shown in the figure, because gift cards share characteristics similar to those of virtual currencies, they have become tools used for money laundering and unlawful currency exchange.

Within this trade chain, Nigerian expatriates who have illegally migrated to other countries for work (commonly referred to affectionately as “Xiao Hei”) typically remit funds to their families in Nigeria by purchasing gift cards. This is due to the significant disparity between the official exchange rate and the black-market rate mentioned earlier, and because undocumented migrants cannot access formal institutions for currency exchange.

“Xiao Hei” may use their earned wages (in U.S. dollars) to purchase officially issued gift cards at local supermarkets, or they may acquire them at lower prices from individuals (such as downstream operators of underground banks). Upstream underground banks thereby “launder” funds through the buying and selling of gift cards.

After purchasing the cards, “Xiao Hei” photographs the card PINs and sends them to their families in Nigeria. The families then sell the cards to local merchants that recycle gift cards. These local merchants, in turn, sell the cards to merchants in China that recycle such cards [in this transaction process, the parties may conduct transactions via the internet or through offline person-to-person transactions]. Chinese merchants then resell the cards to buyers. The buyers pay Renminbi to the Chinese merchants, who then pay virtual assets to the local foreign merchants, and the local foreign merchants pay Nigerian Naira to the Nigerian families.

Thus, a closed loop is formed.

In the trade chain illustrated above, if relevant persons in China participate, at which stages would they face legal risks?

1. Receiving RMB from Buyers

Merchants in China list the gift cards they have acquired for sale on e-commerce platforms such as Taobao, Pinduoduo, and Xianyu (possibly at a significant discount). The buyers may be ordinary consumers with genuine shopping needs or members of money-laundering syndicates. Therefore, merchants face the risk of receiving proceeds of crime. At a minimum, their bank accounts may be frozen; in more serious cases, they may be suspected of committing the crime of aiding information network criminal activities or the crime of concealing or disguising the proceeds of crime.

The Xianning Police once published a case that illustrates this issue:

（Assisting Others in “Exchanging Money” Is Also Illegal: Two Brothers in Xianning Criminally Detained）

2. Converting RMB into USDT

Local merchants in Nigeria transact with Chinese buyers. If the settlement method is USDT, the Chinese merchants will need to convert the RMB received into virtual assets through over-the-counter (OTC) transactions. If the RMB originally received was proceeds of crime, the USDT traders involved in these transactions may also be implicated.

3. Disguised Assistance with Foreign Exchange Conversion

Local merchants in Nigeria (who may also be Chinese nationals) convert the USDT received into Nigerian Naira and deliver it to local residents with whom they transact. In conjunction with point 2 above, this completes a scheme that combines gift cards and virtual assets to conduct illegal fund remittance between RMB and Naira, which may constitute the crime of illegal business operations, similar to the case published by the Shanghai Public Security Bureau at the beginning of this article.

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The gift card business integrates the remittance needs of the Nigerian diaspora and consumers’ genuine gaming and shopping demands, but it is also intertwined with various black- and gray-market industries, illegal activities, and virtual assets, forming a perfectly closed, difficult-to-trace global money-laundering chain.

Engaging in low-frequency, occasional gift card trading may not entail significant criminal legal risks; nevertheless, it is not advisable to treat such business as a long-term, stable revenue-generating project.