Special Disclaimer: This article is an original work by Attorney Shao Shiwei. It reflects only the author’s personal views and does not constitute legal advice or a legal opinion on any specific matter. For article reprints, legal consultations, or business exchanges, please add: sswls66
Introduction
Bank card freezes arising from the purchase and sale of virtual assets are common in practice. Individuals who frequently trade crypto assets often educate themselves on relevant legal knowledge and understand that China’s current policies do not prohibit the purchase and sale of virtual assets. However, many clients have reported to me that when they communicated with the authorities that froze their accounts to request unfreezing, their requests were not only denied, but in some cases they were subjected to harsh criticism. Given that they were also victims and that trading virtual assets is not illegal, why were they treated as “wrongdoers” by the public security organs?
Therefore,Why is it so difficult to obtain an unfreeze?Attorney Shao often states, “The transactions ‘visible’ to USDT merchants are merely the tip of the iceberg.” Let us begin with a case study to examine the portion above the waterline.(Based on a real case; industry details and amounts have been slightly altered to protect privacy; all other facts are true.)。
01
A ‘Frozen Account Impasse’ Triggered by a Single Virtual Asset Transaction
Mr. Wang operates a fur business, and trading crypto assets is merely an occasional hobby. One day, as usual, he placed a sell order for USDT on an exchange. A buyer contacted him, but the buyer appeared to be a novice unfamiliar with the operational procedures. Consequently, they added each other on WeChat. The buyer, named Xiao Yu, received step-by-step guidance from Mr. Wang until the transaction was completed. Subsequently, as Xiao Yu became more proficient in her operations and the two developed a rapport, she frequently purchased USDT from Mr. Wang.
Curious, Mr. Wang wondered why someone who clearly appeared to be new to the crypto space had such substantial demand for USDT. He asked her what purpose the large purchases served and kindly warned her against potential fraud. Xiao Yu explained that she was investing jointly with several friends. Although she might not fully understand the intricacies, her friends were more knowledgeable, so he need not worry. She further stated that the funds she paid to Mr. Wang each time came from her salary income and provided him with her salary bank statements as proof.
Mr. Wang confirmed that the counterparty’s source of funds was lawful and that each transfer was indeed made by the counterparty in person to his account, which put his mind at ease. Nevertheless, he consistently advised the counterparty to start with smaller purchases, make a modest initial investment to assess whether the project could generate profits, and avoid committing large sums of capital to a single project all at once.
Over a three-month period, the two parties completed approximately ten transactions, and Mr. Wang received RMB 600,000 from the sale of USDT. One day, Mr. Wang discovered that his bank card had been frozen. Through his bank, he contacted the authority that imposed the freeze and learned, to his surprise, that it was Ms. Xiao Yu who had reported the case. Mr. Wang attempted to contact Ms. Xiao Yu, but she never responded to any messages.
The public security authorities informed Mr. Wang that the victim, Ms. Xiao Yu, had reported that she had been defrauded. The incident arose after Ms. Xiao Yu met someone online. After establishing rapport, that person told her about a virtual currency investment project and showed her purported returns. Believing this to be true, Ms. Xiao Yu expressed her interest in trying it out. The other party instructed her to purchase USDT on an exchange herself, transfer the USDT to him, and he would handle the investment operations on her behalf. Ms. Xiao Yu then downloaded the app of a certain exchange and came into contact with Mr. Wang. She initially transferred a small amount of the USDT she had purchased to the other party. At first, she indeed saw favorable returns, so she increased her investment. Unexpectedly, three months later, the other party blocked her.
The public security authorities informed Mr. Wang thatthe victim, Ms. Xiao Yu, alleged that you acted in concert with the person who defrauded her into investing in a virtual currency project online, thereby defrauding her of RMB 600,000. Is this accurate?
Mr. Wang presented his mobile phone to the investigating officers and submitted all chat records between him and Ms. Xiao Yu. The handling officers were diligent and responsible; they reviewed all communications between the two parties and conducted multiple rounds of questioning with Ms. Xiao Yu, documenting her statements. Ms. Xiao Yu acknowledged that the person who defrauded her online had instructed her to find a USDT merchant on the exchange on her own, and thus it was she who independently contacted Mr. Wang.
Accordingly, the handling authority was able to determine that Mr. Wang was innocent. Moreover, the relevant chat records showed that Mr. Wang had repeatedly advised Ms. Xiao Yu to purchase smaller amounts and to beware of being defrauded by others.
Mr. Wang assumed that, since he was innocent, the unfreezing of his bank card should not be problematic. Unexpectedly, not only did the handling authority fail to unfreeze his card, but it alsofroze all bank cards registered under his name!As a result, not only were his basic daily living activities affected, but Mr. Wang’s fur business also suffered significant impact. Payments from customers deposited into his company’s account were also implicated because those funds had previously been transacted through the frozen card.
Thereafter,The case has reached an impasse.—Mr. Wang is willing to compensate the victim by no more than RMB 20,000, whereas the victim demands full compensation of RMB 600,000 from Mr. Wang. The public security organs have neither unfrozen Mr. Wang’s bank accounts nor transferred the funds in those accounts to the victim. To date, all bank accounts under Mr. Wang’s name have been frozen for nearly one year.
02
Each party has its own position.
1. The Victim’s Perspective
Why are the fraudsters not apprehended?
Even if the fraudsters are apprehended, why can the defrauded funds not be recovered?
2. The USDT Seller’s Perspective
3. The Public Security Organs’ Perspective
03
Reflections on Paths to Resolve the Impasse
In many cases handled by Attorney Shao involving freezes arising from the trading of virtual assets, clients have had all bank accounts under their names frozen after selling a quantity of USDT (U). Such circumstances are not unusual. However, does existence imply reasonableness? Certainly not.
1. On the Statement That “Trading in Virtual Assets Is Not Protected by Law”
When many cardholders communicate with the handling officers, asserting that their buying and selling of USDT (U) is not unlawful, many handling police officers respond: “Yes, we are aware that trading in virtual assets is not unlawful,”“but it is not protected by law either.”。
However, Attorney Shao believes thatthe foregoing view misinterprets the statement that “trading in virtual assets is not protected by law.”The meaning of “not protected by law” should be, for example, that if you entrust another person to invest and manage your virtual assets and incur losses, or if you lend your virtual assets to another person who then refuses to repay them, you shouldbear the risks yourself.This position is supported by relevant court judgments; for details, please refer to my previous article entitled “Court View: Transferring Virtual Assets to Another Party Constitutes an Illegal Debt! Do Not Expect Recovery After Lending—Lawyer’s Advice: How Can You Recover Your Money?”》。
However, for payees (sellers) whose bank cards have been frozen and who have even been convicted of aiding information network criminal activities or concealing or disguising the proceeds of crime due to buying or selling virtual currencies, their losses extend beyond the mere loss of virtual currencies; they are also required to disgorge funds to compensate the so-called victims. The scope of their losses has exceeded the realm of "assumption of risk." This is clearly unfair. The purported victims are victims, but the sellers are victims as well.
2. Regarding the Freezing of All Bank Accounts Under One’s Name
As mentioned in the real-world case cited above, although the existing evidence had excluded Zhang San’s suspicion of involvement in the case, the investigating personnel, in order to address pressure from the victims, froze all of Zhang San’s bank accounts, hoping to coerce him into settling with the victims. This approach is clearly unreasonable.
Some investigating authorities, while maintaining the stance that bank cards will not be unfrozen unless the victims’ losses are compensated, are willing to issue statements clarifying the circumstances to exclude the cardholder’s suspicion of involvement, thereby enabling the cardholder to apply to the bank for unfreezing. Although this practice provides a certain degree of convenience to the parties concerned, allowing other bank accounts under their name to be used normally, the cardholder’s core demand inevitably remains refusal to make restitution. Of course, in many cases we have handled, public security organs have ultimately unfrozen accounts upon determining that the cardholder bore no liability, but such outcomes are relatively rare.
Under applicable laws, in cases of telecom fraud, public security organs do have the authority to deduct and return funds to victims, but this is subject to a prerequisite: the receiving account must be controlled by the offenders. Cardholders engaged in normal USDT sales clearly lack any conspiratorial intent with offenders, and their receiving accounts are obviously not bank accounts controlled by offenders. Therefore, public security organs have no authority to deduct funds from the accounts of payees in such transactions. This is also why, in many cases where cardholders’ accounts have been frozen, despite years of stalemate in communications with public security organs, the balances in these accounts have not been deducted.
Article 2 of the Several Provisions on the Return of Frozen Funds in Cases of New Types of Telecom and Online Crimes: The term “cases of new types of telecom and online crimes” as used in these Provisions refers tocriminal cases committed by offenders who, by exploitingtelecommunications, internet, and other technologies, and through means such as sending text messages, making phone calls, or implanting Trojan horses, induce (or steal) victims’ funds to be remitted (or deposited) intobank accounts under their control,thereby committing illegal or criminal acts.
Article 4: Public security organs shall be responsible for ascertaining the flow of victims’ funds, promptly notifying the victims, making decisions on the return of funds, and implementing such returns.
3. Determination of Bona Fide Acquisition by the Payee
Attorney Shao is of the view that, with respect to the payee (i.e., the USDT seller), the payee cannot control whether the payment is made by the buyer in person, nor can the payee foresee whether the funds transferred by a third party at the buyer’s instruction are illicit. Given that virtual currencies are recognized as a type of virtual commodity and transactions between individuals are not prohibited, so long as the USDT seller can provide evidence demonstrating that the parties engaged in ordinary USDT purchase and sale activities (for example, screenshots of communications on exchanges such as Binance or OKX, records of communications between the parties, and proof that the seller’s USDT holdings derive from lawful sources), then, under applicable legal provisions, the seller’s disposition of the virtual currency constitutes a bona fide acquisition and should not be subject to recovery or restitution to the relevant victims.
Article 2 of the Several Provisions on the Return of Frozen Funds in Cases of New Types of Telecommunications and Internet-Related Crimes: For the purposes of these Provisions, “cases of new types of telecommunications and internet-related crimes” refer tocriminal cases committed by offenders who, by exploitingtelecommunications, the internet, and other technologies, and through means such as sending text messages, making telephone calls, or installing trojan horses, induce (or steal) victims’ funds to be remitted (or deposited) intobank accounts under their control,thereby committing criminal offenses.
Article 4: Public security organs shall be responsible for ascertaining the flow of victims’ funds, promptly notifying the victims, making decisions on the return of funds, and implementing such returns.
Pursuant to Article 10 of the Interpretation of the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues Concerning the Specific Application of Law in the Handling of Criminal Fraud Cases, where an offender has used fraudulently obtained property to discharge debts or transferred it to others, the property shall be recovered in accordance with the law if any of the following circumstances exist:
(1) the recipient accepted the property knowing it to be fraudulently obtained;
(2) the recipient acquired the fraudulently obtained property without consideration;
(3) the recipient acquired the fraudulently obtained property at a price manifestly below market value;
(4) The counterparty’s acquisition of the fraudulently obtained property stems from illegal debts or criminal activities.
Where a third party acquires fraudulently obtained property in good faith, such property shall not be subject to recovery.
In a recent case handled by Attorney Shao involving the freezing of bank cards related to virtual currency transactions, during communications with the case-handling officer, the officer’s understanding of the statement that “trading in virtual currencies between individuals within China is not illegal” was as follows: individual trading refers exclusively to transactions conducted through wallets. If transactions are conducted through exchanges, they do not constitute consumer-to-consumer (C2C) transactions; therefore, any trading of virtual currencies on exchanges is deemed illegal.Any funds received that are linked to fraud must be fully refunded to the victims.Such viewpoints directly illustrate why the unfreezing of bank cards involved in virtual currency transactions often encounters obstacles: there are significant discrepancies among case-handling authorities in different regions in their understanding of virtual currency transactions.
04
Concluding Remarks
Due to varying levels of understanding among case-handling authorities in different regions regarding virtual currencies and related transactions, it is difficult to ensure consistent handling of similar cases when unfreezing bank cards. In some instances, in criminal cases handled by Attorney Shao, even where the factual circumstances of a case involving a frozen bank card due to transactions were 95% similar, the parties involved were nevertheless convicted of the crime of concealing or disguising the proceeds of crime or the crime of aiding information network criminal activities. As a criminal defense lawyer with many years of practice, I occasionally find such outcomes perplexing.
Therefore, returning to the initial question posed in this article:Who should bear liability when proceeds from the sale of USDT are found to be illicit funds? Please share your views in the comments section below.
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