Special Declaration: This article is an original work by Attorney Shao Shiwei. It represents only the personal views of the author and does not constitute legal consultation or legal advice on specific matters. For article reprints, legal consultations, or business exchanges, please add: sswls66
Introduction
In the previous article →《Who Bears Liability for Receiving Stolen Funds in Virtual Currency Transactions?》Attorney Shao mentioned the “frozen card impasse” involving Mr. Wang, triggered by a virtual currency transaction:
Mr. Wang was willing to compensate the reporting party only RMB 20,000, while the reporting party demanded full compensation of RMB 600,000 from Mr. Wang. As the two parties failed to reach an agreement, an impasse arose: the public security organs neither deducted the funds in Mr. Wang’s bank account nor unfroze his bank card. The current situation is that all bank cards under Mr. Wang’s name have been frozen.。
As a criminal lawyer specializing in the cryptocurrency sector, having handled numerous frozen card cases in daily practice, I have been continuously reflecting: Why do individual-to-individual USDT transactions result, at best, in frozen bank cards, and at worst, in characterization as money laundering-related crimes? If an ordinary person has their bank card frozen due to buying or selling virtual currencies, how should they communicate with public security organs? The goal is to exclude criminal risks while successfully unfreezing the card.
01
Unfreezing bank cards was not difficult in earlier years
Before 2019, or even earlier, having a bank card frozen due to virtual currency transactions was not as difficult as it is today. As long as one could provide transaction-related evidence proving that the virtual currency was bought and sold normally, the public security organs would unfreeze the card for the cardholder. —This was stated by an OTC merchant who has been active in the cryptocurrency circle for many years during a conversation with Attorney Shao.
In the past, participants in the crypto circle were not as mixed in quality. Although many entered the market driven by speculation, high returns were accompanied by high risks. Ordinary people only saw the myths of overnight wealth in the crypto circle, but failed to see the enormous risks they simultaneously bore. Moreover, virtual currencies like Bitcoin, with significant price volatility and slow transaction speeds, were not suitable for criminals to use as tools for money laundering.
Therefore, public security organs previously held a relatively tolerant attitude toward virtual currency transactions. There was no “common practice” requiring compensation to the reporting party as a precondition for unfreezing.
However, the emergence of stablecoins is gradually changing many things.
02
The “Card Breaking” Campaign and the Notice from Ten Ministries and Commissions
The Inter-Ministerial Joint Conference of the State Council on Combating and Governing New Types of Telecommunications Network Illegal Crimes decided to launch the “Card Breaking” campaign nationwide starting October 10, 2020. —The background of the “Card Breaking” campaign is that the illegal buying and selling of “two cards” (bank cards and telephone cards) has direct or indirect connections with various illegal and criminal activities such as telecommunications fraud, cross-border gambling, and economic crimes.
Since the state began to continuously crack down on the buying and selling of bank cards and telephone cards, criminals, as a means of committing crimes, naturally had to constantly upgrade and iterate their methods: “If you don’t let me receive RMB, I will receive virtual currencies; let’s see how you freeze them.”
Tether (USDT), as the stablecoin with the largest market share, launched by Tether Company and pegged to the US dollar, is regarded by criminals as an unparalleled excellent vehicle for money laundering. Consequently, the number of people entering the crypto circle has increased, and the composition has become more complex.
In September 2021, the People’s Bank of China, the Supreme People’s Court, the Supreme People’s Procuratorate, and other ten ministries and commissions jointly issued the “Notice on Further Preventing and Disposing of Risks Related to Virtual Currency Trading and Speculation,” which stated, “Severely crack down on illegal financial activities related to virtual currencies, and severely crack down on criminal activities involving virtual currencies.” —In response to the constantly iterating new criminal methods employed by criminals, relevant departments in China have continuously issued new policies and regulations to regulate them.
Against this background, the attitude of judicial organs toward virtual currency traders has naturally changed—from neutral to negative. (This is also why some cardholders, when contacting public security organs to communicate about unfreezing, do not understand why they are interrogated like suspects by the handling officers merely for selling a coin. Because public security organs handle so many cryptocurrency-related crimes, preconceived impressions are inevitable.)
03
If your card is frozen, ask yourself: Are you truly innocent?
Apart from helping others launder money and normal crypto investments, why do you buy and sell USDT?
The price of USDT is clearly pegged to the US dollar, yet the counterparty is willing to trade with you at a fluctuation of 3 cents up or down. Have you never wondered why?
Everyone normally communicates via WeChat, so why do some people insist on using encrypted communication software like Telegram for transactions with you?
Why is it that, at the very moment of transaction, some buyers of your USDT happen to have their own bank cards limited, and can only transfer funds to you through a third party’s account?
Why do some people frequently buy USDT from you? What exactly are they doing that requires such frequent or large-volume USDT transactions?
Why do both parties only post bank account numbers and wallet addresses in group chats during transactions, without adding each other’s contact information privately?
Given that your bank card has already been frozen by the bank or public security organs due to virtual currency transactions, do you actively communicate with relevant departments to handle the issue promptly, or do you choose to switch cards and continue trading with others?
……
High returns, strong liquidity, and high safety—this is the impossible triangle of investment.
Is it unjust to have your card frozen for earning spreads when you have not fulfilled your duty of care? Arbitrage through “brick-moving”? There is no such easy way to make money! Furthermore, there are those who do not even perform KYC (Know Your Customer) checks; as long as the counterparty pays and they can earn a spread, they proceed with the transaction.
04
Increasingly Strong Crackdown Efforts
What is “Pao Fen” (running points)? “Pao Fen” is “money laundering.” Through “Pao Fen,” illicit funds from telecommunications fraud, gambling, etc., are transferred among multiple different personal bank accounts to earn commissions.
From the perspective of judicial organs, the transaction methods mentioned in point three above make it difficult not to suspect that virtual currency traders are engaged in “Pao Fen.” Moreover, why was your bank card frozen? Because a victim filed a report. And from the victim’s bank statements, it can be seen that the money was transferred into your card.
For you, the freezing of your card due to a certain transaction may be an incidental event, a stroke of bad luck. However, for the case-handling authorities, due to the large number of victim reports they accept, their perspective is: Cryptocurrency crimes are difficult to investigate using traditional technical means, making it hard to catch the actual criminals, which leads to difficulties in recovering losses for victims. Those who provide virtual currency transactions for these criminals are equivalent to accomplices in money laundering crimes. This can also be seen from the comments at the end of my article → “[Infographic] The Risks of Selling USDT Virtual Currency” regarding the attitude of frontline police officers toward virtual currency transactions.
05
Increasingly Strong Crackdown Efforts
Due to failure to fulfill the duty of care, stolen funds from victims flowed into your card. Is the cardholder at fault? Certainly, they are at fault. But does this mean that all cardholders with frozen cards should be lumped together and treated as criminals? Or must they fully refund the reporting party to have their cards unfrozen? If such a simplistic and crude approach is adopted, it would be overly extreme.
Individuals should only bear the responsibilities they ought to bear within the limits of the law; otherwise, the world would fall into chaos.
Furthermore, not everyone in the crypto circle is engaged in arbitrage through “brick-moving” every day; there are many ordinary people as well. A friend once told me that the money he earned from trading cryptocurrencies in 2020, he still dares not cash out, having converted it all into stablecoins stored in his wallet. When asked why, he said the amount was relatively large, several million yuan, and because he could not find reliable counterparties for transactions, he feared having his card frozen.
Therefore, this group, which frequently engages in arbitrage through “brick-moving” to earn spreads, not only faces high risks of having their cards frozen and involvement in criminal cases, but also makes itmore difficult and risky for genuine crypto participants—those engaging in normal transactions—to trade, and increases the difficulty of resolving issues after their cards are frozen.For example, Mr. Wang mentioned in “Who Bears Liability for Receiving Stolen Funds in Virtual Currency Transactions?”—is he not an innocent victim implicated in the matter? First, he fulfilled his KYC obligations, ensuring the customer’s source of funds was legal; second, for every transaction, he conducted video confirmation to ensure it was the counterparty themselves trading, and did not accept payments from third parties; finally, he repeatedly reminded the counterparty to invest rationally and beware of being defrauded by others.
Did the reporting party have no issues themselves? As stated in the movie “No More Bets”:Humans have two hearts: one is greed, and the other is unwillingness to accept loss.The reporting party sought higher returns on investment and financial management. After meeting an online friend, they made large investments in a short period, resulting in fraud. Seeking high investment returns is greed; after being defrauded, because the online friend lost contact, they clung to Mr. Wang, with whom they had transacted, demanding full compensation. This is unwillingness to accept loss.
Everyoneshouldbear the legal risks and liabilitiescorrespondingto theiractions.
06
Increasingly Strong Crackdown Efforts
In many cases encountered by Attorney Shao, parties involved have had their bank cards frozen for years due to poor communication with the case-handling authorities, affecting their work and life. Since the problem has arisen, we must consider: How can it be resolved?
Some cardholders become quite emotional when giving statements to public security organs, consistently asserting that they are also victims and questioning why they should compensate the reporting party. As a lawyer, I understand this emotion, but frankly, it is meaningless for solving the problem itself. Because the handling officer also needs to consider how to provide an explanation to the reporting party. Therefore,if your card is frozen, you need to prove your innocence.
(A further note here: Some cardholders angrily state, “Since the public security organs froze my card, they must prove I am guilty! If you cannot prove I am guilty, you have no right to freeze my card!” —This is also not an effective way to communicate with the case-handling officers. The card was frozen because victim funds flowed into your bank account. The victim has already provided evidence of the infringement they suffered. Therefore, you need to provide a reasonable explanation and supporting evidence as to why the stolen funds flowed into your card.)
One purpose of proving your innocence is tofirst exclude potential criminal risks involving yourself, and the second purpose is to negotiate the conditions for unfreezing the card.
According to big data retrieval, from January 1, 2019, to March 10, 2023, people’s courts at all levels handled criminal cases related to “buying and selling virtual currencies.” Using keywords such as “virtual currency; buying and selling; criminal; knowing it proceeds of crime; crime of aiding information network criminal activities; crime of concealing or disguising proceeds of crime and gains therefrom,” a total of 90 judgment documents were retrieved. In current criminal cases involving the buying and selling of virtual currencies, most are characterized as the crime of concealing or disguising proceeds of crime, while fewer are characterized as the crime of aiding information network criminal activities.
After excluding criminal risks, regarding communication on unfreezing the card, you need to provide a chain of evidence to prove that your transaction behavior was indeed normal and legal. For example: Do you have a stable and legal source of income? Did you fulfill your KYC review obligations when transacting with the counterparty? You also need to explain to the handling officer the necessity of unfreezing the card, such as the impact of long-term freezing on your work and life, etc.
Based on Attorney Shao’s experience in communicating with case-handling officers, many officers are willing to do considerable work for the party involved after excluding their criminal risks.
For example, issuing a statement of circumstances to facilitate the party’s communication with major banks regarding risk control freezes imposed by the banks (generally, if a card has been subject to public security stop-payment orders or judicial freezes, banks will impose an additional layer of risk control freeze or prohibit non-counter transactions).
Another example is helping to coordinate with the reporting party on the compensation amount to reach a settlement agreement, and stating that “if the funds involved in the case are recovered subsequently, they will be refunded to the cardholder.”
Effective communication is the correct way to resolve problems.
07
Final Remarks
Many cardholders who entrusted Attorney Shao’s team to handle card unfreezing matters had already communicated with the case-handling officers multiple times. However, some were overly confrontational emotionally, while others provided evidentiary materials that failed to meet the standard for the handling officers to exclude reasonable doubt. Thus, a communication impasse arose.
At this point, what you can do is engage in truly effective communication with the case-handling officers and cooperate by providing materials for unfreezing. But what constitutes “effective communication”? It is easier said than done. Alternatively, entrusting a professional lawyer to assist you in handling the matter is also an efficient way to resolve the problem.
Recommended Reading
Case Analysis | Tactics and Traps of the Crime of Aiding Information Network Criminal Activities
