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:
In my article dated December 25, titled “The State Administration of Foreign Exchange Takes Action! An Increasing Number of USDT Dealers May Be Convicted of Illegal Business Operations!》：
I accuratelypredicted the joint announcement issued today, December 27, 2023, by the Supreme People’s Procuratorate and the State Administration of Foreign Exchange.Article《The Supreme People’s Procuratorate and the State Administration of Foreign Exchange Jointly Release Typical Cases in the Punishment of Foreign-Exchange-Related Crimes》。
Recently, there has been considerable public attention on illegal business operations involving virtual currencies. Over the past two weeks, major news outlets with significant official influence—including the Guangdong High People’s Court, China Central Television (CCTV), the Supreme People’s Procuratorate, and the State Administration of Foreign Exchange—have repeatedly highlighted this issue.
Crackdowns on illegal foreign-exchange trading activities involving virtual currencies will undoubtedly become a key enforcement focus going forward.It is beyond doubt that they will be the primary targets of subsequent crackdowns.
Many friends in the crypto community often ask me how earning spreads through cryptocurrency trading can constitute illegal business operations. Today, let us examine the typical cases jointly released by the Supreme People’s Procuratorate and the State Administration of Foreign Exchange to understand the legal principles they illustrate.
First, consider the title.
This release primarily features typical cases involving foreign exchange-related crimes and violations. Accordingly, most of the cases were jointly handled by investigative authorities, procuratorates, and the State Administration of Foreign Exchange.
Strengthening the interface between administrative enforcement and criminal justice: Buying and selling foreign exchange outside venues prescribed by state regulations first constitutes a violation of the Regulations on Foreign Exchange Administration, subject to administrative penalties such as warnings, confiscation of illegal gains, and fines. Where such conduct constitutes a crime, criminal liability shall be pursued.
Cracking down on illegal cross-border financial activities: The text points out that one of the new trends and characteristics of current foreign exchange-related crimes and violations is that cross-border fund transfers have become more concealed, with underground banks increasingly adopting cross-bordermirror transactionmodels, whereby RMB is transferred domestically and foreign exchange is transferred overseas, with domestic and overseas funds circulating independently.
Among the eight typical cases released this time, crimes involving virtual assets ranked in the top two positions, predominantly prosecuted as the crime of illegal business operations.
Author: Attorney Shao Shiwei
Case 1: Zhao Mou made illicit gains of RMB 35,000 and was sentenced to seven years in prison.
I. Brief Statement of Facts:
Given the extensive descriptions in the original text, we simplify the explanation here with respect to interpersonal relationships, legal relationships, and other elements.
You established and operated an illegal payment-settlement scheme platform to receive funds from upstream online gambling and telecommunications fraud, providing payment and settlement services for black- and gray-market industries in exchange for commissions. (RMB 3.1 billion absorbed in 48 days! A substantial sum...)
You provided RMB to Zhao, who, upon receipt, transferred the corresponding virtual assets to You and thereby derived a profit of RMB 35,000.
In reviewing the evidence related to the aforementioned case, the procuratorate discovered an additional uncharged offense by Zhao—providing foreign exchange conversion services through virtual assets.
After receiving customers’ cash in UAE dirhams (the local currency of Dubai) in Dubai, Zhao would transfer the corresponding amount in RMB into domestic RMB accounts designated by the customers. Zhao used the dirhams he received to purchase USDT (Tether), and then converted the USDT into RMB. By exploiting exchange rate differentials, Zhao generated a monthly profit of RMB 870,000 (indeed, acting as a USDT dealer can yield substantial profits…?).
II. Attorney Shao’s Analysis:
The above subheading is somewhat clickbait, as it does not mention the RMB 870,000 that Zhao obtained through illegal foreign exchange trading. However, it is not entirely clickbait, because had You not been investigated, Zhao might not have been uncovered through this line of inquiry (of course, Zhao could also have been implicated and his offenses discovered in connection with other cases; this is merely a matter of timing. It is just that, but for the RMB 35,000
he received, Zhao’s foreign exchange conversion business might have continued for a longer period).
This case is indeed highly typical, as it involves two types of illegal business operations related to virtual assets within a single case (specifically referring to theillegal business operations involving payment and settlement servicesandillegal business operations involving foreign exchange tradingmentioned by Attorney Shao in his previous series of articles; 👈🏻👈🏻👈🏻 click here to read the original article).
In this case, the USDT dealer’s illegal foreign exchange trading was uncovered as an additional uncharged offense, which aligns with the CCTV report aired on Sunday, December 24Major Underground Banking Case Cracked in Qingdao, ShandongThe situation is similar. During the police investigation into underground banks and illegal payment-settlement schemes, authorities “unexpectedly” discovered USDT dealers who assisted these platforms in exchanging virtual assets.
Additionally, this case highlights an important point for public awareness: jurisdiction over extraterritorial crimes. Many people may assume that operating as a USDT dealer within China is risky, but doing so abroad is safe. However, in this case, Zhao conducted his USDT acquisition business in Dubai.
Under the Criminal Law of the People’s Republic of China, jurisdiction is based on the principles of territorial jurisdiction and personal jurisdiction. Territorial jurisdiction means that China has jurisdiction if either the criminal act or its consequences occur within Chinese territory. Personal jurisdiction means that China also has jurisdiction over crimes committed outside Chinese territory by Chinese nationals. Therefore, as long as the individual is a Chinese national
and commits a crime, or if the criminal act or its consequences occur within China, Chinese authorities have jurisdiction. (For those seeking a deeper understanding of criminal judicial jurisdiction in China, please refer to this article: 👉🏻👉🏻👉🏻 “Can Chinese Police Make Cross-Border Arrests for Telecom Fraud Committed Abroad?》）
Case 2: Boss Arrested; Employee Sentenced to Five Years as an Accomplice
I. Brief Facts of the Case:
Chen: The mastermind behind the operation (handled in a separate case)
Guo: Employed by Chen to develop an illegal currency exchange website
Fan: Conducted “foreign currency–virtual asset–RMB” transactions for the exchange website
Zhan: Provided bank accounts, identity cards, and user-registered virtual asset trading accounts to Fan for use in the implicated transactions
II. Attorney Shao’s Analysis:
Both cases involve exchanging USDT (U), entailing the disguised buying and selling of foreign exchange through virtual assets. Why was Case 1 classified as the crime of illegal business operations, while Zhan in Case 2was convicted of aiding information network criminal activities?？
Guo’s role was to build and maintain the website, akin to a programmer, without participating in specific operational activities or sharing in the illicit proceeds. Why were Guo, Chen, and Fan allconvicted of the crime of illegal business operations?？
The crux of the above questions lies in how judicial authorities determine the actors’ subjective knowledge: whether each actor had full knowledge of the “big boss’s” conduct, or merely possessed a generalized criminal intent.
For a more detailed analysis, please refer to 👉🏻👉🏻👉🏻 “Has the Crime of Illegal Business Operations Become a High-Frequency Criminal Charge for USDT Traders in the Crypto Circle?,” Part II of which enumerates three scenarios, including circumstances similar to those in the present case.
Concluding Remarks:
To answer the question posed in the title of this article—whether buying and selling USDT is illegal—Attorney Shao’s response, based on China’s current relevant policies, remains that it is not illegal.
In Case 1, USDT trader Zhao and his defense counsel argued that the conduct constituted mere trading of virtual assets, not foreign exchange trading, and thus did not constitute the crime of illegal business operations. Why was this defense ineffective? Although one-way transactions between fiat currency and USDT are lawful, the actor’s ultimate purpose was to profit by providing currency exchange services to foreign traders and other groups, with USDT serving merely as the medium for such exchange.
merely a tool for foreign exchange.
Even USDT merchants who do not intend to facilitate currency exchange for their clients must exercise extreme caution in selecting customers, as they may inadvertently become part of the currency exchange chain. In the current judicial environment where public security organs, the State Administration of Foreign Exchange, and other authorities are continuously cracking down on foreign-exchange-related criminal offenses and illegal "offsetting" transactions, any involvement will be subject to severe punishment.
Recommended Reading
Is Over-the-Counter (OTC) Trading of Digital Currencies a Crime?
Defrauded in a USDT Transfer: How to Recover USDT Worth RMB 40 Million?
