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 reposting, legal consultation, or business exchanges, please add: sswls66
Introduction:
Friends in the foreign trade circle should have heard of the “frozen card wave” affecting Yiwu foreign trade operators around 2021—due to the common practice of overseas partners of Yiwu merchants settling payments through underground banks, combined with the nationwide “Card Breaking Campaign” launched by public security organs at the end of 2020, hundreds of thousands of Yiwu merchants had their bank accounts frozen by public security authorities across the country.
According to relevant media reports1, there were cases where a merchant’s “involved” amount was only RMB 2,000, yet the entire balance of RMB 400,000 in the account was frozen; one merchant had multiple cards frozen by public security organs in various regions, with balances forcibly deducted; and one card was simultaneously frozen by 41 different public security organs2, among other situations. This triggered a series of chain reactions: long-term freezing of bank accounts by relevant authorities led to broken capital chains for merchants, inability to pay wages, and even bankruptcy and closure.
Perhaps due to fear of having cards frozen? Or perhaps because domestic recognition and acceptance of virtual currencies are continuously improving? Therefore, currentlymany merchants use virtual currencies to collect payments in external transactions。
. So, what legal risks might this transaction method entail? They can be categorized into two main types.
One type is obvious: collecting USDT for transactions violates China’s foreign exchange-related laws and regulations, resulting in administrative penalties in minor cases, and potentially being charged with the crime of illegal business operations in serious cases. The other type involves hidden risks: a series of legal issues arising during the process of converting USDT into fiat currency. For example, bank accounts being frozen, or suspicion of money laundering-related crimes. (Attorney Shao has written several articles on related topics; please click the links at the bottom of this article to read them.)
This article focuses on issues related to frozen bank accounts.
Author: Attorney Shao Shiwei
01
Can Collecting USDT Fundamentally Avoid the Risk of Frozen Accounts?
Foreign trade merchants conducting normal business wonder why their accounts get frozen. It is because there are issues with the payment received from overseas buyers.
Generally, for exported goods, overseas buyers need to pay foreign currencies such as USD or EUR to domestic merchants, and settle the exchange through compliant channels like banks. However, in reality, not all overseas buyers (e.g., those from countries sanctioned by the US or those with foreign exchange reserve shortages) can settle in USD. If foreign trade merchants insist on requiring buyers to pay in USD, they would be cutting off their own retreat, after all,if you don’t take a deal, someone else will.
Therefore, the usual practice is for overseas buyers to convert their local currency into RMB through exchange intermediaries or underground banks, and remit it to domestic merchants. The RMB obtained through such exchange may involve funds related to gambling or fraud, leading to the domestic merchant’s account being frozen by public security organs upon receipt.
Settling with USDT (Tether) indeed avoids the risk of account freezing at the time of receipt in the aforementioned transaction process, since what is received is USDT. However,you ultimately need to cash out your USDT, because in China, USDT, as a virtual commodity, cannot circulate freely domestically like fiat currency. If you only collect USDT without cashing out, how can you purchase raw materials, expand production, or pay employee salaries?USDT may be good, but it cannot be eaten as food。
. So, why does collecting USDT still fail to avoid the issue of frozen accounts? Like many USDT merchants, during transactions, above the iceberg, you only see USDT going out and money coming in; below the iceberg,who knows where the counterparty’s money comes from? Perhaps the counterparty themselvesdoes not know.
02
If a bank account is frozen, can one apply to public security organs for unfreezing?
From the perspective of foreign trade merchants, I can provide contracts, emails, shipping orders, express delivery slips, packing lists, bills of lading, purchase orders, etc., with overseas buyers, sufficiently proving that the USDT I received was for goods payment and was clean USDT! Additionally, I can provide my order and transaction records for buying and selling USDT on exchanges, proving the entire transaction process!The chain of evidence is quite complete; shouldn’t my bank account be unfrozen?
If the transaction method in this question were changed to:
domestic merchants using virtual currencies for transactions among themselves, followed by freezing when selling USDT for cash; or overseas buyers directly remitting RMB, causing domestic merchants’ accounts to be frozen, then although unfreezing would still be difficult, it would arguably be less severe than the situation discussed in this article.
Why is this so? If it is a transaction between domestic merchants using this method, it does not violate China’s foreign exchange management regulations; if a foreign buyer directly remits RMB to a domestic merchant, for instance, under the “1039 Market Procurement Trade” model (Customs Supervision Code 1039), foreign merchants are permitted to settle in RMB.
However, the scenario in this article is: foreign trade merchants transacting with overseas buyers and settling in USDT. This violates both foreign exchange regulations and China’s policies on virtual currencies (treating USDT as fiat currency),which is a double kill.
Therefore, if a foreign trade merchant’s account is frozen during virtual currency transactions and they contact public security organs seeking unfreezing, if the public security organ determines that the party’s behavior violated foreign exchange management regulations, the merchant may face confiscation of funds, administrative fines, or even criminal liability.
Regulations on Foreign Exchange Administration
Article 45: Those who privately buy and sell foreign exchange, engage in disguised buying and selling of foreign exchange, speculate in foreign exchange, or illegally introduce buying and selling of foreign exchange in large amounts shall be warned by the foreign exchange administration authority, have their illegal gains confiscated, and be fined up to30% of the illegal amount; in serious cases, a fine of between 30% and an equivalent amount of the illegal sum shall be imposed; if a crime is constituted, criminal responsibility shall be pursued in accordance with the law.
Attorney Shao’s Reminder:
Although collecting USDT in foreign trade transactions entails relevant legal risks during subsequent cashing out,“lying flat” is definitely not the best solution. Mere evasion cannot fundamentally solve the problem. Furthermore, once listed on the “Two Cards List,” the cardholder’s other bank accounts may be successively frozen. Additionally, accounts of family members and partners who have transacted with the cardholder may also be frozen due to implication.
Moreover, although collecting USDT and then cashing out violates foreign exchange regulations, whether administrative penalties or even criminal offenses will inevitably follow depends on a case-by-case analysis of specific circumstances.
[1]https://www.eeo.com.cn/2021/0416/485124.shtml
[2]http://finance.sina.com.cn/china/gncj/2021-04-21/doc-ikmyaawc0872540.shtml
Recommended Reading
Selling USDT Virtual Currency Led to Bank Account Freezing; Can It Be Unfrozen?
