In the world of Web3, technology may be at the forefront, but the law must not remain a blank slate.

Introduction

"Annual transaction volumes exceeding hundreds of millions, with monthly incomes in the millions"—the business of USDT merchants sounds appealing, yet its high legal risks are often overlooked. A single misstep may not only result in the loss of all profits but also expose one to criminal liability.

When your "OTC acceptance" business is deemed "illegal business operations" or "assisting in money laundering," crisis has already arrived. Do you clearly understand:

  • Which behaviors in daily operations are crossing legal red lines?
  • How to distinguish the boundary between normal business activities and criminal conduct?

This article aims to dissect the crimes and penalties associated with USDT merchant businesses and provide a feasible compliance framework to safeguard your wealth and security.

 

The Two Major Pitfalls Most Likely to Trap USDT Merchants

Many USDT merchants believe that as long as they do not directly defraud others, they are safe. However, the Criminal Law includes a catch-all offense: the crime of illegal business operations. Simply put, this applies when you engage in activities that the state explicitly requires to be licensed, operating vigorously and seriously disrupting market order.

For ordinary businesses, operating beyond the approved scope may only result in administrative penalties. However, if you involve yourself in state-monopolized or state-controlled systems (such as foreign exchange or payment settlement), once the threshold for criminal liability is met, the matter escalates directly from "regulatory violation" to "criminal offense."

Specifically, for USDT merchant businesses, the two high-risk behaviors are:

1. Exchanging Fiat Currency for USDT

When you frequently and publicly exchange fiat currency for USDT for unspecified individuals without permission, you essentially become a payment channel. Legally, this is regarded as "illegally engaging in fund payment and settlement services."

2. Disguised Foreign Exchange Trading

Leveraging the peg between USDT and the US dollar, collecting RMB domestically while paying equivalent foreign currency abroad (or vice versa) perfectly bypasses national foreign exchange controls, achieving cross-border conversion between RMB and foreign currencies. This operation constitutes "disguised foreign exchange trading" under the law.

According to the 2025 standards for filing and prosecution of illegal business operation cases by the Shenzhen Public Security Bureau, illegally engaging in fund payment and settlement services involving amounts exceeding RMB 5 million, or illegal gains exceeding RMB 100,000, shall be subject to filing and prosecution; implementing illegal foreign exchange trading behaviors such as speculative buying and selling of foreign exchange or disguised foreign exchange trading, disrupting financial market order, with illegal business operation amounts exceeding RMB 5 million, or illegal gains exceeding RMB 100,000, shall be subject to filing and prosecution.

A certain "OTC" case in Chongqing serves as a typical precedent where a USDT merchant was convicted of illegal business operations. Mr. He earned spreads by buying low and selling high USDT. The bank accounts under his control accumulated a total transaction volume of RMB 14 billion, with personal profits amounting to RMB 4.77 million. The courts of first and second instance held that his large-scale, continuous fiat-to-virtual asset exchange business substantially constituted illegally engaging in fund payment and settlement services. He was ultimately sentenced to three years of fixed-term imprisonment for the crime of illegal business operations and fined RMB 5 million.

 

Ordinary Participant or Criminal?

In court, judges determine whether a USDT merchant is an ordinary participant or a criminal primarily based on several core operational factors.

1. Are You "Feigning Ignorance"?

Even if you claim "I did not know," judicial authorities will infer your subjective knowledge based on your objective conduct. The following circumstances can serve as evidence proving you were "fully aware."

  • Using encrypted communication software such as Telegram or BatChat for business communications
  • Concealed transaction locations (e.g., offline transactions conducted in parking lots or inside vehicles)
  • Profits far exceeding normal levels, or obviously abnormal transaction patterns
  • Use of specific jargon in communications, such as "locking orders," "following procedures," or "bridging"

2. What Crime Does Your Conduct Constitute?

  • If you merely provide a USDT exchange channel but genuinely lack knowledge that the funds are problematic → You may be deemed guilty of the "crime of aiding information network criminal activities"
  • If you knowingly assist in transferring illicit funds by accepting USDT in cash → The nature of the offense becomes the "crime of concealing or disguising the proceeds of crime"
  • Even if you did not directly handle illicit funds, if your business scale resembles that of Mr. He mentioned earlier, forming a business operation → You may face charges for the "crime of illegal business operations"

 

Compliance Survival Guide for USDT Merchants

As legal risks escalate, compliance is no longer optional but fundamental to survival. To continue operating, you must abandon past "unregulated methods" and bring your business into the open.

1. Obtain Licenses and Embrace Regulation

The Virtual Asset Service Provider (VASP) license is an internationally recognized compliance "passport." Depending on your target market, consider:

  • Hong Kong and Singapore licenses: Regulatory frameworks are relatively clear, making them popular compliance choices currently.
  • EU MiCA license: Highly prestigious; once approved, it provides seamless access to the entire EU market (though the threshold is high).

2. Establish Internal Control and Risk Management Systems

  • Strict KYC (Know Your Customer):Verify customer identities and clarify the source of funds.
  • Robust AML (Anti-Money Laundering) System:Monitor and report suspicious transactions, utilizing blockchain analysis tools (such as Chainalysis) to trace fund flows.
  • Establish a Blacklist Mechanism:Dynamically update risky addresses and proactively intercept high-risk transactions.

3. Define Clear Compliance Red Lines

  • Strictly Avoid Illicit Funds:Maintain absolute distance from funds sourced from gambling, fraud, and other illegal activities.
  • Do Not Engage in Cross-Border Currency Exchange:Clearly recognize that exchanging RMB for foreign currencies via USDT is a high-voltage line constituting illegal foreign exchange trading.
  • Maintain Transaction Transparency:Avoid using encrypted software for core business discussions and steer clear of concealed offline cash transactions.

 

From Risk Avoidance to Value Creation

The USDT merchant business is transitioning from wild growth to a stage of regulatory "open cards." Two paths lie before you: either passively step into pitfalls and wait to be summoned for questioning; or proactively don a "bulletproof vest" and play the safety card of compliance. Your choice determines how far your business can go.

If you encounter any of the following situations, do not hesitate—it is time to consult a professional lawyer:

  • You feel your business is repeatedly hovering in a "gray area," uncertain when it might trigger legal repercussions
  • You frequently receive "illicit funds," resulting in frozen bank accounts, or have already received an invitation from law enforcement for questioning
  • You wish to transform into a formally licensed institution but have no idea where to start with risk control and compliance
  • You have already been identified as involved in a case and need someone to help protect your rights and mount a robust defense

We are not just lawyers; we are practical partners who understand Web3—offering business compliance health checks, compliance system establishment, asset unfreezing and response strategies, and comprehensive criminal defense throughout the process.

In the world of Web3, technology may be at the forefront, but the law must not remain a blank slate.