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
Recently, many inquirers have asked: “I’ve always heard that being a USDT merchant is quite profitable, and I see many people doing it online. Are there any legal risks?” Therefore, today I will discuss my views on the business of OTC merchants arbitraging USDT.
01
What Does “Arbitrage” Mean for OTC Merchants (USDT Merchants)?
02
Can One Engage in the USDT Merchant Business?
The answer is yes, after all, China does not prohibit transactions between individuals involving fiat currency and virtual assets. With just a couple of mouse clicks to execute buy and sell orders, one can arbitrage profits of thousands, tens of thousands, or even more.
However. (Note, here comes the “but”)
The above is merely an ideal state. If a USDT merchant engages in too many transactions, has excessive transaction volumes, or makes transfers too frequently, you may face:
Permanent suspension of Alipay or WeChat accounts
Repeated investigative calls from bank risk control departments
Freezing of bank cards
Suspicion of money laundering
Summons by public security organs
Fraud victimization
……
(And other possible scenarios)
Facing administrative penalties, frozen cards, or suspended accounts is indeed troubling. USDT merchants may have to repeatedly visit banks and administrative departments to cooperate with investigations, submit written explanations, and provide relevant evidentiary materials.
However, a more serious scenario involves criminal legal risks.
03
Criminal Risk: The Crime of Illegal Business Operations
(1) Relevant Case Scenarios
A case example: Zeng introduced multiple individuals to purchase virtual assets and used his own bank card to help others buy and sell multiple times. He was sentenced by the court for the crime of illegal business operations[i].
Since OTC transactions are not characterized as illegal or criminal acts under Chinese law, and China does not prohibit transactions between individuals involving fiat currency and virtual assets, why would OTC merchants be involved in illegal business operations?
Let us examine the legal provisions. According to Article 225 of the Criminal Law regarding the crime of illegal business operations, circumstance “(3) engaging in fund payment and settlement businesses illegally without approval from the relevant national competent authorities...”
The term “illegally engaging in fund payment and settlement” here refers to assisting others in large-scale fund transfer businesses, excluding cash-out behaviors.
According to the Measures for Payment and Settlement issued by the People's Bank of China, banks are intermediary institutions for payment settlement and fund clearing. Non-bank institutions engaging in payment and settlement businesses must obtain a Payment Business License approved by the People's Bank of China.
(2) Key Points for Defense
Analyzing from the perspective of the constituent elements of this crime, lawyers have a relatively strong basis for arguing for non-prosecution or acquittal. The defense strategies are roughly as follows:
First, how to understand “fund payment and settlement”?
China does not deny that virtual assets have certain value; for instance, Bitcoin is characterized as “a specific type of virtual commodity.” However, the law stipulates that virtual assets do not have the same legal status as currency.
“Payment and settlement” refers to fund transfers between currencies. Since virtual assets are regarded as “commodities,” the exchange between fiat currency and virtual assets cannot be considered “fund payment and settlement.”
Furthermore, the behavioral pattern of “fund payment and settlement” in the crime of illegal business operations generally involves collecting large amounts of funds, deducting a certain percentage of handling fees/service fees, and then transferring large amounts to accounts for proxy payments. The actor assists others in providing extensive collection and payment services (such as cashing out by transferring from corporate accounts to private accounts), with the subjective motive of gaining fee income. However, OTC merchants merely earn price difference profits through arbitrage (buying low and selling high), which clearly does not align with the behavioral pattern of “fund payment and settlement” in this crime.
Second, the arbitrage behavior of OTC merchants belongs to transactions between individuals. The Notice on Preventing Risks Associated with Token Issuance and Financing (hereinafter referred to as the “94 Notice”) only prohibits ICOs and exchanges from engaging in exchange and information intermediary businesses. Therefore, C2C behaviors are not prohibited in China and belong to civil acts of legally buying and selling virtual assets between citizens.
Third, constituting the crime of illegal business operations under the Criminal Law requires reaching the level of “serious circumstances.” According to relevant legal provisions on the filing standards for this crime, the amount involved in “illegally engaging in fund payment and settlement businesses” must exceed RMB 2 million, or the illegal gains must exceed RMB 50,000. If the transaction volume of the OTC merchant does not reach the aforementioned standards, it naturally does not constitute a crime.
04
Conclusion
