Case Analysis | Selling USDT Using Forged Crypto Transfer Screenshots Constitutes Fraud

Recently, the Yizhang County People's Court in Hunan Province published an article titled "Forged Cryptocurrency Transfer Screenshots Used to Defraud Victims of Cash: Conviction Entered!", which describes a case in which forged screenshots of virtual currency transfers were used to defraud a buyer of funds.This is a common fraud scheme in the cryptocurrency community. Attorney Liu provides a brief analysis in this article.。

In November 2023, Xiao Bai learned online that Xiao Zhong was engaged in the business of purchasing USDT (Tether). Xiao Bai contacted Xiao Zhong via WeChat, and the parties agreed that Xiao Bai would purchase 10,181 USDT from Xiao Zhong for RMB 73,000, with the transaction to be conductedthrough an in-person, offline exchange。

After arriving at the agreed location, Xiao Bai received RMB 73,000 incashfrom Xiao Zhong, simultaneously initiated a virtual currency transfer, sent a screenshot of the transfer to Xiao Zhong via WeChat, and thenimmediately departedXiao Zhong did not receive the USDT and only then realized he had been defrauded; it turned out that the screenshot sent by Xiao Bai wasforged(photoshopped).

After Xiao Zhong reported the matter to the police, Xiao Bai was apprehended three days later. Following trial, the court held that Xiao Bai had committed the crime of fraud and sentenced him to three years and two months’ imprisonment.

The Yizhang Court case involved a relatively rudimentary form of fraud in the crypto community. Xiao Zhong was defrauded of RMB, and Xiao Bai’s conduct clearly constituted the crime of fraud. Consider a different scenario: if Xiao Zhong transferred virtual assets to Xiao Bai, and Xiao Bai used a photoshopped RMB transfer screenshot to perpetrate the fraud, would this still constitute a criminal offense? Furthermore,are virtual asset transactions lawful in China? Are they protected by law?

As to the first question, in cases where Xiao Bai defrauds Xiao Zhong of virtual assets, some public security organs may currently decline to accept or register the case, even if the assets involved are mainstream virtual assets such as BTC, ETH, or USDT. However, under prevailing judicial practice, criminal justice authorities have recognized the proprietary nature of mainstream virtual assets. In numerous criminal cases involving virtual assets, where third-party disposal companies liquidate the assets overseas, judicial authorities treat the resulting RMB proceeds as the amount involved in the case. This demonstrates that, at least in criminal proceedings, mainstream virtual assets are recognized as having proprietary attributes by judicial authorities. Therefore, after Xiao Zhong’s USDT was defrauded by Xiao Bai, he could report the matter to the public security organs and request that they accept and register the case, and the public security organs ought to do so.

With respect to the second and third questions, the “September 24 Notice” (Notice on Further Preventing and Disposing of Risks Associated with Virtual Asset Trading and Speculation) expressly clarifies:

Where any legal person, unincorporated organization, or natural person invests in virtual assets and related derivatives in violation of public order and good morals, the relevant civil juristic acts shall be void, and any losses arising therefrom shall be borne by the investor; where such conduct is suspected of disrupting financial order or endangering financial security, the relevant authorities shall investigate and deal with it in accordance with the law.

In other words, citizens may invest in virtual assets and their derivatives, but they must bear their own losses (although this is premised on the condition of being “in violation of public order and good morals,” in practice judicial authorities generally find that virtual asset transactions entail significant risks and thus violate public order and good morals). Only when virtual asset investment activities endanger national financial order or jeopardize financial security do they constitute serious misconduct (a threshold that ordinary citizens’ trading volumes rarely meet), and only then may they give rise to criminal or administrative liability. Moreover, no laws, regulations, or regulatory documents currently expressly prohibit the buying and selling of virtual assets.

In summary, the buying and selling of virtual assets in ordinary circumstances is not unlawful, but it is difficult to obtain legal protection.

Given that virtual currency transactions are not protected within mainland China, how can citizens safeguard their legitimate rights and interests when engaging in such transactions? Readers should draw full lessons from the case of Xiao Zhong mentioned at the beginning of this article; there is no need to elaborate on online transactions. For offline transactions, it is essential to verify the counterparty’s identity. It is advisable to transact only with acquaintances. The party receiving virtual assets should first request the counterparty to transfer one USDT (USDT) to confirm receipt before proceeding with the transaction. The recipient must not allow the counterparty to leave until all virtual assets have been received. Furthermore, it is recommended that both parties avoid conducting transactions alone; if accompanied by others, the transaction process should be audio- and video-recorded. Transactions should preferably not take place in secluded locations (such as suburban wooded areas or hotel rooms).

In summary, virtual currencies lawfully held by citizens, particularly mainstream virtual currencies, inherently possess property attributes and should be afforded legal protection.