Cash buying and selling USDT, what are the key defense points if facing criminal detention?
Starting from the second half of 2024, the team has received many cases regarding cash buying and selling USDT that have led to criminal detention by public security organs due to involvement in telecommunications fraud. From the volume of cases, it is evident that the group involved in cash transactions of USDT and criminal cases is larger than in the first half of 2023. According to the detention notices provided by families, these cases involve 'fraud' or 'concealing and concealing criminal proceeds (hereinafter referred to as 'concealment crimes'). Through multiple meetings with the suspects in the case, it was found that many of them, upon arrest, say: 'Lawyer Wu, I am innocent, I was unaware. I didn't know the cash from the other party was from fraud or that the other party was a victim.' While some are experienced USDT traders who accidentally got into trouble, the vast majority are new cash traders who have only been transacting USDT for about ten days. This article will explain the model of cash buying and selling USDT and the criminal cases involved, focusing on which transaction facts are important.
Cash Trading Model
In offline cash transactions of USDT, the seller transfers the funds based on the wallet address provided by the buyer, without going through an exchange. For buyers, USDT has no T+1 restrictions, allowing for immediate use. For sellers, cash does not need to go through a card, alleviating concerns about bank card freezes, and sellers often increase prices to earn more profit (exchanges typically earn a 1-4% profit margin, while cash transactions often yield a 5-20% margin, with some even reaching around 50-70% margins). Thus, both parties quickly reach an agreement. When using cash for transactions, they agree in advance via WeChat on the location, time, quantity, and price of the USDT purchase. The seller drives to the location to complete the cash transaction: USDT is handed over first, and then the buyer pays in cash. The transaction is completed. Throughout the transaction, the seller only cares about two things: First, that the address you provided has received the USDT I transferred. Second, that the cash you provided is legitimate. The buyer only cares about one thing: that the address indeed received the USDT.
One to two weeks after the transaction is completed, the investigative unit from another location tracks the seller, Zhang San, through clues from the flow of funds and then informs Zhang San that he is a suspect. After that, they conduct an interrogation record with Zhang San; once the record is completed, they state that the source of funds is from a certain fraud case and is suspected of fraud and money laundering, sending him to detention. Subsequently, the family receives a detention notice mailed by the investigative unit from another location.
What is the charge?
If you are only participating in cash transactions of USDT, once the funds received are from telecom fraud and involve criminal cases, the case will ultimately be examined and prosecuted for downstream concealment crimes, rather than the fraud charge on the detention notice. This is because USDT traders in cash transactions are unaware of the fraud facts concerning upstream fraud victims and have not engaged in fraudulent behavior; rather, they have objectively transferred the victim's fraud funds through USDT. Therefore, this article focuses on answering the issues related to cash transactions of USDT suspected of concealment crimes. (In recent years, cases where cash purchases of USDT involved receiving funds from fraud have become less likely to be classified as aiding and abetting crimes; as long as cash is involved, they tend to be classified as concealment crimes, but defenses should be tailored to the specifics of each case.)
Defense Strategy
Key Point 1: Virtual currency trading itself does not violate legal regulations. According to the notice issued by the People's Bank of China and ten other ministries on September 24, 2021 (referred to as the '924 Notice'), it warns citizens to prevent financial risks brought by virtual currencies, but the act of trading virtual currencies does not violate relevant provisions of current laws and administrative regulations in our country. In 2022, the Supreme People's Court issued an interpretation on several issues concerning the application of laws in the trial of criminal cases of illegal fundraising (hereinafter referred to as the 'Judicial Interpretation of Illegal Fundraising'): Article 2, Item 8 states that illegal fundraising through online lending, investment, and virtual currency trading emphasizes that USDT can be considered as an asset in illegal fundraising cases. In 2024, the Supreme People's Court and the Supreme People's Procuratorate issued an interpretation on several issues concerning the application of laws in handling money laundering criminal cases (hereinafter referred to as the 'Judicial Interpretation of Money Laundering'), emphasizing that virtual currencies, including USDT, can be one method of money laundering. Therefore, laws and regulations do not prohibit virtual currency trading; where there is no prohibition by law, there is freedom. Whether the receipt of funds from telecom fraud constitutes a crime depends on the subjective elements of concealment offenses, focusing on whether there are any irregularities in the virtual currency trading process.
Key Point 2: Cash trading of virtual currencies is one trading model. It should specifically consider whether the trading behavior in the case violates market trading habits, based on transaction amounts, transaction distances, transaction costs, etc.
Key Point 3: Is using overseas chat software presumed knowledge? According to the Judicial Interpretation of Concealment Crimes, (7) other situations that can be recognized as the actor's knowledge, there are also provisions regarding the use of encrypted chat software in aiding and abetting crimes, which should be determined based on the purpose of use, whether it is for normal transaction acquisition chat or for deleting data to evade investigation.
Key Point 4: How does the buyer find the seller? Is it through the seller's spontaneous advertisement, or through acquaintances or strangers acting as intermediaries? If there is an intermediary, and the intermediary's identity is that of a fraudster, it will not be favorable for the case's outcome. Many so-called intermediaries are unknown to both buyers and sellers. To the buyer, the intermediary appears as an investment guru, while to the seller, they are just a source of referrals. Intermediaries often post advertisements in groups, such as posting the information that 'Li Si from Shanghai wants to buy USDT worth 600,000 yuan.' Zhang San sees this and takes the order, then the intermediary informs Li Si that they can recommend a reliable USDT trader, Zhang San, who then adds Zhang San on WeChat to transact USDT.
Key Point 5: Who is the buyer? If the buyer is a victim, then whose address is receiving the USDT? This is crucial as it focuses on whether the wallet address provided by the victim is registered by the victim and whether they control the mnemonic private key. If the address belongs to the fraudster and was not provided by the victim, and you are the upstream referrer to the victim, you may be suspected of being involved in the fraud case. Conversely, if the victim registered and controls the address, there are actually two lines: the first line is the victim buying USDT. The second line is that the victim, following the fraudster's instructions, transfers the USDT to the fraudster. After completing the transaction with the victim, the first line is merely a transaction fact, which does not rise to the level of fraud. The second line is the actual crime of fraud. Of course, in the first line, if the seller is already aware that the victim is to be defrauded and continues the transaction, they will inevitably be presumed to have knowledge. (If there are doubts, it needs to be assessed whether due diligence obligations have been fulfilled.) If the buyer is not a victim, it is also necessary to review whether there are any irregularities in the transaction.
In a case where the victim bought USDT and was defrauded of USDT on a third-party platform, resulting in the prosecutor's decision not to prosecute: Yangjiang Prosecutor's Office Decision No. 2021 Z60: After legal examination, it was found that in May 2020, the non-prosecuted individual, Ma, registered as a merchant on the ** platform trading virtual currency USDT. From May 2020 to January 2021, after the bank cards bound to the ** platform were continuously frozen, Ma successively processed 12 bank cards to buy and sell USDT. It was verified that the victim, Yan, and 6 others collectively purchased virtual currency USDT from Ma for a total of 480,000 yuan. Following the instructions of the fraudster, the USDT was transferred to other APP platforms and could not be recovered. Ma earned a profit of 2,995 yuan from the sold USDT. After being arrested, Ma truthfully confessed to the crime. The court believes that Ma's actions violated Article 287-2 of the Criminal Law of the People's Republic of China, but the circumstances of the crime were minor, and he demonstrated honesty and acceptance of guilt. According to Article 37 of the Criminal Law of the People's Republic of China, no criminal penalty is required. Based on the provisions of Article 177, Paragraph 2 of the Criminal Procedure Law of the People's Republic of China, it was decided not to prosecute Ma. Note: In the circumstances of the above case, we believe it should be considered as a case of doubt not to prosecute.
Key Point 6: Is there a review? KYC verification should confirm the other party's identity and source of funds first. According to the Judicial Interpretation of Concealment Crimes, if the subjective knowledge is presumed, the defendant's submission of contrary evidence is exempted. If there are fixed chat records proving that the review was done properly during the transaction, or if there are review recordings, they should be provided to the investigating unit in a timely manner to prove that the defendant subjectively did not want to receive the illicit funds and fulfilled reasonable due diligence.
Key Point 7: What is the transaction price? Compared to the prices at exchanges, cash transactions of USDT will usually have a markup. However, if the markup is excessively high, it will be presumed to have knowledge based on the Judicial Interpretation of Concealment Crimes, if the profit margin reaches 8-10%. This will easily lead to a presumption of knowledge.
All information and trading models related to the case are aimed at distinguishing whether it is a normal trading behavior or a money laundering behavior. If it is a normal selling behavior of USDT, and there are no other irregularities during the trading process, and there is evidence that proves that reasonable due diligence was done, it should be recognized as subjective ignorance and not constitute a concealment crime.
Final Thoughts
The team also reminds that starting from the second half of 2024, cash transactions of USDT will be at a high point in the industry. For those who are unfamiliar with scams and tricks in the cryptocurrency industry, do not be misled by one-sided words and treat USDT as a so-called gray market. In reality, the trading model you adopt may have already touched upon criminal offenses.