Based on the work situation in the past six months, Lawyer Shao has a deep feeling: there are more and more cases of illegal business operations caused by buying and selling virtual currencies.
Since the end of 2023, various official media have successively published typical cases of illegal business crimes related to the purchase and sale of virtual currencies. In practice, judicial authorities in various places seem to be constantly strengthening their crackdown on such transactions.
However, many parties still do not understand why buying and selling USDT virtual currency would be considered illegal business operations? Why would they be convicted even if they did not receive the stolen money? What does it have to do with buying and selling foreign exchange when they are just trading U? Therefore, this article will start from the specific situations in practice and do a simple popular science.
Article by Lawyer Shao Shiwei
01. What is the crime of illegal business operation of “buying and selling foreign exchange”?
The crime of illegal business operation of "buying and selling foreign exchange", specifically in the context of virtual currency transactions, refers to the disguised buying and selling of foreign exchange (or "foreign exchange arbitrage").
The so-called "disguised foreign exchange trading behavior" refers to the behavior of not directly buying and selling RMB and foreign exchange, but taking actions such as repaying RMB with foreign exchange or repaying foreign exchange with RMB, and realizing currency value conversion by exchanging foreign exchange and RMB. Under this model, funds circulate in one direction at home and abroad, and there is no physical flow. Usually, the "balance between the two places" is achieved in the form of reconciliation.
my country implements a mandatory foreign exchange management system (annual total amount management is implemented for individual foreign exchange settlement and domestic individual foreign exchange purchase, equivalent to 50,000 US dollars per person per year). The behavior of private foreign exchange exchange off-site is either an administrative violation or a criminal offense. The specific standards are:
The act of disguised foreign exchange trading, if the amount exceeds US$1,000, constitutes an administrative violation. If the amount of illegal business is more than RMB 5 million, or the amount of illegal income is more than RMB 100,000, it constitutes the crime of illegal business operation.
USDT, which is used by U traders or ordinary speculators in transactions, is issued and managed by Tether Limited. As a type of cryptocurrency, it certainly cannot be directly equated with foreign currency, foreign exchange, etc. However, through U as a medium, foreign exchange and RMB are indirectly exchanged, and the currency value conversion is realized, which is regarded by domestic judicial authorities as "disguised foreign exchange trading", and there is no dispute at present.
Because the standard for filing a case for this crime is relatively high, it is generally difficult for ordinary people to commit this crime by occasionally exchanging currency in this way. The common subjects of this crime are underground money houses, or U merchants who make a living by buying and selling virtual currencies to make arbitrage and earn the difference.
Even if underground banks do not use virtual currencies, they will have various ways of exchanging currency. They are themselves engaged in the business of money laundering and making profits from exchange rate differences, so they are not innocent.
However, many U-merchants that Lawyer Shao has come into contact with only intend to earn the difference of arbitrage and have no intention of committing this crime. However, due to their lack of knowledge of the law, they did not know why they were "illegally operating" until they were arrested. As Lawyer Shao often said, the world in the eyes of U-merchants is often just the "tip of the iceberg", so let's take a global perspective to understand what is the "foreign exchange trading type" illegal business crime, and what roles do U-merchants play in it?
02. Scenario of realizing “foreign exchange counter-trading” by buying and selling virtual currencies
1. Who has the need to exchange currency privately?
According to the cases handled by Lawyer Shao and the large number of consultations he handles on a daily basis, they can be roughly classified into the following four scenarios:
Person A is in China and wants to exchange the foreign currency he has into RMB.
For example, a foreign trade merchant, or a merchant or individual whose clients are overseas groups (such as those providing overseas advertising services), whose clients transfer U.S. dollars to their overseas account, and A wants to convert it into RMB.
Person B is in China and wants to exchange the RMB he has into foreign currency.
For example, for many wealthy people who have gone abroad, the $50,000 foreign exchange quota is not enough for them to transfer their assets abroad. In August 2023, the largest immigration company in Shanghai, Wailian Company, was investigated and its actual controller He was arrested. One of the gray businesses of this type of immigration company industry is to find ways to help customers get their money out.
Person C is abroad and wants to exchange his foreign currency into RMB.
For example, C works abroad all year round and his income is all in US dollars. One day, something happens to his family in China and he needs money urgently. In this case, C needs to quickly convert large sums of US dollars into RMB for his family in China.
D is abroad and wants to exchange the RMB he has into foreign currency.
For example, international students, or business people (Lawyer Shao previously had a client who worked and lived in Myanmar all year round. His business was to purchase goods from Myanmar and then import them to China. Because he sold goods to domestic users, he collected RMB, but he purchased goods from Myanmar and paid the Burmese merchants in Myanmar Kyat. So even though he was abroad, he still needed a lot of foreign currency).
2. What role does U-business play in this?
In the above four situations, if the customers trade with underground banks/private currency exchange platforms, there are two possibilities from the perspective of capital flow: either the customers receive foreign currency abroad and pay RMB in China; or the customers pay foreign currency abroad and receive RMB in China.
Virtual currency has the natural convenience of cross-border transactions. The illegal exchange process between foreign currency and RMB only needs to use U as a transition. Illegal exchange platforms are like a capital distribution center. First of all, their currency (for the convenience of expression, foreign currency or RMB is collectively referred to as currency) comes from customers who have exchange needs. Customers want to exchange currency A into currency B, or exchange currency B into currency A. Therefore, illegal exchange platforms need to have a large amount of currency reserves from different countries to meet the needs of customers.
Of course, this currency exchange business can be done even without U, which requires collecting the currencies provided by users from different countries and then matching them. But with U, currency exchange transactions can be more covert, larger, and more convenient - illegal currency exchange platforms use the currencies provided by customers to purchase U at home and abroad, and then exchange U for the currencies of the countries required by customers.
In the process of virtual currency transactions, the people who connect with illegal currency exchange platforms are those who want to sell U or want to buy U. This group is divided into three categories:
1. Retail investors who speculate in cryptocurrencies occasionally need to cash out their funds, but they do not intend to exchange them for foreign currency;
2. There is a need to exchange currency, but you are "self-reliant" and sell currency A for U, and then find a trading partner to exchange U for currency B;
3. U merchants who make a living by buying and selling virtual currencies and making arbitrage profits;
For the first group mentioned above, if they have not received any stolen money, there is generally no great risk. Even if they trade with illegal currency exchange platforms, they will not be convicted of illegal business operations.
The second group, therefore, they exchange currency on their own. If they do not receive any stolen money and the amount does not reach the standard for criminal or administrative penalties, the risk is generally not high;
The third group is at a higher risk of being involved in illegal business operations. Some U merchants may argue that they did not know that the other party they were trading with was exchanging currency, and they were only trading virtual currency with the other party and receiving/paying RMB. However, the following situations may be presumed to be that U merchants were subjectively aware that others were suspected of buying and selling foreign exchange in disguise:
The other party trades with you stably and frequently;
A large order worth millions;
Abnormal transaction price (higher or lower than market price);
Even if the other party does not explicitly inform you, the communication between the two parties can reveal that the other party's transaction parties include overseas groups such as international students and cross-border trade;
……
In these cases, the judicial authorities may determine that because U Merchant has assisted the illegal currency exchange platform, the two parties have committed a joint crime of illegal business operation.
This is the end of the article. This article only discusses one question: Why is the business of making a profit from the price difference considered illegal in the eyes of U merchants?
As for the legal analysis of U-Shang’s involvement in illegal business operations, you can click the link at the bottom of the article to read the article previously published by Lawyer Shao for more information.
In conclusion:
Whether it is receiving stolen money or involving foreign exchange, U merchants are not willing to touch it subjectively. This business of making a profit from the price difference is actually very difficult to do.
In the past, Lawyer Shao would tell U-merchants to do KYC when doing transactions, but after handling too many cases, he no longer wants to talk about it, because there is really no perfect KYC. Who can have a God's perspective?