At present, exchange OTC is the main channel for investors in the currency circle to deposit and withdraw funds. Before the release of the "September 4th Announcement" in 2017, investors directly transferred fiat currency to the exchange account to purchase virtual currencies such as Bitcoin. After the "September 4th Announcement" was released, the country increased its supervision of the industry, so the exchange's OTC business was derived. The exchange no longer accepted users' legal currency, but became a platform similar to Taobao that only provides OTC buying and selling order information. Assist users to conduct deposit and withdrawal transactions with merchants, and the exchange does not charge any fees during the entire process. However, with the popularity of virtual currencies such as USDT and their own advantages, more and more black and gray industries use virtual currencies as a media tool for illegal and criminal activities such as money laundering and electronic fraud. Exchange OTC has become the largest criminal risk in the currency circle. Business. Among the typical cases recently jointly issued by the Supreme People's Procuratorate and the State Administration of Foreign Exchange to punish foreign exchange-related crimes, there are two cases involving OTC business in the currency circle. Below, the author will analyze the legal risks existing in the OTC business of the currency circle based on cases. 1. Exchange OTC business logic Before analyzing legal risks, you first need to understand the business logic of the exchange OTC. From the figure, it can be clearly seen that the two parties in the entire OTC business are users and OTC merchants, and the exchange serves as the platform. It provides transaction matching and ensures transaction security for both parties. Users and merchants obtain transaction order information within the platform, and transfer funds off-site through bank cards, Alipay, WeChat and other channels. The transaction target USDT and other virtual currencies are equivalent to an account on the platform. Transfer to another account. How does this transaction model involve illegal and criminal activities? 2. The crime of illegal business operations involved in OTC business in the currency circle. Two typical currency-related cases issued by the Supreme People’s Procuratorate and the State Administration of Foreign Exchange both involved the crime of illegal business operations. Article 225 of the Criminal Law stipulates that the crime of illegal business operations refers to violating state regulations and committing one of the following illegal business activities, disrupting market order, and if the circumstances are serious, he shall be sentenced to fixed-term imprisonment of not more than five years or criminal detention, and concurrently or solely A fine of not less than one time but not more than five times the illegal income shall be imposed; if the circumstances are particularly serious, the person shall be sentenced to fixed-term imprisonment of not less than five years and shall also be fined not less than one time but not more than five times the illegal income or property shall be confiscated: (1) Unauthorized business operations as stipulated in laws and administrative regulations Specialized, exclusive items or other items with restricted trading;(2) Buying and selling import and export licenses, import and export certificates of origin, and other business licenses or approval documents stipulated in laws and administrative regulations; (3) Illegal operations of securities, futures, and insurance businesses without the approval of the relevant national competent authorities, Or illegally engage in fund payment and settlement business; (4) Other illegal business activities that seriously disrupt market order. The legal interest protected by the crime of illegal business operations is market order. Article 96 of the Criminal Law stipulates that violation of state regulations refers to violation of laws and decisions formulated by the National People's Congress and its Standing Committee, administrative regulations, prescribed administrative measures, and decisions and orders issued by the State Council. At present, industry regulatory documents such as the September 4th Announcement and the September 24th Notice issued by the Supreme People's Court, the Supreme People's Procuratorate, the People's Bank of China and other ministries and commissions do not fall under national regulations. Regarding the behavior of "illegal engagement in fund payment and settlement business" in paragraph 3, Article 1 of the "Interpretations on Several Issues Concerning the Application of Laws in Handling Criminal Cases of Illegal Engagement in Fund Payment and Settlement Business and Illegal Trading of Foreign Exchange" stipulates that violations of national regulations include the following: One of the circumstances falls under the "illegal engagement in fund payment and settlement business" as stipulated in Article 225, Paragraph 3 of the Criminal Law: (1) Using acceptance terminals or online payment interfaces and other methods to make fictitious transactions, false prices, and transactions. Paying monetary funds to the designated payer through illegal methods such as refunds; (2) Illegally providing services for others to cash out the company's bank settlement account or transferring the company's bank settlement account to personal accounts; (3) Illegally providing services for others to cash out checks; ( 4) Other situations of illegally engaging in fund payment and settlement business. In an article published by the Shanghai Rule of Law News, the prosecutor of Pudong New Area believed that accepting other people’s funds through accounts under actual control, and then realizing the exchange of virtual currency and legal currency according to customer order requirements, and making profits from it, acting as an "intermediary", such as The use of mainstream virtual currencies such as Bitcoin and Tether as stable currencies to achieve cross-border payment and settlement of fiat currencies violates the relevant provisions of the Commercial Bank Law and endangers the order and security of the payment market. It falls under Article 1, 4 of the above-mentioned "Interpretation" In the case of "other illegal activities of fund payment and settlement business" mentioned in the paragraph, the person may be convicted and punished for the crime of illegal business operation.However, the author believes that users and OTC merchants complete the purchase and sale of USDT through the transaction matching information provided by the exchange, thereby making virtual currency investments. Virtual currencies such as USDT and BTC are virtual commodities, which are essentially equivalent to users purchasing goods on platforms such as Taobao and Pinduoduo. In this process, the RMB between buyers and sellers is transferred through bank cards, Alipay, WeChat and other channels outside the platform, while the purchased virtual commodities such as USDT and BTC are transferred from the seller's platform account to the buyer's account. Regarding this behavior, the author It is believed that it should not be regarded as illegally engaged in fund payment and settlement business in illegal operations. Article 2 of the "Interpretation on Several Issues Concerning the Application of Laws in the Handling of Criminal Cases of Illegal Fund Payment and Settlement Business and Illegal Foreign Exchange Trading" stipulates that in violation of national regulations, illegal foreign exchange trading activities such as buying and selling foreign exchange or buying and selling foreign exchange in disguised form are carried out, disrupting the order of the financial market, and the circumstances are In serious cases, in accordance with the provisions of Paragraph 4 of Article 225 of the Criminal Law, the offender shall be convicted and punished for the crime of illegal business operation. Although stablecoins such as USDT and USDC are pegged to the U.S. dollar and are minted and issued through the issuer's collateral in the bank, stablecoins cannot be equated with foreign exchange. Article 3 of the "Foreign Exchange Management Regulations" gives a clear definition of foreign exchange. Foreign exchange refers to the following means of payment and assets expressed in foreign currencies that can be used for international settlements: (1) Foreign currency cash, including banknotes and coins; 2) Foreign currency payment certificates or payment instruments, including bills, bank deposit certificates, bank cards, etc.; (3) Foreign currency securities, including bonds, stocks, etc.; (4) Special drawing rights; (5) Other foreign exchange assets. The "Notice on Preventing Bitcoin Risks" issued by the People's Bank of China and other five ministries and commissions clarified that Bitcoin is not issued by the monetary authority, does not have legal and compulsory monetary attributes, and is not a real currency, but a kind of currency. Specific virtual goods. Jurisprudence in some judicial practices also clarifies that virtual currency is a virtual commodity. Buying and selling virtual currency through RMB is equivalent to buying and selling virtual goods. After investors obtain investment income, they withdraw the virtual currency and exchange it back for RMB. There is no foreign exchange purchase or sale in the entire process and evasion of foreign exchange supervision. Therefore, it should not constitute illegal foreign exchange trading.3. Typical cases constituting the crime of illegal business operations. Although stable currencies such as USDT and USDC do not belong to foreign exchange, the perpetrators in the two typical cases of the Supreme People's Procuratorate and the State Administration of Foreign Exchange committed the crime of illegal business operations because of disguised buying and selling of foreign exchange. Why is this? First, let’s sort out the OTC business processes of these two cases. Typical Case 1: Illegal business case of Zhao and others. From the picture above, you can see that Zhao’s team collected dirham cash from customers in Dubai, then paid RMB to the customer’s domestic account, and then used virtual currency as a medium to transfer money through “Dirham” Realizing the return of funds in the form of "Mu-USDT-RMB" is equivalent to using virtual currency as an intermediary tool to realize the exchange of foreign exchange and RMB. It is a disguised purchase and sale of foreign exchange, and will ultimately be held criminally responsible for the crime of illegal business operations. Typical Case 2: Guo Mouzhao and others illegally operate and assist information network criminal activities. In Case 2, the customer placed an order through the payment platform and paid foreign currency to an overseas account controlled by the platform. The platform used foreign currency to purchase USDT, which was illegally used by OTC merchants. The channel converts RMB into RMB and transfers it to the domestic account designated by the customer. The payment exchange platform also uses USDT as an intermediary tool to help customers bypass national foreign exchange supervision and indirectly realize the exchange of foreign currency and RMB, which is a disguised purchase and sale of foreign exchange. The above-mentioned typical cases are the same as the huge underground bank case uncovered by the police in Qingdao, Shandong some time ago. Criminal gangs use virtual currency as a medium for foreign currency and RMB exchange to evade state supervision of foreign exchange and transfer funds for various upstream criminal and money laundering teams. Convertibility poses a major threat to the social and economic order and national financial security. In addition, it can be seen that in several cases, the public security organs cooperated with the foreign exchange management department, and used third-party technology companies to assist in investigating on-chain transaction records, comparing on-chain wallet transaction records with off-chain bank account flows, and fixing the entire illegal exchange. This also reflects the regulatory authorities’ thinking on cracking down on virtual currency OTC businesses. 4. Summary and Suggestions In summary, the author suggests that some entrepreneurial projects under the banner of cross-border payment and payment platforms that support the recharge of virtual currencies such as USDT need to carefully evaluate their own business. If we assist or support users to open various foreign currency debit cards and prepaid cards, users can deposit USDT using RMB, and then exchange it for foreign currency on the platform for payment and consumption. The entire transaction process will realize the exchange of RMB-USDT-foreign currency.This behavior is the same as the above-mentioned typical cases. It uses virtual currency as a media tool to evade foreign exchange supervision. It is very likely to be suspected of buying and selling foreign exchange in disguise, constituting the crime of illegal business operations. Moreover, since these platforms support on-chain recharge of virtual currencies, they need to carry out anti-money laundering compliance reviews on the chain. They use the KYT on-chain fund review tool to provide advance warning for the virtual currencies flowing into the platform and trace their origins afterwards to avoid suspicion to the greatest extent. The illegal and criminal gangsters flow into the platform, increasing the criminal risk of the platform. (WeChat public account: Chu Yan) #USDT #ACH

Recently, this group chat screenshot caused panic among many cryptocurrency investors because some people said that exchanges were freezing accounts of large investors on a large scale. So today we will talk about the freezing of accounts on centralized exchanges and how to unfreeze them.

1. Why can your account be frozen?
1. Technical logic behind the freezing of exchange accounts

Some novice users may ask, isn’t blockchain decentralized? Why are their on-chain assets frozen?
First, the various tokens in the user's registered account on the centralized exchange are hosted in the address of the exchange's private key. When depositing coins, after the user deposits from the external wallet address to the deposit address created by the exchange, the exchange will transfer gas to this address and collect the deposited tokens into the exchange's withdrawal wallet address; when withdrawing coins, the tokens are also withdrawn from the exchange's withdrawal wallet address to the user's specified external wallet address. In the process of user deposit and withdrawal, the private keys of the exchange user's deposit address and withdrawal address are controlled by the exchange.

According to Arkham, the 3,940 BTC deposit this morning came from the US government's Banmeet Singh Seized Funds address bc1qrl0epuu42c7pvzhsrghy7qdkkw5xevazznaprq. Searching for Banmeet Singh on the US Department of Justice website shows that the 3,940 BTC confiscated is related to an Indian drug trafficking organization case.

The general case: Between mid-2012 and July 2017, Indian Banmeet Singh created supplier marketing websites on dark web markets (such as Silk Road, Alpha Bay, Hansa, etc.) to sell controlled drugs including fentanyl, LSD, ecstasy, alprazolam and tramadol. Customers ordered controlled drugs on the marketing website and paid with cryptocurrency. Banmeet Singh then personally shipped or arranged to ship controlled drugs from Europe to the United States via the U.S. Postal Service or other transportation services.