Before the article begins, a brief introduction: U dealers can operate and it is not illegal, but if they touch the following conditions, they may be monitored by authorities:
Seven common situations:
🔸 Not trading on mainstream exchanges, frequently engaging in over-the-counter transactions.
🔸 Contact through encrypted software to evade regulation.
🔸 The selling price is significantly different from the market price.
🔸 Using someone else's bank card or continuing transactions after the bank card has been frozen.
🔸 No capital investment, buying and selling according to upstream instructions.
🔸 Frequent trading of USDT, large bank transaction flow.
🔸 Establishing a virtual currency studio, frequently transferring money, but the fixed trading partner is involved in money laundering, which could lead to complications.
From the perspective of profit models, the following patterns exist:
🔹 Placing buy and sell orders separately on the same exchange;
🔹 Placing buy and sell orders separately between different exchanges;
🔹 Posting buy and sell information for private transactions in chat software and online communities;
🔹 Transactions through networks, acquaintances, and other offline transactions.
Some domestic users can become certified merchants on platforms like OKX or BN by paying a 10,000 U deposit, which is over 70,000 yuan, after undergoing identity verification, video verification, and binding their phone, email, etc.
Then, on the C2C buy coin page, you can see many merchants with posted orders. By clicking in, you can see a selling price of 7.26 and a buying price of 7.22. Profit of 4 cents per U, which means for 10,000 U, a profit of 400 yuan.
Moreover, during the same period, there are many similar OTC merchants posting orders. The buying and selling prices are set by the merchants themselves, and the U dealer model is a low-margin, high-volume business model. Large OTC merchants can have annual payment settlements in the hundreds of millions, while smaller merchants may also have transaction volumes in the millions. The more the transaction flow, the greater the profit. But with it comes greater risk.
1️⃣ Is it illegal to act as a U dealer, buying and selling U on OKX and BN?
First, to answer: U dealers can operate.
After all, our country does not prohibit transactions between individuals in legal currency and virtual currencies.
After all, clicking the mouse twice to buy and sell can yield tens of thousands or even more per month.
Related legal interpretation:
On September 24, 2021, the People's Bank of China and ten ministries jointly issued the (Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation) (hereinafter referred to as '924 Notice'), warning citizens to guard against financial risks posed by virtual currencies. However, the mere act of trading virtual currencies does not violate relevant laws and regulations in China.
Among them, frequent buying and selling of USDT in OTC may constitute illegal financial activities, but it does not directly constitute a criminal offense.
Therefore, laws and regulations do not prohibit the trading of virtual currencies; where there is no prohibition, there is freedom. The notice from 2021 serves as a normative document and does not prohibit virtual currency trading. In summary, trading virtual currencies is not illegal in China.
2️⃣ How can one legally and compliantly engage in arbitrage for profit?
To earn money legally and compliantly, one must avoid the principle of [subjective awareness].
In the process of trading virtual currencies, whether or not there is auditing is crucial. According to Article 11 of the judicial interpretation of 'aiding and abetting,' the judicial authority recognizes the defendant's subjective awareness, but the defendant's presentation of contrary evidence is an exception. This means that once the defendant presents contrary evidence proving unawareness, it may not meet the subjective constitutive elements of 'aiding and abetting.'
Common situations for determining 'subjective awareness' for 'aiding and abetting':
🔸 Not trading on mainstream exchanges, frequently engaging in over-the-counter transactions.
🔸 Contact through encrypted software to evade regulation.
🔸 The selling price is significantly different from the market price.
🔸 Using someone else's bank card or continuing transactions after the bank card has been frozen.
🔸 No capital investment, buy and sell according to upstream instructions.
🔸 Frequent trading of USDT, large bank transaction flow.
🔸 Establishing a virtual currency studio, frequently transferring money, but the fixed trading partner is involved in money laundering, which could lead to complications.
'Concealing crimes' is stipulated in Article 312 of the Criminal Law, which clearly states that one is aware of criminal proceeds and transfers them.
It is because the transaction received illicit funds, and the behavior did not comply with transaction rules, leading to a determination of transaction abnormality, which in turn presumes subjective awareness. A normal transaction becomes non-compliant, so to earn money legally and compliantly, one must avoid the principle of [subjective awareness].
The laws and regulations clearly outline the rules for presuming 'awareness.' Specifically, regarding virtual currency trading, it should be based on transaction methods, transaction prices, instances of bank cards being frozen, and other abnormal behaviors to determine subjective awareness of the funds being illicit.
🌕 Below, I will clarify how to determine whether there is [subjective awareness] through court rulings:
Whether it is 'aiding and abetting' or 'concealing crimes,' it requires the actor's subjective awareness. If the actor is not subjectively aware, it does not constitute a crime. According to the principle of presumption of innocence, if there is doubt about the elements of the crime, and that fact is crucial to determining the defendant's innocence, a judgment should generally be made in favor of the defendant.
However, it is important to note that there are presumptive rules for 'aiding and abetting' and 'concealing crimes.' One of the presumptions is that if the actor's bank card has been frozen, this may directly imply subjective awareness.
🔹 Related case one: Chen Mou aiding information network crime activities, criminal first-instance judgment, criminal judgment (2023) Ji 8601 Criminal Initial 41:
Basic case facts: In early 2022, the defendant Chen Mou began trading USDT virtual currency (Tether) on the 'OKX platform' to profit from the price difference. During this period, multiple bank accounts under Chen's name were frozen by public security authorities. Between March and April 2022, Chen registered an account on the 'OKX platform' and linked his Zhejiang Deqing Rural Commercial Bank account (card number 6230XXXXXXXX), and his Zheshang Bank account (card number 6223XXXXXXXX), to facilitate payment and settlement for information network crimes through buying and selling 'Tether.' It was found that multiple victims of telecom fraud, such as Wang Mouzhi and Yan Mouming, had their funds amounting to over 375,000 yuan transferred through Huang Mouqing's account into the aforementioned bank accounts.
The court believes: The defendant Chen knew that others were using information networks to commit crimes and still provided a bank card for payment and settlement assistance, and the circumstances were serious. His actions constituted aiding information network crime activities, and the prosecution's charges were established.
🔹 Related case two: Peng Mouqiang concealing and hiding criminal proceeds, criminal second-instance ruling, Cangzhou Intermediate People's Court, criminal ruling.
(2023) Ji 09 Criminal Final 450
Basic case facts: After trial, it was found that from June 2021 to June 11, 2022, the defendant Peng Mouqiang, together with others, invested to establish a studio and organized a team to engage in virtual currency trading using the overseas 'OKX' online trading platform, privately selling virtual currencies with Lin Mouyu, Wu Moufan, and others, using multiple bank cards for transactions. He was repeatedly halted by public security, and despite knowing that the transaction funds might be illegal gains, he still exchanged virtual currencies, helping others transfer illegal funds. A total of 34 bank accounts involved were halted 60 times, with a total halted amount of 3,262,663.61 yuan.
The court believes: The appellant (original defendant) Peng Mouqiang invested in virtual currency trading prohibited by national orders, established a studio, organized a team to engage in virtual currency trading activities using overseas online trading platforms, and used multiple bank cards for transactions. He was repeatedly halted by public security, and despite knowing that the transaction funds might be illicit, he still engaged in virtual currency exchanges, helping others transfer illegal gains. A total of 34 bank accounts involved were halted 60 times, with a total halted amount of 3,262,663.61 yuan, and it was confirmed that 159,000 yuan was involved in fraud. His actions constituted the crime of concealing and hiding criminal proceeds and were of a serious nature.
🌕 Other comprehensive determinations:
In trading virtual currency USDT, the profit margin is often 1-3 cents per USDT. Additionally, abnormal behaviors during transactions could lead to presumption of awareness.
Related case one: Zhong Moufeng's aiding information network crime case, criminal first-instance judgment, Ningxiang City People's Court, (2022) Xiang 0182 Criminal Initial 252.
Basic case facts: In November 2021, the defendant Zhong Moufeng used the 'Telegram' chat software to trade USDT virtual currency with the uplink 'Baggio' (handled in another case). They agreed that Zhong Moufeng would purchase USDT virtual currency on platforms like 'OKX' and then sell it back at a price higher than the purchase price. They transferred funds directly between bank accounts. Zhong Moufeng, aware that the uplink's source of funds was unclear, engaged in multiple USDT transactions with 'Baggio' from November to December 2021, profiting over 30,000 yuan. His bank card was also frozen multiple times.
The court believes: The defense's argument that defendant Zhong Moufeng does not constitute aiding information network crime activities is not accepted upon investigation. There is evidence such as testimony from the defendant in xx agency and in court, WeChat chat records, bank transaction flow, etc. The defendant Zhong Moufeng knew that activities related to virtual currencies were illegal financial activities, and his transaction operation time, transaction prices, and guaranteed profits were unusual compared to normal transactions. Despite his bank cards being frozen consecutively during operations, he still followed the uplink's instructions to carry out transfer transactions, allowing the results to occur. His actions meet the elements for the crime of aiding information network crime activities, hence the defense's argument is not accepted.
🌕 How can one operate as a compliant and legal U dealer?
In the process of trading virtual currencies, whether or not there is auditing is crucial. According to Article 11 of the judicial interpretation of 'aiding and abetting,' the judicial authority recognizes the defendant's subjective awareness, but the defendant's presentation of contrary evidence is an exception. This means that once the defendant presents contrary evidence proving unawareness, it may not meet the subjective constitutive elements of 'aiding and abetting.'
Currently, the main reviews for virtual currency transactions include reviewing the bank transaction flow of the buyer, verifying the buyer's real-name information, requiring the buyer to record a video, and inquiring about the purpose of purchasing USDT, among other substantive audits.
🔹 Firmly refuse business with counterparties known (or highly likely) to be engaged in illegal activities.
🔹 Conduct KYC verification on counterparties, such as identity verification, reviewing bank/Alipay/WeChat transaction records, and a commitment (in writing + video) that this transaction will not be used for illegal activities.
🔹 The acceptance rate should ideally match market rates, and at least should not differ too much (based on general market conditions and trading practices, for example, each transaction should not profit or lose more than 0.5%).
🔹 Keep chat records with counterparties; it is not recommended to use overseas encrypted chat software or self-destructing chat software.
🔹 It is necessary to develop the habit of taking screenshots and recording videos every month to prevent being caught off guard.
🔹 When receiving U, avoid receiving black U, which is U from illegal sources.
🔹 Finally, avoid using U as a medium to indirectly swap foreign exchange and RMB. Such actions may be identified by judicial authorities as disguised foreign exchange trading, which could lead to illegal business charges.
🔹 When selling coins, ensure thorough vetting. Be cautious when approached by individuals outside the crypto community for buying U for purposes other than investment to avoid getting involved in criminal cases.
As a U dealer, it is relatively easy to violate laws such as aiding and abetting, concealing crimes, illegal business operations, fraud, etc. It is reminded that U dealers should pay attention to details to avoid losing big over small matters.
