01 Cash trading of USDT is considered illegal

On December 16, 2023, the Guangdong High Court published an article entitled "This kind of price difference cannot be earned!" This is an article about a criminal case that was sentenced in 2022. The article emphasized that U merchants' arbitrage and buying and selling USDT is equivalent to buying and selling US dollars, which is a disguised form of foreign exchange trading. Once the amount exceeds 5 million, it constitutes the crime of illegal business operation.

Prior to this, the cryptocurrency community’s understanding of why virtual currency transactions constitute a criminal offense was that if someone received stolen money during a transaction, they would be presumed to be subjectively aware of it, which would either constitute a crime of aiding and abetting or a crime of concealing it. (This discussion is limited to the crimes that can be committed by pure U merchants)

However, the case results released by the Guangdong High Court mentioned above broke this perception.

The case occurred in February 2022. A was a U trader who often collected U from retail investors and sold the collected U to the acquirer in cash. This time, he made an appointment with the acquirer C to exchange money and U in Zhongshan City, Guangdong Province. Because he would carry a large amount of cash with him after the transaction, A specially hired a bodyguard B. A and customer C exchanged about 814,000 U according to the exchange rate between RMB and USD on that day, totaling RMB 5.1 million. As a result, A and B were arrested by public security officers at the checkpoint on their way back from the rental car.

This is a typical case of a U merchant selling U offline face-to-face with cash. The entire transaction did not involve any stolen money or currency exchange, only the buying and selling of USDT. However, the defendant was convicted of illegal business operation. However, the defendant did not appeal and the judgment has come into effect.

The trial court held that A and B used the form of buying and selling virtual currencies to disguise the foreign exchange trading, which was a serious crime and constituted the crime of illegal business operation. A was the principal offender, and B participated in the whole process as a bodyguard and was aware of it, so he was an accomplice.

Finally, A was sentenced to 8 months in prison and B to 6 months in prison for illegal business operations. The 5.1 million yuan seized in accordance with the law was confiscated, and Li Si's mobile phone was a tool used in the transaction of virtual currency and was confiscated in accordance with the law.

The trial judge held that:

Pursuant to Article 2 of the Interpretation of the Supreme People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Application of Law in Handling Criminal Cases of Illegal Payment and Settlement of Funds and Illegal Foreign Exchange Trading, if anyone engages in illegal foreign exchange trading, such as reselling foreign exchange or trading foreign exchange in disguised form, and disrupts the order of the financial market, and the circumstances are serious, he shall be convicted and punished for the crime of illegal business operation in accordance with Article 225, Paragraph 4 of the Criminal Law.

The defendant A in this case used cash to purchase USDT from retail investors in the "currency circle" at a price lower than the platform price, and then resold it at the dollar exchange rate of the day, earning the difference and making a profit. According to A's confession, in order to purchase USDT and resell it for profit, he even borrowed money from the bank, and the loan amount was as high as millions. This behavior of converting large amounts of funds into US dollars through USDT will inevitably reduce the country's foreign exchange reserves, affect the country's macro-management of foreign exchange, undermine the only legal status of the RMB in the domestic market, and greatly interfere with the effectiveness of foreign exchange management and the stability of legal exchange rates, disrupting the normal order of the financial market. It is a disguised act of buying and selling foreign exchange and should be punished.

02 Buying and selling USDT = buying and selling USD?

I personally believe that there are obvious logical errors in the reasoning of the above applicable laws. I do not agree with the judgment that the act of buying and selling USDT is equivalent to illegal foreign exchange trading.

First of all, we need to clarify what foreign exchange is?

According to Article 3 of the Foreign Exchange Administration Regulations of the People's Republic of China:

The term "foreign exchange" as used in these Regulations refers to the following means of payment and assets denominated in foreign currencies that can be used for international settlement:

(1) foreign currency notes, including paper money and coins;

(2) foreign currency payment vouchers or payment instruments, including bills, bank deposit vouchers, bank cards, etc.;

(3) Foreign currency-denominated securities, including bonds, stocks, etc.;

(iv) Special Drawing Rights;

(V) Other foreign exchange assets.

Obviously, USDT is not included in this list. In addition, there are no laws, regulations, rules, normative documents, etc. in my country that classify USDT as foreign exchange.

In addition, the Notice on Further Preventing and Dealing with the Risks of Speculation in Virtual Currency Transactions (924 Notice), led by the People's Bank of China, the Supreme People's Court, the Supreme People's Procuratorate, the Ministry of Public Security and other ten departments, also defined virtual currency in the "Notice on Further Preventing and Dealing with the Risks of Speculation in Virtual Currency Transactions" (924 Notice) issued on September 24, 2021. The first paragraph of Article 1 of the Notice states:

(I) Virtual currencies do not have the same legal status as legal tender. Virtual currencies such as Bitcoin, Ethereum, and Tether have the following main characteristics: they are issued by non-monetary authorities, use encryption technology and distributed accounts or similar technologies, and exist in digital form. They are not legal tender and should not and cannot be circulated and used as currency in the market.

It is very clear that virtual currency is a specific virtual commodity, not a currency. Since it is not a currency, it is even less likely to be foreign exchange. Therefore, buying and selling USDT is not equivalent to buying and selling foreign exchange in disguise.

03 Does buying and selling USDT constitute illegal business operation?

From the typical foreign exchange cases related to virtual currencies jointly released by the State Administration of Foreign Exchange and the Supreme People's Procuratorate, we can see the following viewpoints:

The first situation where buying and selling virtual currency constitutes the crime of illegal business operation:

Using virtual currencies such as USDT as a medium to realize the exchange between RMB and foreign exchange constitutes the crime of illegal business operation. The perpetrator uses virtual currency as a medium, takes advantage of the special properties of virtual currency to circumvent the state's foreign exchange supervision, and realizes the value conversion between RMB and foreign exchange through the exchange of "RMB-virtual currency-foreign exchange", which is a disguised foreign exchange transaction, and should be held criminally liable for the crime of illegal business operation in accordance with the law.

The second situation where buying and selling virtual currency constitutes the crime of illegal business operation:

If the person who provides virtual currency conspires with the illegal foreign exchange traders in advance, or knowing that others are illegally trading foreign exchange, but still provides substantial assistance to them in converting local currency into foreign currency through trading virtual currency, etc., it constitutes a joint crime of illegal business operation. If the person who provides virtual currency trading services to illegal foreign exchange traders only has a general understanding of the criminal behavior they are helping, but does not specifically understand the crime of helping the illegal foreign exchange trading, they may be held criminally responsible for the crime of assisting in information network criminal activities.

Only in the above two situations can it be determined that it is a disguised foreign exchange transaction, which constitutes an illegal business operation. In the case of the Guangdong High Court mentioned above, A's behavior model is only "RMB-virtual currency", and does not involve the link of exchanging into US dollars. It does not meet the above situation one, and it has nothing to do with situation two.

Secondly, the prerequisite for conviction of the crime of illegal business operation is "violation of state regulations". According to Article 96 of the Criminal Law, violation of state regulations as referred to in the Criminal Law refers to violation of the laws and decisions formulated by the National People's Congress and its Standing Committee, the administrative regulations formulated by the State Council, the administrative measures prescribed, and the decisions and orders issued.

In other words, only those formulated by the National People's Congress, the National People's Congress Standing Committee, and the State Council are considered "national regulations." The "9.24 Notice" was issued by 10 ministries and commissions including the People's Bank of China. The notice is a departmental regulation, not a national regulation. Moreover, the "9.24 Notice" also clearly states that it does not prohibit individual citizens from investing in virtual currencies, which means that buying and selling USDT does not violate national regulations, let alone constitute the crime of illegal business operations.

04 Conclusion

Therefore, I personally believe that buying and selling USDT does not constitute illegal business operations. In the absence of clear laws and regulations, criminal law should be modest, implement the principle of legality, adopt relatively strict standards for conviction, and avoid infringing on the legitimate rights and interests of citizens.

The law should not favor the rich, and the law should not be crooked. This is the motto of the judge in this case, emphasizing that the law should be fair and impartial, and treat everyone equally. However, re-examining this case, is it really so? #美国4月CPI数据回落 $ETH #Meme币你看好哪一个？ $SOL