Today, I believe this is a topic that every u-merchant is concerned about. The once bustling XX Tree Agreement, XX Inn, and X o'clock sleepless community are now deserted, and many bigwigs are "involved in illegal activities".
On June 12, the Shanghai People's Procuratorate issued the "2023 Shanghai Financial Procuratorate White Paper", which talked about the renewal of foreign exchange and illegal payment and settlement crimes, and the risk of using "virtual currency" to transfer assets across borders. Some criminal organizations have begun to collude with crimes at home and abroad to evade criminal crackdowns and investigations. They use regulatory rules or industry regulatory "gaps" to commit crimes, mix financial and non-financial means, and try to gradually form a self-circulating criminal closed loop.
This white paper also specifically analyzes the legal supply and strengthening of supervision of virtual digital currencies: my country has always maintained a strong regulatory posture for "virtual currency", but in practice, there are still practical problems such as the difficulty of criminal justice in locating related criminal activities, difficulty in collecting evidence and monitoring the flow of funds involved in the case. There are disputes over the compulsory measures, audit assessment, value identification, and disposal execution of the "virtual currency" involved in the case. However, I hope that U merchants will not be misled by the descriptions of "difficulty in locating", "difficulty in collecting evidence and storing evidence", and "controversy". Although it is difficult and controversial, it has been fought. The Shanghai judicial authorities have always been ahead of the country in the understanding and crackdown on virtual currency.
According to public reports, in August last year, Wailian Company, the largest immigration company in Shanghai, was investigated and compulsory measures were taken against its actual controller He. The successful woman who was awarded the "International Leadership Award" by the Eisenhower Foundation in 2014 and appeared on the big screen in New York's Times Square was arrested. The crime involved was illegal business operation, which actually refers to illegal foreign exchange. There is no threshold to be an immigration company. The ability depends on how to help customers get their money out. Today, exchanging virtual currency for foreign currency has long been a well-known "secret". There is nothing clever about the practices of the external liaison company. Therefore, the arrest of He Mou will inevitably involve many U merchants.
The criminal methods are iterating, and the case-handling capabilities and methods of the judicial organs are also iterating. The external liaison company was arrested, and the underground money houses were arrested. In the process of handling the case, the judicial organs will definitely have a new understanding of how to crack down on currency-related cases. Once the judicial organs figure out how this industry is played, this way of playing will no longer work. What's more, the technical content is not high, the scope is relatively wide, and it also touches the bottom line of financial security. It is bound to usher in a wave of special crackdowns. This is why there are more and more virtual currency-related illegal cases recently. The issue of foreign exchange in the white paper released by the Shanghai Procuratorate refers to this case.
The whole country is fighting, not just Shanghai. In April this year, the Beijing police uncovered a money laundering case of over 2 billion yuan. This case was discovered during the investigation of a case of infringement of citizens' personal information. Among the three people arrested by the Haidian police, two were represented by our team. Although the news headlines all use the word "money laundering", the charges for criminal detention and approval of arrest are all illegal business operations, which still involve the issue of illegal currency exchange. In a currency-related case in Chongqing, other criminal acts were initially investigated, and then the issue of illegal currency exchange was discovered, and currency exchange was made a key investigation. There is also a large illegal business case under investigation in Zhejiang... This is just the illegal currency exchange case involving non-Africa that I have represented or learned about, and there will definitely be more in reality.
Illegal business cases have always been criticized as pocket crimes. At the same time, due to the legal attributes of confiscation of illegal gains and imposition of one to five times the fine, it is also a common charge for profit-seeking law enforcement in some regions. However, the cases discussed today are all cases involving illegal currency exchange, "serious enough cases." These cases all have one thing in common. After much investigation, they were eventually traced back to U-merchants. In the past, most of the cases involving U-merchants were convicted and punished for crimes such as aiding and concealing, and no further investigation was conducted. However, judging from recent cases, if the investigative authorities discover that U-merchants have touched foreign exchange, they will focus on investigating the illegal exchange of foreign exchange and eventually investigate the entire exchange chain.
When it comes to virtual currency exchange involving illegal activities, the Zhao Dong case cannot be avoided. Analyzing individual cases can effectively explore the boundaries of virtual currency involving illegal activities. The notice shows that from February 2019 to April 2020, Zhao organized Zhao Moupeng, Zhou Moukai and others to provide exchange and payment services for foreign currency dirhams and RMB in the UAE and China. The gang received dirhams in cash in Dubai, UAE, and transferred the corresponding amount of RMB to the other party's designated domestic RMB account. They then used dirhams to purchase Tether (USDT, a stablecoin pegged to the US dollar) locally, and then illegally sold the purchased Tether through domestic gangs to regain RMB, thus forming a circulation of funds at home and abroad.
Regarding Zhao Dong's case, I wrote a melon-eating article based on the content of the notice and some materials disclosed by netizens. Friends who are interested can take a look. Zhao Dong's pig teammates, after the article was published, many friends who are familiar with the inside story came to me and said "the guess is really accurate". According to the content of the notice, we can see that if it involves the full chain service of RMB-virtual currency-foreign currency, it actually uses Tether as a medium to realize the currency value conversion between foreign currency and RMB, which is illegal foreign exchange trading and constitutes the crime of illegal business operation.
Some friends may ask, I am not a full-chain legal service, I just do virtual currency acceptance business, is there any non-risk involved? My answer is: Yes. The "2023 Shanghai Financial Procuratorate White Paper" specifically talks about: Financial criminals further increase the difficulty of fund monitoring, tracking and penetration by deliberately increasing criminal links and extending the criminal chain. In other words, the judicial authorities will believe that the virtual currency acceptor knows or should know that the ultimate purpose of the counterparty is to illegally exchange foreign currency, but still provides virtual currency acceptance business. Although there is no closed loop of RMB-virtual currency-foreign currency, it will also be identified as an accomplice to the crime of illegal business operation.
Of course, if there is evidence that you clearly know that the other party has no intention of exchanging foreign currency and is only exchanging virtual currency for legal currency, it does not constitute the crime of illegal business operation. In the case of a virtual currency-related illegal case in Shanghai that I represented, the procuratorate deducted the investment amount of the virtual currency fund invested in legal currency, the investment amount of legal currency invested and settled in currency standard, and the acceptance amount clearly traded in legal currency when transferring the case for review and prosecution, and did not prosecute, which also confirms the point I mentioned earlier.
This reminded me of the illegal business operation case in Dapu, Guangdong. When the case was reported online, I thought it was ridiculous and wrote two short articles about it: Again! Is buying and selling virtual digital currency equivalent to buying and selling foreign exchange? The biggest bug in the Guangdong High Court case, it’s okay to buy coins when it’s not okay to sell them? The biggest bug in the Guangdong High Court case, it’s okay to buy coins when it’s not okay to sell coins? , offline RMB cash OTC transactions do not involve foreign exchange and should not be considered as illegal business operations. However, I did not expect that the case was also reposted by the Supreme People's Procuratorate's official account, and the judge said in his explanation: According to the confession of the principal offender in this case, he even borrowed money from banks in order to purchase Tether and resell it for profit, and the loan amount was as high as millions. This large amount of funds converted into US dollars through Tether will inevitably reduce the country's foreign exchange reserves, affect the country's macro-management of foreign exchange, undermine the only legal status of RMB in the domestic market, and greatly interfere with the effectiveness of foreign exchange management and the stability of legal exchange rates, disrupt the normal order of the financial market, and are disguised foreign exchange transactions, which should be punished.
I really want to ask the presiding judge of this case in person, and ask him to tell me, according to the description of this case, where is the behavior of "converting into US dollars through Tether"? Why will the conversion of Tether into RMB inevitably reduce the country's foreign exchange reserves? I do not deny that it interferes with the effectiveness of foreign exchange management, but how to interfere with the stability of legal exchange rates? There is no problem with the one-to-one exchange of Tether and US dollars, but it does not mean that exchanging RMB for Tether is equivalent to exchanging US dollars, and exchanging Tether for RMB does not involve a reduction in my country's foreign exchange reserves. Of course, we do not know whether there are other hidden circumstances in this case. If the virtual currency exchanged by the defendant is exchanged for foreign currency abroad, or reversely exchanged, and the defendant is aware of it, then there is no problem in convicting him of illegal business operations. Otherwise, I still think this is a wrong case.
Virtual currency illegal exchange involves non-Hong Kong. From the perspective of evidence for the verdict, there should be electronic evidence such as domestic RMB transfer records, chat records (including domestic payment accounts, transaction time, total transaction amount, purchase exchange rate, etc.), overseas account transfer records, witness testimony of currency exchangers and confessions of defendants. Two typical cases selected by the State Administration of Foreign Exchange and the Supreme People's Procuratorate also include targeted inspections of seized computers, mobile phones and other electronic data carriers, determining the address of virtual currency wallets, and then comparing the transaction records of virtual currency wallets with bank account flows to improve the capital flow link of "foreign currency-virtual currency-RMB".
However, in practice, the standard of evidence for such cases is constantly decreasing. In some cases, there is indeed no condition to analyze the flow of virtual currency, and it is impossible to form the above closed loop. However, if there is evidence to prove the path of RMB-foreign currency, that is, the receipt of funds in domestic accounts, the exchanger proves that the domestic transfer is for exchange, and submits the record of overseas account entry, even if there is a so-called middleman, the exchanger and the defendant do not know each other and have no connection, the court can also make a determination based on this.
The decline in the standard of evidence has caused a sharp increase in the risk of U business involving non-currency, and many people have been wronged. For example, if the investigation agency finds that there are ten transactions, only one or two of which have sufficient evidence of illegal exchange, then all ten transactions may be considered as exchange; in some cases, the overseas transfer account has nothing to do with the defendant, and the procuratorate and the court do not distinguish (objectively, they have no ability to distinguish). In practice, it is common for A to buy U from B and specify C to pay, and B cannot know that A is exchanging currency for C. Whether such a simple matter can be adopted by the procuratorate and the court depends entirely on whether the undertaker is responsible.
U business non-risk is difficult to avoid, and there is no way to prevent it. Even if you are cautious, you can't know which day, which place, and which case will implicate you. The real prevention is not to discuss with a lawyer whether it constitutes a crime, that is a later matter. Before that, you should consider how to be investigated. Regarding the illegal activities of virtual currency, I have written many articles in my public account. How to defend the ICO of the project party suspected of illegal business operation? If the ICO is simply accepted without touching foreign exchange, it is not enough for the requirements of the prior law or the crime of illegal business operation. However, if foreign exchange is involved, many cases are sentenced according to "disguised foreign exchange trading" in practice. Even if you choose to defend innocence, it is a long and painful process. It takes extraordinary mental strength to survive to the end. If it really constitutes a crime, this persistence is meaningless.
U merchants are involved in illegal activities, and overseas licensed acceptors are more risky. Holding a foreign license and doing domestic business is equivalent to not holding a license. In the past, the fight against U merchants was mainly against those who knew that they were black money but still accepted. Later, it developed to those who might know that they were black money but still accepted. Now they are starting to fight against those who get the money out. Therefore, the business that seemed to have a compliant coat before is actually the focus of the crackdown at this stage. As for the evidentiary effect of overseas transfer records, the absence of written testimony by the exchanger, the illegal acquisition of overseas chat records, and the identification of electronic data, there is almost no effect. From the perspective of criminal jurisdiction, as long as the person exchanging currency has domestic transfers, even if the person is not in the country, the country still has jurisdiction.
People in the entire currency exchange chain may face criminal prosecution, even if there is no profit. The "2023 Shanghai Financial Procuratorate White Paper" talks about strengthening foreign-related rule of law research and improving regulatory integration, improving the connection mechanism between administrative law enforcement and criminal justice in the financial field, and jointly governing the financial ecological environment. Further increase the intensity of crackdowns and punishments in key areas, and increase the prosecution of related personnel such as funds, technology, and intermediaries in the financial crime chain. Those who provide financial assistance will be beaten, those who provide technical support will be beaten, and those who introduce business may be beaten even if they don’t make money, so don’t help with everything. In short, except for those who are physically abroad, the rest will be beaten.
Summary: One-way exchange of virtual currency for legal currency does not constitute a crime; if it involves the entire chain or is known to the chain, it constitutes a crime; overseas licensed acceptors cannot be exempted from liability; everyone in the chain is at criminal risk; if a not guilty defense cannot be achieved, attention should be paid to the reduction of the amount; attention should also be paid to the defense of profit, because a fine of one to five times will be imposed; considering how to prevent it, it is better not to do it.
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