Author: Lawyer Shao Shiwei

Buying and selling virtual currency to make a profit, yet being investigated for receiving foreign exchange funds—this article stems from a real case handled by Lawyer Shao, where an OTC merchant was accused of illegal business operations and concealing and disguising proceeds of crime due to off-exchange trading of USDT.

In this case, the party had been engaged in the business of buying and selling USDT for profit for a long time. During a normal transaction, they unfortunately received Renminbi funds transferred from an upstream underground bank for illegal foreign exchange transactions for others. Through big data comparison, this fund was identified as foreign exchange funds.

The question arose: does simply earning a profit from virtual currency trading mean that the receipt of foreign exchange remittances obligates the party to bear criminal liability for the upstream illegal foreign exchange trading?

More notably, there were differing opinions within the investigation unit on whether to apply the illegal business operation crime or the crime of concealing and disguising proceeds of crime.

Lawyer Shao's view is that such cases cannot be simply classified and must analyze the actor's position, role, and subjective knowledge level in layers. In specific cases, there is still room for negotiation.

1, Does receiving foreign exchange funds automatically constitute illegal business operations?

1. Why do judicial authorities tend to classify it as illegal business operations?

The logic of the investigation unit is that since the upstream has been identified as engaging in illegal foreign exchange trading activities, and the U merchant received funds from that chain during the transaction process, they objectively played a role in "providing an account to assist in fund circulation," and thus should be recognized as a joint crime of illegal foreign exchange trading.

However, Lawyer Shao argues that the key issue is: even if the upstream criminal facts can be ascertained, it cannot directly infer that the U merchant constitutes a joint crime. It is necessary to analyze their position, role, and subjective awareness level in the entire fund chain.

2. Examining the logic of decriminalization in typical cases of illegal business operations

This issue has been addressed in a very typical layered processing sample provided in theMay 2025, when the Supreme People's Procuratorate and the State Administration of Foreign Exchange jointly published typical cases of criminal enforcement in the foreign exchange field.

In the case of Chen Mouhong and Wu Mourong suspected of illegal business operations, the judicial authorities ultimately adopted different handling methods for Chen Mouniao and Wu Moulun (who have a marital relationship, referred to as A) and Chen Mouhong and Wu Mourong (who are relatives of A, referred to as B).

Case Summary:

A, under individual businesses registered under A and B, issued multiple personal foreign exchange settlement accounts without actually engaging in import and export foreign trade, provided the accounts for underground bank groups to receive foreign exchange in the form of fictitious trade, and after the bank's settlement, transferred Renminbi to the domestic accounts designated by the underground bank, involving an amount of 560 million Renminbi, earning over 760,000 Renminbi from service charges and rebates from bank settlements.

In February 2024, the Zhejiang police transferred all four individuals to the procuratorate on suspicion of illegal business operations. Ultimately, the court ruled that A constituted illegal business operations (with Chen Mouniao sentenced to four years and eight months in prison).

However, for B, the procuratorate believed that although they provided an account, they could not prove direct involvement in illegal foreign exchange trading activities, deciding not to prosecute B. Although B's settlement amount reached over 260 million, only a fine of 45,000 Renminbi was imposed on the two.

Analysis:

Why is the handling of the same act of providing accounts to receive underground bank funds so vastly different?

The reason lies in the differing determinations by judicial authorities regarding the subject's level of subjective knowledge, whether they directly participated in the foreign exchange operation, and whether they actually profited from it.

In this case, A directly communicated with the underground bank, actively participating in the fictitious trade background, being clearly aware of the fund's purpose, and obtaining stable profits; while B, although providing accounts, did not directly participate in the core links of the foreign exchange chain, nor was evidence provided to show clear profit, and thus was not identified as constituting illegal business operations.

Therefore, referring to the above case, in the buying and selling of virtual currency during transactions with others, if the funds received are foreign exchange amounts transferred from an upstream underground bank, it needs similar layered determination to assess whether it constitutes illegal business operations:

In practice, U merchants do not often directly connect with their clients; there are often intermediaries involved between the actual buyers and sellers. This lack of direct connection creates information gaps, leading U merchants to receive money that is actually foreign exchange funds flowing from upstream transactions when collecting Renminbi.

Thus, in this situation, in the absence of evidence proving that U merchants knowingly provided assistance in illegal foreign exchange trading, their position and role are similar to B in the aforementioned case, and they should not be charged with illegal business operations. The judicial authority should pursue accountability with the aforementioned intermediaries who might be involved in jointly committing illegal business operations with the underground bank.

Moreover, the above cases show that whether there is a profit is also a key point for judicial authorities to presume the subjective knowledge of the party involved in illegal business operations.

3. Is "price profit" equivalent to "profit" under illegal business operations?

Then, can the price difference earned by U merchants from buying and selling virtual currency be considered "profit"?

Lawyer Shao believes that U merchants' price differences earned from buying and selling virtual currency cannot simply be equated with the exchange rate profits in illegal foreign exchange cases. Although both involve the forms of "buying low and selling high" and "earning price differences," they have fundamental differences in legal nature and substantive actions. The key lies in the specific trading behavior of the case at hand, whether it aims for investment arbitrage or provides disguised foreign exchange services for others.

If the actor aims to profit from the market price difference of the virtual currency itself and independently conducts low buying and high selling, where profits are derived from the price fluctuations of the virtual currency market, and the funds conduct a one-way cycle of "legal currency → virtual currency → legal currency" within their controlled accounts, it counts as legitimate personal investment arbitrage.

However, if the actor uses virtual currency (like USDT) as a medium and tool to provide services for exchanging Renminbi for foreign currency for others, realizing cross-border fund transfers, where profits come from exchange rate differentials, service charges, or fees, essentially this amounts to income from disguised foreign exchange trading services, helping upstream crime to form a cross-border "Renminbi in the country → virtual currency → foreign currency overseas" or reverse cross-border "matching" exchange circlet, then it is suspected of illegal business operations related to illegal foreign exchange trading.

2, Conversely, could it constitute the crime of concealing and disguising proceeds of crime?

Even if in this specific case, it cannot be proved that U merchants had subjective awareness of unlawful foreign exchange trading upstream, making it difficult to establish the illegal business operation charge, could judicial authorities "fall back" to evaluate their actions under the crime of concealing and disguising proceeds of crime?

According to the latest judicial interpretation on concealing crimes effective from August 26, 2025, "proceeds of crime" is clearly defined legally: it refers to funds, properties, or other financial benefits obtained through crime.

U merchants are "unluckily" receiving foreign exchange funds from upstream exchanges during virtual currency transactions, which are often seen by judicial authorities as "providing funds accounts" to assist upstream in transferring funds. However, determining guilt or innocence requires returning to two core premises: whether the nature of the funds is clear and whether the actor is "aware."

1. Have the funds been confirmed to be "proceeds of crime"?

The premise of the crime of concealing and disguising proceeds of crime is the existence of "proceeds of crime." If a complete evidence chain cannot be formed to prove that a specific payment arises directly from upstream criminal activities, relying solely on "account flow anomalies" or "the overall amount involved is huge" is insufficient to assume that a specific transaction amount is considered illegal proceeds.

In practice, underground bank-type cases often involve cash flows of several hundred million or even tens of billions, leading to severe mixing of funds. If there is no correlation established to specific currency exchangers, specific criminal facts, and corresponding transfer actions, merely using "abnormal data comparisons" as the basis leaves room for dispute over the evidence layers.

2. How to determine "awareness"?

According to the latest judicial interpretation, "awareness" includes both actual knowledge and what one should have known. However, "should have known" needs to be judged comprehensively based on the information the actor accessed, transaction abnormalities, fund scales, professional background, and other factors.

If the U merchant was engaged in normal peer-to-peer USDT transactions with the transaction price matching market conditions, and the counterpart did not exhibit abnormal behavior, and funds did not show significant fragmentation, redirection, or avoidance of regulatory characteristics, then merely discovering post-factum that the funds came from an underground bank chain does not automatically imply subjective awareness.

Criminal law focuses on the cognition state at the time of action, not on outcomes deduced afterward.

3. Does high-frequency trading necessarily imply generalized intent?

However, the situation in judicial practice is often not as "ideal." In judicial practice, U merchants engaged in large and high-frequency legal currency transactions already face high legal risks. If they continuously conduct USDT and Renminbi exchange operations, especially with counterparts often being unidentified or involved in complex financial transactions, judicial authorities may likely presume "generalized intent" regarding the illegal source of the funds based on their professional experience. Thus, defense lawyers must dissect the specific circumstances of the case to address:

Are there any abnormal transaction characteristics?

Are there any overwhelmingly high profits compared to market levels?

Are there any proactive actions to evade regulations?

Has the individual accessed information sufficient to generate significant suspicion?

Only on the basis of clarifying these issues one by one can a lawful evaluation of the level of "awareness" be made.

3, In Conclusion

Simply buying and selling virtual currencies for profit, under current policies, although not prohibited, has not been recognized as a criminal act. The risk is genuinely concentrated on the source of the funds and the role of the transactions within the overall chain.

Once funds enter an underground bank or are involved in gambling, fraud, or illegal foreign exchange chains, even if it is merely completing a point-to-point transaction in form, it could become ensnared in criminal cases.

Therefore, the legal judgment of such cases typically does not depend on transaction appearances but rather on a comprehensive evaluation of the evidence system concerning the actor's position, role, and level of "awareness." The same trading model might yield markedly different outcomes under varying evidence systems.

Thus, relying solely on the individual's subjective claim of "ignorance" is insufficient for judgment. Particularly in high-value and frequency trading scenarios, judicial authorities tend to examine whether one "should have known." The assessment of case nature should be conducted with careful analysis of the specific transaction background and evidence materials.

Special Statement: This article is an original piece by Lawyer Shao Shiwei, representing only the author's personal view and not constituting legal consultation or legal opinion on specific matters.

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