HOW DO OTC TRADERS STEP INTO THE TRAP OF "ILLEGAL BUSINESS"

Submitted by: Shao Shifu

Buying and selling virtual currency makes a difference, but being filed for receiving funds exchanged — — This document originates from a real case handled by a lawyer in which an OTC dealer was charged with illegal dealings and the concealment of the proceeds of crime on charges of outside USDT。

IN THAT CASE, THE PARTIES HAD BEEN ENGAGED IN A LONG-TERM TRADE-OFF IN USDT AND, IN A NORMAL TRANSACTION, HAD UNFORTUNATELY RECEIVED FUNDS OF THE RENMINBI TRANSFERRED FROM THE UPSTREAM UNDERGROUND BANK FOR THE ILLEGAL EXCHANGE OF FUNDS. THE FUNDS WERE IDENTIFIED AS FUNDS FOR EXCHANGE, BASED ON SIGNIFICANT DATA。

The question arises as to whether the mere earning of a virtual currency difference, as a result of remittances in exchange, entails criminal liability for the illegal upstream foreign exchange trade

Of even greater concern is the disagreement within the unit regarding the applicability of the offence of illicit dealing or the concealment of proceeds of crime。

Counsel is of the view that such cases cannot be characterized in a simple manner and that the status, role and subjective knowledge of the perpetrator must be determined at a hierarchical level. In specific cases, there is still room for manoeuvre。

1Are the receipt of funds for exchange, of course, an offence of illegal dealing

1. Why the judiciary prefers to be treated as an illegal business offence

The logic of the case unit is that, since illegal foreign-exchange transactions have been found to have taken place upstream, U-businesses have taken funds from the chain in the course of the transaction and have objectively acted as “ providing an account to assist in the flow of funds ” the role should therefore be recognized as a joint offence for the offence of illegal foreign-exchange-type illegal operations。

IN COUNSEL ' S VIEW, HOWEVER, THE CRUX OF THE MATTER IS THAT, EVEN IF THE FACTS OF THE PREDICATE OFFENCE CAN BE ASCERTAINED, IT CANNOT AUTOMATICALLY BE ASSUMED THAT U-BUSINESS CONSTITUTES A JOINT OFFENCE. ITS POSITION, ROLE AND SUBJECTIVE PERCEPTION THROUGHOUT THE FINANCIAL CHAIN MUST BE SPECIFICALLY ANALYSED。

2. The logic of the offence of illicit dealing in typical cases

That's the questionIn May 2025, the Supreme People ' s Procuratorate, jointly with the National Foreign Exchange Administration, issued a typical case of a reverse line of execution in the foreign exchange fieldIn fact, a very typical tiered treatment sample has been given。

IN THE CASE OF CHEN HOANG AND WU HOON INVOLVED IN ILLEGAL BUSINESS, THE JUDICIARY EVENTUALLY TOOK A DIFFERENT APPROACH TO CHEN HOON AND WU HOON。

Brief information:

A, IN THE ABSENCE OF ANY ACTUAL FOREIGN TRADE ACTIVITY INVOLVING THE IMPORT OR EXPORT OF FOREIGN TRADE, INDIVIDUAL BUSINESSES UNDER A AND B HAVE OPENED A NUMBER OF PERSONAL FOREIGN EXCHANGE CLEARING ACCOUNTS IN THE FORM OF FICTIONAL TRADE, WHICH ARE PROVIDED TO UNDERGROUND MONEY DEALERS FOR THE PURPOSE OF RECEIVING FOREIGN EXCHANGE, AND, AFTER BANK TRANSACTIONS, THE RENMINBI IS TRANSFERRED TO A DOMESTIC ACCOUNT DESIGNATED FOR THAT PURPOSE, IN THE AMOUNT OF RMB 560 MILLION, FROM WHICH A FEE IS COLLECTED AND A RETURN FROM THE BANK。

IN FEBRUARY 2024, THE ZHEJIANG PUBLIC SECURITY SERVICE REFERRED THE FOUR INDIVIDUALS TO THE PUBLIC PROSECUTOR ' S OFFICE ON SUSPICION OF ILLEGAL BUSINESS. IN THE END, THE COURT RULED THAT A CONSTITUTEDIllegal dealing (of which Chen was sentenced to four years and eight months in prison)I don't know。

HOWEVER, WITH REGARD TO B, THE PUBLIC PROSECUTOR ' S OFFICE CONSIDERED THAT IT HAD PROVIDED AN ACCOUNT BUT COULD NOT PROVE THAT IT WAS DIRECTLY INVOLVED IN THE ILLEGAL TRADE IN FOREIGN CURRENCY AND THAT IT HAD DONE SONo prosecutionDECISION. ALTHOUGH THE AMOUNT OF THE B REMITTANCE AMOUNTED TO MORE THAN $260 MILLION, IT RESULTED IN A TOTAL FINE OF $45,000 FOR THE TWO INDIVIDUALS。

Analysis:

Why also provide an account to receive money from the underground, but the results are so uneven

The reason for this is that the judicial authorities determine whether the perpetrator has subjective knowledge, whether he is directly involved in the exchange and whether he actually benefits from it。

IN THAT CASE, A HAD A DIRECT CONNECTION WITH THE UNDERGROUND MONEY STORE, HAD TAKEN THE INITIATIVE TO ENGAGE IN A FICTIONAL TRADING CONTEXT, HAD A CLEAR UNDERSTANDING OF THE USE OF THE FUNDS AND HAD A STEADY RETURN; AND B HAD NOT BEEN DIRECTLY INVOLVED IN THE EXCHANGE OF THE CENTRE OF THE CHAIN OF EXCHANGE, ALTHOUGH IT HAD PROVIDED AN ACCOUNT, NOR HAD IT PROVED THAT THERE WAS A CLEAR PROFIT, AND HAD NOT BEEN FOUND TO CONSTITUTE AN OFFENCE OF ILLEGAL DEALING。

Thus, with reference to the above-mentioned cases, it would also be necessary to determine, at a hierarchical level, whether the money collected in the course of trading in a virtual currency with another person would constitute an offence of illegal dealing if it was a transfer of money from an upstream underground bank:

IN PRACTICE, U-BUSINESSES DO NOT IN MANY CASES INTERACT DIRECTLY WITH THEIR CLIENTS, AND THE ACTUAL BUYERS AND SELLERS TEND TO HAVE THE INVOLVEMENT OF INTERMEDIARIES, PRECISELY BECAUSE THE SELLERS AND SELLERS DO NOT HAVE A DIRECT INTERFACE AND THERE IS A LACK OF INFORMATION, WHICH ALSO LEADS U-BUSINESSES TO COLLECT FUNDS ILLEGALLY EXCHANGED IN UPSTREAM TRANSACTIONS WHEN RECEIVING THE RENMINBI。

IN THIS CASE, THEREFORE, THE U-BUSINESSE ' S STATUS IS SIMILAR TO THAT OF B IN THE ABOVE-MENTIONED CASE AND SHOULD NOT CONSTITUTE AN OFFENCE OF ILLEGAL DEALING IN THE ABSENCE OF EVIDENCE THAT THE U-BUSINESSE IS STILL PROVIDING ASSISTANCE IN THE EVENT THAT HE OR SHE IS AWARE THAT ANOTHER PERSON IS INVOLVED IN THE ILLEGAL TRADE IN FOREIGN CURRENCY. WHAT IS TRULY RESPONSIBLE FOR THE JUDICIARY IS THE FACT THAT THE ABOVE-MENTIONED INTERMEDIARIES MAY BE SUSPECTED OF ACTING ILLEGALLY IN CONJUNCTION WITH THE UNDERGROUND BANK。

Moreover, as can be seen from the above cases, the existence of profit is also a key point in the judicial presumption of subjective knowledge of the perpetrator in the offence of illicit dealing。

3, “ margin gains & rdquo; equal to &ldquo in the offence of illegal dealing; profit &rdquo

So, can the difference that U-business earns from buying and selling virtual currency be recognized as “ profit &rdquo

In counsel ' s view, the difference in the price earned by U-business buying and selling virtual currency cannot be simply equated with the exchange rate differential gains in the case of illegal foreign exchange. While both relate to “ low-purchase high-sale ” and “ the form of earning the difference ” there are substantive differences in legal nature and conduct. The key is case-by-case transactional behaviour, whether to invest in arbitrage or to provide disguised exchange services for others。

if the perpetrator is seeking to earn the market differentials of the virtual currency itself, he or she sells it independently, with profits derived from price fluctuations in the virtual currency market, and the funds are arbitrated with legal personal investment in accounts under his or her control & ldquo; french & rarr; virtual & rarr; french & rdquo; and one-way cycles。

However, if the perpetrator uses a virtual currency (e.g. USDT) as a medium and tool to provide exchange services between the renminbi and the foreign currency to achieve cross-border transfer of funds, the profits are derived from exchange rate differences, fees or service charges, which are in essence paid for the business of buying and selling foreign currency in a disguised manner, helping the upstream substance to form & ldquo; the domestic renminbi & mdash; the virtual currency & mdash; the foreign currency & rdquo; or the reverse cross-border & ldquo; to knock on ” to exchange the remittance ring to help cross-border movement of funds, the offence of illegal dealing in the foreign exchange category is suspected。

2Would it constitute a crime to conceal the proceeds of crime

Even if, in individual cases, it is not possible to prove that U-businesses have subjective knowledge of the illegal sale of foreign currency upstream, which makes it difficult to establish that they constitute an offence of illicit dealing, can the judiciary & ldquo; turn back to the second & rdquo; and instead evaluate their conduct with the crime of concealing or concealing the proceeds of crime

according to the latest judicial interpretation of the crime of concealment, which has been in force since 26 august 2025, it is legally applicable to &ldquao; proceeds of crime &rdquao; with a clear definition: proceeds of crime, stolen goods or other property interests。

U-businesses are in the process of trading virtual currency “ unfortunately ” receiving upstream money swaps, which are often seen as &ldquo from the perspective of the judiciary; providing finance account ” and acting to help move funds upstream. However, conviction and non-offence require a return to two core premises: whether the nature of the funds is clear, whether the perpetrator is “ and knowing &rdquo。

1 are the funds certified as “ proceeds of crime &rdquo

the crime of concealing or concealing the proceeds of crime presupposes the existence of “ the proceeds of crime ” if a complete chain of evidence is not established that a particular transaction is a direct result of the predicate offence, it is based only on “ account flow abnormalities ” or “ the overall chain involves a large amount of money ” and it is not sufficient to automatically assume that a particular transaction is the proceeds of crime。

in practice, underground money estate cases often involve hundreds of millions, if not billions, of water, which is highly mixed. if it is not possible to match the link between the specific exchanger, the specific criminal fact and the specific transfer, it is based only on “ big data against anomalies ” there is still room for controversy at the level of evidence。

2. how to identify “ know &rdquo

according to the latest judicial interpretation, “ knowing ” both true and ought to know. however, “ &rdquo should be known; need to be judged in combination with the content of the information contacted by the perpetrator, the unusual circumstances of the transaction, the size of the funds, and the professional background。

IF U-BUSINESSES AND THEIR COUNTERPARTIES ENGAGE IN NORMAL USDT TRANSACTIONS, THE PRICE OF THE TRANSACTION IS IN LINE WITH MARKET CONDITIONS, THE OTHER PARTY DOES NOT EXHIBIT UNUSUAL BEHAVIOUR, AND THE FUNDS DO NOT APPEAR TO BE CLEARLY DIVIDED, BYPASSED, ETC., IN WHICH CASE THE MERE DISCOVERY OF FUNDS FROM THE UNDERGROUND MONEY CHAIN DOES NOT AUTOMATICALLY INVERSE THEIR SUBJECTIVE KNOWLEDGE。

The criminal law evaluation emphasizes the state of perception of the act at the time, rather than its subsequent consequences。

3. Whether HF transactions are necessarily presumed to be intentional

However, the situation in judicial practice is often less favourable than in “ ideal &rdquao; and in judicial practice, U-businesses engage in large and high-frequency transactions in French currency are themselves at higher legal risk. If the U-businesses are engaged in the exchange of USDT and the renminbi for a long period of time, especially when the counterparties are often unidentified and have complex financial transactions, it is likely that the judicial authorities, taking into account their professional experience, will assume that the illegal nature of the source of funds is & ldquo; the general intent & rdquo; This therefore requires defence counsel to be decomposed in individual cases, taking into account the particular circumstances of each case:

Are there unusual transaction characteristics

Are there premiums significantly higher than the market

Is there an active circumvention of regulation

Has the perpetrator been exposed to information sufficient to raise a high level of suspicion

“ knowing ” the extent to which ” can be legally evaluated only on the basis of the clarity of each of these issues。

3At the end

The mere purchase or sale of a virtual currency to earn a differential price is not prohibited under the current policy and is not criminalized. Risks are really concentrated on the role of sources of finance and transactions in the overall chain。

Once the money enters the underground money store, engages in gambling or illegally exchanges the criminal case may involve even formalization of a point-to-point transaction。

thus, the legal judgement in such cases usually does not depend on the appearance of the transaction, but rather on the general determination of the system of evidence as to the status, role and extent of the perpetrator; knowledge of ” and degree. the same pattern of transactions may differ significantly in the treatment results under different systems of evidence。

therefore, the individual ' s subjective claim &ldquao; lack of knowledge &rdquao; is not sufficient basis for judgement. in particular, in the case of large and high-frequency transactions, the judiciary tends to focus on whether “ it should be known ” and review. the determination of the nature of the case should be carefully analysed in relation to the context of the particular transaction and the evidentiary material。

Special declaration: This is an original article by Sakashi and represents only the personal views of the authors of this paper and does not constitute legal advice or opinion on a particular matter。