The Supreme People's Procuratorate released a case of illegal foreign exchange trading using virtual currency, with the first case involving the Zhao Dong team

According to Wu's report, the Supreme People's Procuratorate and the State Administration of Foreign Exchange jointly released 8 typical cases of punishing crimes related to foreign exchange violations. The head of the Fourth Procuratorial Department of the Supreme People's Procuratorate stated that the cases released this time mainly target cross-border matching illegal foreign exchange trading cases. Regarding the typical cases that involved using virtual currency as a medium for illegal foreign exchange trading, the head of the Fourth Procuratorial Department pointed out that in China, virtual currency does not have the same legal status as legal tender, and related business activities are considered illegal financial activities.

The official noted that an increasing number of illegal foreign exchange trading crimes are carried out through virtual currency transactions. In the investigation, it was found that using virtual currency as a trading medium to indirectly achieve the conversion of foreign currency and RMB is an important link in the chain of illegal foreign exchange trading and should be punished according to law. Guiding evidence collection and reviewing the facts related to crimes involving virtual currency transactions require familiarity with the technical characteristics of virtual currency trading to enhance the quality and efficiency of case handling.

The Supreme People's Procuratorate selected two cases. The first case involved the Xihu District Branch of the Public Security Bureau in Hangzhou, Zhejiang Province, which transferred the facts of You and Zhao's illegal engagement in payment settlement services to prosecution on suspicion of illegal business operations. The procuratorial authority identified 309 transaction records related to foreign currency exchange in the chat records of Zhao's gang, totaling more than 43.85 million RMB. Zhao's gang had formed a long-term and fixed pattern: receiving foreign currency dirhams abroad, transferring RMB to the designated domestic receiving account, then purchasing Tether with dirhams, and finally selling Tether to obtain RMB. The above behavior appears to be buying and selling virtual currency, but in essence, it uses Tether as a medium to achieve the conversion of foreign currency and RMB, constituting illegal foreign exchange trading and forming the crime of illegal business operations.

On March 24, 2022, the Xihu District People's Court in Hangzhou, Zhejiang Province, sentenced Xiao to eleven years in prison for illegal business operations and imposed a fine of 20 million RMB; You was sentenced to eleven years in prison and fined 10 million RMB; Zhao was sentenced to seven years in prison and fined 2.3 million RMB; Zhao Peng was sentenced to four years in prison and fined 450,000 RMB; Zhou Kai was sentenced to two years and six months in prison and fined 250,000 RMB; and seven others were sentenced to prison terms ranging from four years to one year and two months, with fines ranging from 2 million to 25,000 RMB. After the verdict, Xiao, You, Zhao, and Zhao Peng appealed. On September 5 of the same year, the Hangzhou Intermediate People's Court ruled to reject the appeal and upheld the original verdict.

During the review of the extracted mobile chat records, the Xihu District Procuratorate discovered evidence that Zhao's gang also provided foreign exchange services using virtual currency, suspected of illegal foreign exchange trading. To clarify this part of the facts, the procuratorial authority sorted out 309 transaction records related to foreign currency exchange in Zhao's gang's chat records, finding that each record contained a confirmation of successful transactions, including domestic receiving accounts, transaction times, total transaction amounts, and buying rates, totaling more than 43.85 million RMB. To further verify the authenticity of the above transaction records, the procuratorial authority supplemented the following evidence through returning to the public security agency for further investigation and conducting its own investigation: (1) retrieving transaction details of domestic bank accounts involved in 15 transaction records, which could corroborate the amounts and times with the data in the chat records. (2) Making inquiry records for the payees in the 15 transactions, confirming that all 15 payment records were for foreign trade-related fees paid by foreign individuals. (3) Questioning Zhao and his gang members, all of whom admitted that Zhao and others received dirham cash in Dubai, paid RMB to the domestic accounts provided to the other party, and used dirhams to buy Tether, while allowing the domestic gang to illegally sell Tether to exchange for RMB. (4) Conducting targeted inspections of seized electronic data carriers such as computers and mobile phones, identifying the virtual currency wallet addresses controlled by the criminal gang, and comparing the transaction records of the virtual currency wallet with bank account flows to clarify the fund flow chain of Zhao's criminal gang "foreign currency---virtual currency---RMB." On February 11, 2022, the Xihu District Procuratorate filed a public prosecution against Xiao, You, Zhao, and others for constituting illegal business operations and added the criminal facts of Zhao, Zhao Peng, and Zhou Kai for illegal foreign exchange trading.

The Supreme People's Procuratorate pointed out that using virtual currency as a medium to achieve the exchange of RMB and foreign exchange constitutes illegal business operations. Individuals using virtual currency as a medium to provide cross-border exchange and payment services for profit from exchange rate differences are circumventing national foreign exchange regulations through the special properties of virtual currency, achieving the conversion of foreign exchange and RMB through "foreign exchange---virtual currency---RMB," which constitutes disguised foreign exchange trading and should be held criminally liable for illegal business operations according to law.

In the second case, from January 2018 to September 2021, Chen (handled in another case), Guo and others built websites such as "TW711 platform" and "Fire Speed platform," using virtual currency Tether as a medium to provide customers with foreign currency and RMB exchange services. Exchange customers placed orders under the website's value storage and payment sections, paying foreign currency to the designated overseas accounts. The website purchased Tether with the above foreign currency abroad, and Fan sold it through illegal channels to obtain RMB, then paid the corresponding amount of RMB to the domestic third-party payment platform account designated by the customer at the agreed exchange rate, profiting from the exchange rate difference and service fees. The above websites illegally exchanged more than 220 million RMB. Among them, Fan received over 6 million Tether from Chen through the virtual currency trading platform accounts and RMB bank accounts operated by Zhan and Liang, exchanging for more than 40 million RMB.

The Supreme People's Procuratorate pointed out that knowingly assisting others in illegal foreign exchange trading by providing exchange services using virtual currency as a medium constitutes an accomplice to illegal business operations. In China, virtual currency does not have the same legal status as legal tender, but using virtual currency as a medium to help others indirectly achieve illegal exchanges between domestic and foreign currencies is an important link in the chain of illegal foreign exchange trading and should be punished according to law. If the provider of virtual currency colludes with individuals engaged in illegal foreign exchange trading beforehand, or knowingly assists others in illegal foreign exchange trading through transactions involving virtual currency, it constitutes joint criminal liability for illegal business operations. Providing virtual currency trading services to individuals engaged in illegal foreign exchange trading, but only having a general understanding of the criminal behavior assisted without specifically realizing the assistance in illegal foreign exchange trading, can be held criminally liable for aiding information network criminal activities.