USDT In-Depth Analysis Edition!

Written by:* Zhang Yonghai*

“The Web3 world is full of innovation and opportunities, but the widespread use of USDT has also brought unprecedented money laundering risks. The recent USDT money laundering case in Hunan once again sounds the alarm: using stablecoins to launder funds for overseas gambling and fraud gangs has formed a highly specialized and concealed black and gray industrial chain. This article aims to systematically sort out the origins and legal framework of money laundering crimes, deeply analyze the money laundering models and cases in the Web3 era centered around USDT, and focus on discussing the key points of criminal defense and risk prevention strategies.”

In the past decade, we have witnessed the rise of the Web3 era, built on blockchain technology. This revolutionary technological wave has reshaped financial paradigms while inevitably becoming a new breeding ground for complex financial crimes. The anonymity of virtual assets, the convenience of cross-border circulation, and the characteristics of decentralization make them important tools for modern money laundering activities. Among them, stablecoins represented by USDT (Tether) have become the "hard currency" for global illegal fund flows due to their unique properties.

Recently, the Hunan police uncovered a money laundering case involving nearly 170 million yuan in USDT, which once again raised the alarm: the use of stablecoins to launder funds for overseas gambling and fraud gangs has formed a highly specialized and concealed black and gray industrial chain. This article aims to systematically sort out the origins and legal framework of money laundering crimes, deeply analyze the money laundering models and cases in the Web3 era centered around USDT, and focus on discussing the key points of criminal defense and risk prevention strategies.

I.* Tracing Back to the Source: The Evolution of Money Laundering Crimes and Challenges in Web3*

The term "money laundering" originated in the early 20th century when American gangsters used cash-intensive laundromats to mix illegal proceeds with legitimate business income. This metaphor accurately summarizes the core purpose of money laundering: to sever the connection between funds and their illegal sources and to cloak them in a legitimate guise.

The internationally recognized money laundering process is usually divided into three stages:

1. Placement Stage: Injecting criminal proceeds into the financial system or economic activities. In the Web3 era, this is often done by exchanging illicit funds for virtual assets like USDT through OTC (over-the-counter) transactions.
2. Layering Stage: Obscuring the original source of funds through complex, multi-layered transactions. This is the stage where Web3 technology plays its "advantage," including rapid on-chain transfers, using mixers, cross-chain bridges, etc.
3. Integration Stage: Reintroducing the laundered funds back to the controller in a legitimate form. For example, cashing out virtual assets overseas to purchase real estate, NFT artworks, or claiming investment returns.

The special challenge of the Web3 era: the rise of stablecoins (USDT). Unlike Bitcoin (BTC) or Ethereum (ETH), stablecoins like USDT are pegged to fiat currencies (usually the US dollar), greatly avoiding the volatility risks of cryptocurrencies. This makes it an ideal tool for storing value, large-scale transfers, and settlements in illegal activities. The emergence of USDT allows money laundering activities to maintain stable fund value while enjoying the cross-border convenience and tracking difficulty brought by blockchain technology.

II.* China's Legal Framework and Judicial Interpretations: An Increasingly Tight Legal Net*

In China's criminal law system, the crimes related to virtual asset criminal proceeds are mainly concentrated in three legal provisions. Understanding their differences is crucial for Web3 practitioners:

• Article 191 of the Criminal Law: Money Laundering Crime

This is the core crime. The key to constituting this crime lies in the specificity of the upstream crime. The perpetrator must "know" that the funds are proceeds from one of the following seven specific crimes:

Drug crimes, organized crime with a gangland nature, terrorist activities, smuggling crimes, corruption and bribery crimes, crimes that disrupt financial management order, financial fraud crimes.

Key Evolution: "Self-Laundering" Criminalization. After the 2021 Amendment (XI) to the Criminal Law, perpetrators of the above seven types of crimes who then engage in laundering their own criminal proceeds (such as exchanging illegal fundraising funds for USDT for transfer) will constitute money laundering crimes and face cumulative penalties.

• Article 312 of the Criminal Law: Concealing or Hiding Criminal Proceeds and Their Gains (Concealment Crime)

This crime applies when the upstream crime does not fall into the above seven categories. In judicial practice, if the source of funds comes from online gambling, ordinary fraud (non-financial fraud), pyramid schemes, or pornography live streaming, even if the perpetrator engages in actions like exchanging for USDT to "clean" the funds, they are usually convicted of concealment crime. This is currently the most common charge in cases involving USDT fund transfers.

• Article 287-2 of the Criminal Law: Assisting Information Network Criminal Activities (Assisting Crime)

In USDT "score running" activities, if the perpetrator subjectively only has a general awareness that the other party may be engaging in cybercrime, and the circumstances are relatively minor (such as low transaction amounts, lower-tier "runners," or junior OTC service providers), they may be recognized as assisting crime.

• Core of Judicial Interpretation: Determining Subjective "Knowledge"

The core difficulty in determining the above crimes lies in proving the perpetrator's "subjective knowledge." Judicial interpretations allow for inferring subjective knowledge through objective behavior, which has far-reaching implications for USDT cases:

1. Abnormal Transaction Prices: For example, in the Hunan case, USDT was purchased at a price 0.8 yuan above the market price. This significant deviation from market conditions is often seen as a "money laundering service fee," serving as strong evidence of "knowledge."
2. Abnormal Transaction Methods: Frequent communication using overseas encrypted chat software (like Telegram), requests to use new addresses or wallet addresses not controlled by the individual for transactions, refusal to conduct KYC verification.
3. Abnormal Sources of Funds: The other party's source of funds is complex and dispersed, or funds are rapidly cycled without pause.

III.* Money Laundering Models in the Web3 Era and the Core Role of USDT*

Money laundering activities in the Web3 field are often a combination of traditional methods and emerging technologies, with USDT playing a key role.

• Core Position of USDT: Why It Becomes the Preferred Choice for Money Laundering?

Among numerous virtual currencies, USDT (Tether) has become the preferred medium for money laundering activities mainly due to the following key reasons:

1. Value Stability (Core Advantage): Pegged to the US dollar, with minimal price fluctuations. The money laundering process takes time, and criminals do not want to see their illicit funds shrink due to a price crash during the laundering process. USDT provides a perfect tool for value preservation.
2. High Liquidity and Wide Acceptance: USDT is the most traded stablecoin globally, with high acceptance across various exchanges, OTC markets, and even in the dark web and illegal gambling platforms, making it highly liquid and akin to a "digital dollar."
3. Cross-Border Convenience and Low Cost: Compared to traditional international wire transfers or underground banks, transferring USDT using blockchain networks is fast, cost-effective, and not restricted by the operating hours and geographical limitations of traditional financial institutions.
4. Multi-Chain Deployment and Proliferation of TRC20: USDT is issued on multiple public chains. Particularly, USDT on the Tron chain (TRC20-USDT) is favored by money laundering gangs due to its extremely low fees and high efficiency.

• OTC Trading and "Score Running" Platforms: The Main Channel for USDT Money Laundering

Over-the-counter (OTC) trading, especially among the so-called "U merchants," is the primary channel for exchanging fiat currency for USDT and is a hotspot for money laundering. Criminal gangs build "score running" platforms, using numerous dispersed accounts to quickly convert illegal proceeds into USDT.

Case Deep Dive: Hunan's 170 Million Yuan USDT Money Laundering Case

This case clearly demonstrates the chain of using USDT for cross-border crime money laundering, reflecting a typical model combining traditional "score running" with virtual currency:

Upstream Crime: Overseas online gambling and telecom fraud gangs ("money masters").

Money Laundering Channel (Four-Level Model):

Level One (Placement): Illicit funds deposited into "dummy accounts" within the country.

Level Two (Beginning of Layering): "Score running teams" quickly split the funds and conduct multi-layered transfers to secondary cards.

Level Three (Physical Isolation): "Runners" withdraw cash in the early morning. This step aims to completely sever the tracking path of the online banking system.

Level Four (Conversion and Integration): "Backpackers" hand over cash to underground banks or large OTC merchants. This is the most critical step; once the OTC merchant receives the cash, they immediately release an equivalent amount of USDT to the wallet address designated by the overseas "money master." Thus, the illicit RMB funds within the country are successfully converted into overseas digital assets.

In this case, the gang purchased USDT at a price 0.8 yuan above the market price, reflecting the "risk premium" of money laundering services and serving as an important basis for determining their subjective malice.

• Specific Money Laundering Models Derived from USDT

1. "Acceptor" Model: Extremely common in cross-border gambling or illegal payment platforms. The platform relies on professional "acceptors" to handle deposits and withdrawals. Acceptors receive users' fiat currency (often containing a large amount of black and gray funds), exchange it for USDT, and then pay it to the platform; they also help the platform convert USDT earnings back into fiat currency.

2. The Combination of USDT and Underground Banks (Digital Counterpart): Traditional underground banks are accelerating their "digitalization." They directly use USDT as a cross-border settlement tool. Domestic clients hand over RMB to the bank, which directly pays USDT to a designated address overseas, and vice versa, achieving physical isolation and cross-border transfer of funds.

3. Using "Slow Charging" for Money Laundering: As mentioned in the materials, some platforms offer "recharge discounts" (e.g., recharge 80 to get 100 in credits), where the legitimate funds paid by users go to the money laundering intermediary, which then uses matched illicit funds to recharge for the user. Users unknowingly become a part of the money laundering chain.

4. USDT Variants of Trade-Based Money Laundering (TBML): Criminals create fictitious international trade contracts, using USDT to pay for goods, achieving cross-border fund transfers.

• Emerging Money Laundering Channels

1. DeFi and Cross-Chain Bridges: Utilizing decentralized finance (DeFi) protocols' liquidity pools to quickly convert assets; using cross-chain bridges to transfer USDT between different blockchain networks, increasing tracking difficulty.

2. Mixers and Privacy Coins: Using mixers to obscure transaction records or converting USDT into privacy coins (like Monero) to hide transaction information.

3. NFT Money Laundering: Inflating prices through self-buying and selling or transferring funds by purchasing low-value NFTs at high prices.

IV.* Strategic Defense: Key Points for Criminal Defense in Web3 Money Laundering Crimes*

For practitioners accused of money laundering or related crimes through USDT, the core of criminal defense lies in breaking the prosecution's chain of evidence, especially regarding subjective intent and technical evidence.

• Core Battlefield: Challenging "Subjective Knowledge"

Given the specificity of USDT transactions, the defense strategy should focus on proving that the defendant was unaware of the illegal source of the funds and that their actions conformed to normal OTC business logic.

1. Demonstration of Reasonable Business Behavior:

Explanation of Price Fluctuations: In response to the accusation of "buying USDT at high prices/selling at low prices," evidence should be provided to demonstrate the reasonableness of the market supply and demand relationship at the time, liquidity premiums, or the provision of specific services (such as risk premiums for large cash transactions), countering the prosecution's simplistic attribution of price differences to "money laundering service fees."

Normalization of Trading Patterns: Prove that the use of encrypted software for communication and frequent trading is the norm in the OTC industry, rather than an intentional evasion of regulation.

2. Proof of Due Diligence (KYC Defense): Provide evidence that the parties conducted reasonable KYC before the transaction (such as requiring the other party to verify their identity, provide bank statements, and sign a "Legal Source of Funds Commitment"), demonstrating that they fulfilled their duty of prudent attention and eliminating the notion of "willful blindness."

3. Defense of Technical Awareness: Assess the defendant's level of technical awareness, arguing whether they possess the ability to identify complex money laundering methods or whether they found it difficult to verify the nature of the funds due to information asymmetry.

• Strategy for Distinguishing Charges: Money Laundering vs. Concealment Crime/Assisting Crime

Given that the penalties for money laundering (Article 191) are generally heavier than those for concealment crime (Article 312) and assisting crime (Article 287-2), distinguishing the charges is crucial.

1. Challenge the Qualification of Upstream Crimes: If the prosecution cannot prove that the upstream crime falls into the seven statutory felonies or cannot prove that the perpetrator knew it was proceeds from these seven types of crimes, efforts should be made to change the charge to concealment crime.
2. Lower the Level of Subjective Intent and Role: If it can be proven that the individual only had a general awareness of the crime and played a minor role in the entire USDT exchange chain, efforts should be made to classify it as assisting crime or as an accomplice.

• Examination and Rebuttal of Technical Evidence

USDT cases heavily rely on electronic evidence, particularly blockchain data analysis reports.

1. Legitimacy and Completeness of Evidence: Review whether the extraction and fixation process of electronic data is compliant and whether the acquisition of wallet private keys is legal.
2. Scientific Validity of On-Chain Analysis Reports: Introduce expert assistants to question the scientific validity of the methodologies (such as address clustering analysis, risk scoring models) used in the third-party blockchain analysis reports relied upon by the prosecution, as well as the certainty of their conclusions. Pay special attention to whether the flow analysis of USDT across different chains (such as ERC-20, TRC-20) is accurate.
3. Challenge of Fund Identity and "Contamination": USDT has a high degree of homogeneity. It is necessary to question the "fund contamination" theory—whether the end recipient can still be identified as having received the original illicit funds after multiple transfers and whether they could subjectively be aware of this is an important defense point.

V.* Compliance First: Risk Prevention Recommendations for Web3 Practitioners*

In an era of strong regulation, compliance is the cornerstone of survival for Web3 enterprises and individuals, especially for those handling large amounts of USDT.

• Risk Prevention for Individuals and OTC Merchants (U Merchants)

1. Refuse "score running," protect accounts, and never rent or lend personal bank cards or USDT wallet addresses to avoid becoming a "tool" or "money mule."
2. Be wary of abnormal transactions and "slow charging" traps: Stay away from transactions that significantly deviate from market prices. Be cautious of USDT transfer activities conducted under the guise of "slow charging," order brushing, or collection and payment on behalf of others.
3. Strictly Implement KYC and KYT (Know Your Transaction/Token):

U merchants must conduct strict real-name verification of counterparties and require reasonable explanations of the source of funds.

Establish a fund risk control model (such as refusing non-matching name transfers).

Conduct preliminary risk screening (KYT) on received USDT addresses to avoid directly receiving funds from high-risk addresses.

(2) Compliance for Web3 Projects and Virtual Asset Service Providers (VASP)

1. Establish a sound AML/CFT system: Refer to international standards (such as FATF recommendations) to establish an anti-money laundering internal control system that matches business risks.

2. Strengthen the application of on-chain analysis tools: Utilize professional RegTech tools to conduct real-time risk screening of counterparties' addresses, identifying addresses associated with the dark web, sanctioned entities, and mixers, and intercept contaminated USDT.

3. Focus on data compliance and privacy protection: When collecting customer information, strict adherence to data protection regulations is essential. Explore the use of privacy-enhancing technologies (PETs), such as federated learning or secure multi-party computation mentioned in FATF reports, to conduct risk analysis while protecting privacy.

4. Implement the "Travel Rule": Pay attention to global regulatory trends and ensure accurate transmission of information between senders and receivers during virtual asset transfers.

VI. Conclusion

The Web3 world is full of innovation and opportunities, but the widespread use of USDT has also brought unprecedented money laundering risks. The Hunan USDT money laundering case once again proves that regardless of how technology evolves, the determination and capability of regulatory agencies to combat money laundering crimes are continuously strengthening, and on-chain data tracking technology is becoming increasingly mature.

For participants in the Web3 field, understanding legal boundaries, establishing compliance systems, and staying away from illegal financial activities are key to sustainable development. Innovation is not a crime, but using innovation for criminal activities will inevitably face severe legal penalties. When facing legal risks, seeking assistance from lawyers with a solid foundation in criminal law and professional technical knowledge to accurately grasp defense points is crucial for protecting one's legal rights.

免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。