Author: Xiao Za Legal Team
On October 28, 2025, at the parallel forum of the 2025 Financial Street Forum Annual Conference on "Financial Risk Prevention and Control and Collaborative Governance in the Era of Digital Intelligence," the Beijing People's Procuratorate released the Chinese and English versions of the "Typical Cases of High-Quality and Efficient Performance of Financial Prosecution" (2024-2025), totaling 13 typical cases. The fifth case involves the illegal operation case of Lin Moujia and four others (handled by the Haidian District Procuratorate) — legally combating illegal foreign exchange crimes using virtual currency as a medium of exchange. The procuratorial authorities have clarified the review rules and case standards for foreign-related financial cases, achieving precise strikes against cross-border financial crimes.
This undoubtedly sounds the alarm again for old friends in the cryptocurrency circle. Currency exchange is different from cryptocurrency trading, and virtual currency is certainly not a lawless territory. Today, the Sa Jie team will discuss the legal risks of using virtual currency as a medium for currency exchange.
I. The Illegal Nature of Currency Exchange with Virtual Currency
1. An "Upgraded Version" of Traditional Underground Banks
The operational model of traditional underground banks requires actual cross-border capital flow, often balancing domestic and foreign capital pools through "matched transactions." The emergence of virtual currency provides an opportunity for a "technical upgrade" for this gray industry. Taking the operation of using stablecoins like USDT for "matched" currency exchange as an example:
Domestic Phase: The exchanger transfers RMB to a domestic account designated by the exchange organization; the exchange organization then purchases USDT with an equivalent amount of RMB domestically.
Overseas Phase: The exchange organization notifies overseas partners to pay the equivalent foreign currency to the exchanger's designated overseas account from the overseas capital pool.
The essence of "matched" currency exchange behavior is: Neither RMB nor foreign currency actually crosses borders; instead, the purpose of currency exchange is achieved through virtual currency as a medium. From a legal perspective, this is essentially an illegal foreign exchange trading activity.
2. Why Does It Constitute Illegal Business Operations?
Article 225 of China's Criminal Law stipulates illegal business operations, mainly including four types of behavior, with the fourth being "other illegal business activities that seriously disrupt market order."
In 2019, the "Two Highs" issued an interpretation regarding the application of laws in criminal cases involving illegal payment settlement services and illegal foreign exchange trading, which clearly states in Article 2: Violating national regulations by engaging in illegal foreign exchange trading, such as reverse buying and selling foreign exchange or disguised foreign exchange trading, and seriously disrupting the financial market order, shall be convicted and punished for illegal business operations according to the fourth provision of Article 225 of the Criminal Law.
If the exchange only involves converting RMB to virtual currency without involving foreign exchange, it does not constitute illegal business operations. However, using virtual currency as a medium to exchange RMB for foreign currency disrupts the foreign exchange management order and meets the elements of illegal business operations.
3. Threshold for Criminalization and Sentencing Circumstances
According to the aforementioned judicial interpretation, illegal foreign exchange trading with "serious circumstances" is punishable by imprisonment for up to five years or criminal detention if the illegal business amount exceeds five million yuan or the illegal gains exceed one hundred thousand yuan. The standard for "particularly serious circumstances" is imprisonment for more than five years if the illegal business amount exceeds twenty-five million yuan or the illegal gains exceed five hundred thousand yuan.
In the aforementioned Lin Moujia case, the amount involved reached several hundred million yuan, far exceeding the standard for "particularly serious circumstances," and the principal offender faces a heavy sentence of more than five years.
II. Perspective of Cryptocurrency Traders: Legal Risks You May Not Know
1. High-Risk Behavior Models
As cryptocurrency traders, the following business models are highly likely to touch legal red lines:
(1) "Passive Participation" Type
Many cryptocurrency traders believe they are simply selling USDT for RMB without knowing the purpose of the client's funds and not participating in subsequent stages. However, in judicial practice, this "passive participation" defense is often difficult to establish.
The key issue is: When the transaction frequency and amount are significantly abnormal, the authorities will presume that the trader "should have known" that the client was engaging in illegal activities.
For example, a newly registered personal account receiving large amounts of funds from different regions in a short period and then quickly buying USDT will itself attract regulatory attention.
(2) "Active Cooperation" Type
More seriously, some cryptocurrency traders establish stable cooperative relationships with exchange organizations, even preparing specific amounts of USDT based on the needs of the exchange organization to ensure smooth exchange operations.
In this case, the trader has effectively become an important part of the illegal currency exchange industry chain, and their subjective knowledge is evident, making it harder to escape liability.
(3) "Scale Operation" Type
Some cryptocurrency traders expand their business scale by registering shell companies, collecting numerous bank cards, and recruiting subordinate agents, systematically providing cross-border payment settlement services for others. Once involved in a case, this model is often recognized as a principal in gang crimes, which will be a key consideration during sentencing.
On December 27, 2023, the Supreme People's Procuratorate and the State Administration of Foreign Exchange jointly released typical cases of punishing illegal foreign exchange crimes. In the first case involving Zhao and others, Zhao was added to the list of illegal foreign exchange trading crimes due to gang members being discovered using virtual currency for foreign exchange services.
2. Key Points for Legal Determination
In judicial practice, there are several key factors in determining the nature of traders' behaviors:
(1) Determination of Subjective Knowledge
Whether the trader knows or should know that the client is engaging in illegal currency exchange activities is crucial in distinguishing between crime and non-crime. Authorities usually infer subjective knowledge from the following aspects:
① Transaction prices significantly deviating from normal market levels;
② Transaction frequency and scale being inconsistent with the individual's identity and profession;
③ Whether there are abnormal operational methods (such as late-night transactions, frequently changing trading accounts, etc.);
④ Whether there are suggestive or ambiguous expressions in communication records;
⑤ Whether there are deliberate regulatory evasion behavior patterns.
(2) Consideration of Profit Motive
Whether the trader gains benefits such as transaction fees or exchange rate differences from the transactions is an important criterion for judging business behavior. Even minimal profits, as long as they are continuous and stable, may be recognized as business activities.
(3) Distinction of Participation Level
Whether it is merely buying and selling virtual currency or deeply participating in the currency exchange process directly affects the nature of the behavior. If a trader only sells USDT once, it may only constitute an administrative violation; however, if the trader forms a stable cooperative relationship with the exchange organization, it is highly likely to constitute a criminal offense.
III. Perspective of Currency Exchangers: Those Apparently Safe Currency Exchange Traps
1. For individuals exchanging currency through illegal channels, administrative responsibility is the primary concern
According to Article 45 of the Foreign Exchange Management Regulations, privately buying and selling foreign exchange, disguised foreign exchange trading, reverse buying and selling foreign exchange, or illegally introducing foreign exchange trading will result in a warning from the foreign exchange management authority, confiscation of illegal gains, and a fine of up to 30% of the illegal amount.
In practice, some individuals, due to needs such as studying abroad or purchasing property, exchange large amounts of currency through traders, ultimately facing hefty fines, and the related funds may also be frozen or even confiscated.
2. In specific circumstances, exchangers may also face criminal liability
(1) Exchanging large amounts of currency while knowing it is illegal
If an exchanger knows that the other party is an illegal currency exchange platform or underground bank and still engages in large foreign exchange transactions through them, they may be recognized as an accomplice in illegal business operations.
Especially in cases of multiple transactions with a large cumulative amount, even if the exchanger claims "ignorance," authorities may infer their subjective awareness through objective behavior.
(2) Fabricating Transaction Background
Some exchangers, to evade regulation, fabricate transaction backgrounds by falsifying contracts, invoices, and other materials to fraudulently purchase foreign exchange. This behavior may also violate other criminal laws.
(3) Actively Introducing Others to Illegal Currency Exchange
Some exchangers, after tasting the "sweetness," actively introduce friends and family to exchange currency through the same channel, even collecting "referral fees." This behavior is highly likely to be recognized as an accomplice in illegal business operations, significantly increasing criminal risk.
(4) Risks to Fund Security
In addition to legal responsibilities, there are multiple risks associated with currency exchange through virtual currency:
① Risk of being defrauded: Illegal currency exchange platforms may abscond with funds, and since the transactions themselves are not legally protected, victims often have no recourse and find it difficult to recover losses.
② Risk of fund freezing: If the funds involved in the transaction are of illegal origin (such as proceeds from fraud or gambling), the relevant funds may be frozen or even confiscated by law enforcement.
③ Risk of information leakage: Illegal currency exchange platforms often do not implement strict information protection measures to evade regulation, and clients' personal identity information and financial situations may be illegally exploited or even sold.
IV. Risk Prevention in Foreign Exchange Business
Friends, when conducting foreign exchange business, always remember the "two resolutes": resolutely choose banks and other legally approved financial institutions to ensure compliance and legality of transactions; resolutely stay away from illegal channels such as "underground banks" and "virtual currency exchanges." This not only avoids personal financial loss risks but also prevents potential administrative penalties and other legal responsibilities from participating in activities that violate foreign exchange management regulations, effectively safeguarding your property security and legal bottom line.
1. Advice for Cryptocurrency Traders
(1) Strictly Implement KYC Measures
Effectively fulfill customer identity verification obligations, understand the source of customer funds and transaction purposes. For large or abnormal transactions, services should be refused, and timely reports should be made.
(2) Set Reasonable Transaction Thresholds
In accordance with anti-money laundering requirements, set reasonable limits on single and daily transaction amounts to avoid involvement in large illegal capital flows.
(3) Retain Complete Transaction Records
Properly preserve transaction records and communication records, storing them according to regulatory requirements for future verification.
2. Advice for Currency Exchangers
(1) Choose Legal Channels
Stay away from illegal currency exchange platforms that promise "unlimited" or "low fees," and conduct foreign exchange business through licensed financial institutions like banks, which is the only safe and reliable way.
(2) Understand Convenience Quotas
For matters such as studying abroad, tourism, visiting relatives, and overseas medical treatment, fully utilize the annual $50,000 convenience quota for each person, and reasonably plan the currency exchange needs of family members.
(3) Declare Purposes Honestly
When purchasing foreign exchange, declare the purpose truthfully and do not provide false materials to avoid losing big for small gains. If there are large foreign exchange needs for studying abroad or purchasing property, consult the bank in advance and follow the regulations to handle the relevant procedures.
In Conclusion
The foreign exchange market is an important component of China's financial market, and its stable operation is crucial for national financial security and economic stability. Using virtual currency as a medium to disguise foreign exchange trading essentially provides an illegal "channel" for others to convert domestic and foreign currencies, disrupting China's foreign exchange management system, and those with serious circumstances will be held criminally liable.
With the advancement of regulatory technology, big data analysis makes abnormal capital flows easily detectable, blockchain tracing technology ensures the transparency of virtual currency flows, and cross-border regulatory cooperation closes the last escape routes. In this context, both cryptocurrency traders and exchangers should clearly recognize that virtual currency is not a lawless territory, and the red line of illegal currency exchange must not be crossed.
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