Author: Lawyer Shao Shiwei
Buying and selling virtual currencies to profit from price differences, but being prosecuted for receiving foreign exchange transfer funds—this article is based on a real case handled by Lawyer Shao involving an OTC merchant accused of illegal business operations and concealing criminal proceeds through USDT off-exchange transactions.
In this case, the individual had long engaged in buying and selling USDT to earn profits from price differences. During a normal transaction, he unexpectedly received RMB funds transferred by an underground bank for illegal currency exchange on behalf of others. Big data analysis identified this fund as foreign exchange transfer funds.
The question then arises: Is simply earning profits from virtual currency trading enough to be criminally liable for receiving foreign exchange transfer funds from upstream illegal foreign exchange activities?
More importantly, there are differing opinions within the case-handling agencies on whether to apply the crime of illegal business operation or the crime of concealing and disguising criminal proceeds.
Lawyer Shao’s view is that such cases cannot be simply classified; the behavior must be assessed in layers, considering the individual’s role, function, and subjective awareness. There is still room for argument in specific cases.
1. Does receiving foreign exchange transfer funds necessarily constitute the crime of illegal business operation?
1. Why do judicial authorities tend to treat this as illegal business operation?
The logic of the case-handling agencies is that since the upstream party has been identified as engaging in illegal foreign exchange trading, and the U merchant received funds from that chain during transactions, objectively playing a role in “providing accounts to facilitate fund flow,” this should be considered as part of a joint crime of illegal foreign exchange trading.
However, Lawyer Shao believes the key issue is that even if the upstream illegal activity is proven, it cannot be automatically presumed that the U merchant is part of a joint crime. A detailed analysis of the merchant’s role, function, and subjective awareness in the entire fund chain is necessary.
2. Typical case analysis of the logic behind criminalizing illegal business operations
In a typical case published in May 2025 by the Supreme People’s Procuratorate and the State Administration of Foreign Exchange, a layered approach was exemplified.
In the case of Chen Hong and Wu Rong (referred to as A, a married couple), and Chen Hong and Wu Rong (relatives, referred to as B), different handling strategies were applied.
Case summary:
A, without actually engaging in import/export trade, used individual business accounts under their and B’s names to open multiple personal foreign exchange settlement accounts. They fabricated trade transactions, provided these accounts to underground banks for foreign exchange acceptance, and after bank settlement, transferred RMB to designated domestic accounts of the underground bank, involving a total of 560 million RMB, earning a commission and rebates totaling over 760,000 RMB.
In February 2024, Zhejiang police transferred all four individuals to prosecutors for suspected illegal business operations. The court ultimately convicted A of illegal business operation (A received a sentence of 4 years and 8 months).
For B, although they provided accounts, the prosecution argued that there was no proof of direct involvement in illegal foreign exchange trading, leading to a non-prosecution decision. Despite B’s settlement amount exceeding 260 million RMB, they were only fined a total of 45,000 RMB.
Analysis:
Why does providing accounts for underground bank transactions lead to such different outcomes?
The reason lies in the subjective awareness, direct involvement in currency exchange, and actual profit gained by the individuals.
In this case, A had direct communication with underground banks, actively participated in fabricating trade backgrounds, clearly knew the purpose of the funds, and gained stable profits. B, although providing accounts, did not directly participate in core currency exchange activities nor demonstrated clear profit, so they were not convicted of illegal business operation.
Applying this reasoning to virtual currency trading: if the funds received are transferred from upstream underground banks involved in illegal currency exchange, whether this constitutes illegal business operation depends on layered assessment:
In practice, U merchants and their clients often do not connect directly. There are usually intermediaries involved, creating information gaps. This explains why U merchants, when receiving RMB, are often receiving funds from upstream illegal currency exchange activities.
Therefore, in such cases, without evidence that U merchants knowingly assist in illegal foreign exchange trading, their role is similar to that of B in the above case and should not be considered as committing illegal business operation. The real responsibility should lie with the intermediaries who may be jointly liable for illegal business operations.
Furthermore, the above case shows that whether there is profit is a key factor in judicial assessment of subjective awareness of illegal business operation.
2. Does profit from “price difference” equate to “profit” in the crime of illegal business operation?
Can the profit earned by U merchants from buying and selling virtual currencies be considered “profit”?
Lawyer Shao believes that it cannot be simply equated with the profit from foreign exchange rate differences in illegal foreign exchange cases. Although both involve “buy low, sell high,” and earning from price differences, their legal nature and substantive behavior are fundamentally different. The key is whether the transaction is for investment arbitrage or for providing disguised currency exchange services.
If the behavior is aimed at profit from market price fluctuations of virtual currencies, with transactions controlled within personal accounts, involving a “one-way” cycle of fiat→virtual currency→fiat, it is a legitimate personal investment arbitrage.
However, if the behavior involves using virtual currencies (like USDT) as a medium or tool to provide RMB and foreign currency exchange services, facilitating cross-border fund transfers, and earning profits from exchange rate differences, fees, or service charges—essentially engaging in disguised foreign exchange trading—then it may constitute illegal foreign exchange business and illegal operation.
3. Could such behavior be considered as concealing or disguising criminal proceeds?
Even if it cannot be proven that U merchants knowingly assist in upstream illegal foreign exchange activities, can the authorities then treat their conduct as concealing or disguising criminal proceeds?
According to the latest judicial interpretation effective from August 26, 2025, “criminal proceeds” are defined as funds, property, or other benefits obtained through criminal activity.
In virtual currency transactions, if U merchants “unintentionally” receive funds from illegal currency exchange, the authorities often view this as “providing account assistance” to facilitate the transfer. But whether a crime is established depends on two core premises: the nature of the funds and the awareness of the behavior.
1. Are the funds confirmed as “criminal proceeds”?
The premise for concealing or disguising criminal proceeds is that such proceeds exist. If there is no complete evidence chain proving that a specific fund is directly derived from upstream criminal activity, merely based on “abnormal account flows” or “large overall transaction amounts,” it is insufficient to automatically presume that a particular transaction is criminal proceeds.
In underground bank cases, with billions of yuan flowing through, funds are heavily mixed. Without linking specific transactions to particular criminals or criminal facts, relying solely on big data anomalies leaves room for dispute.
2. How to determine “knowledge”?
The latest judicial interpretation states that “knowing” includes both actual knowledge and should-have-know. The “should-have-know” standard requires a comprehensive assessment of the information available to the behavior, transaction anomalies, fund scale, and the background of the parties.
If U merchants conduct normal point-to-point USDT transactions at market prices, with no abnormal signs such as splitting, jumping, or evading regulation, then merely discovering later that the funds came from underground banks does not automatically imply subjective knowledge.
Legal evaluation emphasizes the state of awareness at the time of the act, not the post-factum outcome.
3. Is high-frequency trading presumed to indicate intentional misconduct?
In practice, high-volume, high-frequency fiat-crypto transactions often carry higher legal risks. If U merchants engage in long-term USDT-RMB exchanges with unknown or complex counterparties, authorities may infer a “general intent” based on their professional background. Therefore, defense strategies should analyze:
-
Are there abnormal transaction features?
-
Is there a significant premium above market rates?
-
Are there behaviors indicating regulatory evasion?
-
Has the individual accessed suspicious information?
Only after clarifying these factors can the degree of “knowledge” be properly assessed.
Final remarks
Simply profiting from virtual currency trading is not prohibited nor automatically criminal under current policies. The real risk lies in the source of funds and the role within the transaction chain.
Once funds enter underground banks, gambling, fraud, or illegal currency exchange chains, even a single point-to-point transaction can lead to criminal involvement.
Legal judgments in such cases depend less on transaction appearance and more on comprehensive evidence regarding the individual’s role, function, and “knowing” state. The same transaction pattern may yield different outcomes under different evidence frameworks.
Relying solely on subjective claims of “lack of knowledge” is insufficient, especially in high-volume, high-frequency transactions. Courts tend to examine whether the defendant “should have known,” based on background and evidence.
Judgment of case nature should be cautious, considering specific transaction contexts and evidence.
Disclaimer: This article is an original work by Lawyer Shao Shiwei and reflects only the author’s personal opinions. It does not constitute legal advice or legal opinion on any specific matter.
