The moment personal currency exchange becomes illegal: How much fee makes it a crime

Many people face an annual currency exchange limit of $50,000 and are seeking personal exchange channels to make up the shortfall. However, whether helping friends with exchanges or using underground banks is truly illegal, and how much commission turns it into a crime, remains a gray area. Lawyer Shao Shiwei has analyzed in detail how far personal exchange activities are permitted through actual court cases and legal contradictions.

Administrative Penalties or Criminal Penalties: Legal Risk Thresholds Based on Exchange Amounts

From a legal perspective, the difference between being fined and serving prison time lies in whether the behavior is considered an administrative violation or a criminal offense.

First, reviewing relevant laws: Article 45 of the 2008 Regulations on Foreign Exchange Control stipulates that private foreign currency trading and illegal large-scale foreign currency transactions can be subject to warnings, confiscation of illegal gains, and fines by foreign exchange authorities. Later, in 2015, the State Administration of Foreign Exchange clarified the standard for “relatively large amounts,” meaning private exchanges exceeding the equivalent of $1,000 or illegal importation of foreign currency exceeding the equivalent of $50,000 are subject to administrative penalties.

On the other hand, the 2019 interpretation by the Supreme People’s Court and the Supreme People’s Procuratorate set stricter standards. Illegal operations due to speculation or disguised currency trading are considered “serious” if the illegal business exceeds 5 million RMB or illegal gains exceed 100,000 RMB. Exceeding these thresholds can lead to criminal penalties under Article 225 of the Criminal Law for illegal business operations.

In summary, individual currency exchange activities face different legal risks depending on the amount involved.

Fees and Illegality: Pitfalls for Intermediaries

Let’s look at real cases. Person A exchanged foreign currency equivalent to 10 million RMB through private channels for company formation and was sentenced to 2 years in prison for illegal business. Person B exchanged currency via underground banks to repay casino debts in Macau and received an 8-year sentence.

Interestingly, both exchanges were for private use and not for profit. Yet, both were convicted of illegal business operations because the judiciary focused on the “business nature” of the exchange activity.

The role of intermediaries is even more complex. Person C assisted a friend in brokering a $9 million USD exchange and was sentenced to 5 years for illegal business. Although the 2019 legal interpretation does not explicitly classify such acts as illegal, actual judicial decisions may still impose penalties.

The risk assessment for intermediaries depends heavily on:

• Whether the fee is paid or free, and the amount
• The number and total amount of exchanges previously brokered
• Involvement in negotiating exchange rates, transfer times, transfer accounts
• The purpose of the exchange for buyer and seller (money laundering, arbitrage, overseas investment, etc.)

Even the same act of “introduction” can be legal if done once for free for a friend, but illegal if conducted repeatedly for profit.

Same Exchange, Different Judgments: Ambiguity in Judicial Decisions

If laws are clear, the activity should not be considered a crime. But reality is more complicated.

Comparing the famous Liu Han case and the Huang Guangyu case reveals contradictions. Both involved exchanging RMB for foreign currency via reverse buy-sell to repay overseas gambling debts. Liu Han was acquitted of illegal business, while Huang Guangyu was convicted.

The reason lies in the court judgments. Liu Han’s case viewed the exchange as an objective remittance activity, not for profit, and thus not an offense. Huang Guangyu’s case, however, was based on a mistaken focus on whether the act constituted foreign exchange trading to repay gambling debts, leading to a finding of illegality.

This shows that even the same exchange activity can result in opposite rulings depending on judicial interpretation and the focus of the court.

The Boundary of Illegality: The Delicate Balance of Amounts and Intent

Many seek a clear line of illegality, but legal realities are more complex. Outcomes depend on multiple factors.

Lawyer Shao believes that whether an introduction constitutes illegal business depends on the lack of explicit legislative definitions, and judgments are based solely on factual circumstances. The ultimate criterion is whether the damage to market order is “significant” or “minor.”

Specifically:

• Administrative penalties: exchanges exceeding $1,000 or illegal transactions over $50,000
• Criminal offenses: profit-driven exchanges exceeding 5 million RMB or illegal gains over 100,000 RMB
• Gray areas: ambiguous profit motives, one-time exchanges, small fees

The law does not specify at what fee level an intermediary’s commission becomes illegal. Continuous paid brokerage activities may be regarded as “business,” risking charges of illegal operation.

How to Avoid Currency Exchange Troubles

Even if criminal charges are filed, Article 8 of the 2019 interpretation states that if the defendant admits guilt, shows remorse, cooperates with investigations, and returns illegal gains, penalties may be reduced or waived.

However, the key is to avoid getting involved in such troubles altogether. Underground bank exchanges are highly clandestine; once started, upstream and downstream parties may be investigated. Penalties can be substantial, and risks include theft, account freezes, and suspicion of aiding crimes.

For personal currency exchange needs, it is crucial to use official channels and consult legal professionals if uncertain. Involvement in illegal personal exchanges or fee-based businesses carries significant criminal risk.