According to a report from Jiancha Daily, the official newspaper of the Supreme People's Procuratorate of China, three young men in their 20s used USDT and other cryptocurrencies to provide cross-border RMB exchange services, completing over 650 transactions and exchanging nearly 30 million RMB (approximately 134 million New Taiwan Dollars) within a few months. They were eventually sentenced to 5 years and 1.5 years in prison respectively for the crime of illegal business operations, and were also fined.
Using USDT to Engage in Illegal Foreign Exchange Transactions
In early 2020, 25-year-old Lin, who had a low level of education, could not find a suitable job. At the time, the cryptocurrency market was booming, so he decided to try his hand at cryptocurrency trading. He later teamed up with his high school classmate Yan to engage in cryptocurrency "brick-moving" (arbitrage) on the Binance and Huobi exchange platforms.
Initially, the two were only involved in simple cryptocurrency "brick-moving". However, in August 2020, Lin accidentally met a Nigerian man with the WeChat nickname "Prince" during a transaction. "Prince" said that buying and selling foreign exchange through banks or foreign exchange companies was expensive, and he wanted to use Lin to convert the local Nigerian currency, the Naira, into RMB.
Lin then devised a perfect plan to circumvent China's foreign exchange regulations and convert the Naira into RMB: "Prince" would purchase USDT with Naira on the local Binance platform, then transfer the USDT to Lin's Binance account. Lin would then sell the USDT to domestic cryptocurrency traders in exchange for RMB, and finally transfer the RMB to the bank account provided by "Prince" within China.
Lin would determine the purchase price in advance based on a 5% fluctuation in the daily USDT price, and then sell it to domestic cryptocurrency traders at the market price, earning the price difference. The entire process only required simple operations and communication, without the need to advance any funds, allowing Lin to "get something for nothing".
Illegal USDT-based Foreign Exchange Transactions Exceeding 30 Million RMB
After September 2020, Lin and Yan started their own business. In January 2021, Lin and Yan's bank accounts were restricted due to frequent large fund inflows, so they had their classmate Xie join them to provide bank cards to receive the funds. The three quickly turned this USDT-based foreign exchange business into a thriving operation.
However, the good times did not last. On June 17, 2022, the three were arrested at their respective homes. In October 2022, the Jiangsu Provincial Procuratorate intervened in the investigation, actively tracking the cross-border fund chain, obtaining transaction records of deposits and withdrawals from overseas cryptocurrency trading platforms, WeChat chat records, and bank account transaction details as evidence, forcing the main suspect Lin and his two accomplices to eventually confess and surrender all their criminal proceeds.
The prosecutors' investigation found that from September 2020 to January 2021, Lin and Yan engaged in illegal foreign exchange transactions amounting to over 21.29 million RMB. From January to April 2021, after Xie joined, the three engaged in illegal foreign exchange transactions totaling over 8.38 million RMB, for a total of nearly 30 million RMB in illegal foreign exchange transactions.
Sentenced to 5 Years in Prison
The prosecutors believed that Lin's group used cryptocurrencies as a medium to engage in illegal foreign exchange transactions and profit from exchange rate differences. Although there was no physical flow of RMB and foreign exchange, they effectively circumvented the state's foreign exchange regulations by exploiting the unique properties of cryptocurrencies, undermining the effectiveness of foreign exchange management and the stability of legal exchange rates, causing the economic data controlled by the state to be inaccurate, and affecting financial decisions such as exchange rate and foreign exchange reserve adjustments, posing a serious threat.
Therefore, the Binhui County Procuratorate prosecuted Lin and the other two on charges of illegal business operations on February 26. On April 29, the court, after considering the prosecution's sentencing recommendations, sentenced Lin and Yan to 5 years in prison and fined them, and sentenced Xie to 1 year and 6 months in prison with a suspended sentence and a fine. None of the three appealed, and the judgments took effect.
It is worth noting that the Guangdong Provincial Higher People's Court also shared a precedent last December, warning that in China, purchasing USDT at a low price and then reselling it for profit may constitute illegal foreign exchange transactions, which is considered a crime of illegal business operations. Serious cases can result in a sentence of up to 5 years in prison or detention, and particularly serious cases can be punished with more than 5 years in prison.
