This article will analyze and discuss the key issue of "whether cross-border arbitrage by U-commerce businesses constitutes the crime of illegal business operations" from the perspectives of legal characterization, defense strategies, and judicial trends, based on newly released typical cases and practical experience.
Author: Lawyer Shao Shiwei
Criminal cases involving virtual currencies are gradually becoming a hot topic in judicial practice, evolving from a relatively niche area of investigation. In recent years, the legal definitions and judicial controversies surrounding crimes such as "virtual currency crimes," "illegal business operations," and "USDT trading" have attracted increasing attention. Attorney Shao has also represented several cases involving charges of illegal business operations related to the trading of virtual currencies in recent years.
Therefore, this article will combine newly released typical cases and practical experience to analyze and discuss the key issue of "whether cross-border arbitrage by U merchants constitutes the crime of illegal business operations" from the perspectives of legal characterization, defense strategies, and judicial trends.
Why is trading USDT considered a crime of illegal business operations? Analysis of typical cases.
The case of Zhao et al., who were convicted of illegal business operations (Zhao Dong case) and handled by the Xihu District People's Court of Hangzhou City, Zhejiang Province in 2022, is a representative case of illegal business operations committed by Zhao et al. for arbitrage trading of virtual currencies. The case was also listed by the Supreme People's Procuratorate and the State Administration of Foreign Exchange as a typical case of punishing foreign exchange-related crimes.
According to the official case report, the perpetrators in this case engaged in cross-border "arbitrage" by buying and selling virtual currencies such as USDT, and were therefore prosecuted for illegal business operations.
Based on the limited information currently disclosed by the authorities, it seems that we can make the following preliminary judgment: any behavior that involves cross-border arbitrage of virtual currencies, earning exchange rate differences, and involving the exchange of legal tender in different countries may be included in the scope of evaluation for the crime of illegal business operations.
However, based on a cautious and skeptical stance, this conclusion itself still warrants further questioning: Does directly applying the crime of illegal business operations to this type of behavior pattern truly conform to the boundaries and logic of criminal law evaluation?
Even though the case has become a legally binding judgment, it was made four years ago. Cases involving currency have long lacked clear legislative rules, and judicial practice has largely relied on the spirit of policies such as the "94 Announcement" and the "924 Notice" to gradually explore and advance the process. Whether the judgment standards are stable and replicable remains to be seen.
As can be seen from the following two reports, the above judgment has indeed seen some noteworthy new changes in judicial practice and the application of law.
The first report is from 2024, released by the Jianhu County Procuratorate in Jiangsu Province , detailing the illegal business operations of Lin and Yan :
Regarding the question of whether "cross-border arbitrage of virtual currencies" constitutes legal arbitrage or illegal business operations, the official case details provide a relatively clear perspective.
Based on the case details, Lin's so-called "arbitrage" was actually carried out under the instructions of a Nigerian man known as "Prince": the prince transferred Naira to Lin's Binance account, Lin then sold the received USDT to domestic U.S. traders to exchange for RMB, and transferred the funds back to the prince. Lin determined the purchase price at 5% below the USDT listing price of the day, and then sold it to U.S. traders at the listing price, profiting from the price difference.
The value of this case lies in its relatively clear definition of the core reason for criminalizing the behavior: the problem is not the act of "arbitrage" itself, but its true business model—the perpetrators did not engage in independent market arbitrage, but rather used virtual currency as a medium to substantially provide others with cross-currency exchange services. Therefore, the nature of their behavior has fundamentally changed from "arbitrage" to "illegal business operations."
As we move into 2025, discussions in judicial practice have deepened further.
On December 17, 2025, the Shanghai No. 2 Intermediate People's Court published an article entitled " Overview: Zhizheng: Theory and Practice Go Hand in Hand | Unified Application of Law in Virtual Currency Crime Cases ".
This article systematically reviews the legal application issues in cases involving illegal business operations related to virtual currencies, listing two scenarios and conducting a relatively cautious and in-depth discussion on whether they constitute the crime of illegal business operations.
The article mentions:
Regarding Case 5, if Li's actions do not exhibit characteristics of business operations and are merely personal holding and trading of cryptocurrency, then it is generally not considered a crime of illegal business operations. However, if he knowingly assisted others in illegally buying or selling or indirectly buying and selling foreign exchange by exchanging virtual currency, and the circumstances are serious, he should be considered an accomplice to the crime of illegal business operations.
In Case 6, Hu's behavior exhibited characteristics of regular business operations and profit-making. Moreover, knowing that others intended to exchange RMB for USD outside of state-regulated trading venues, he still provided "local currency-virtual currency-foreign currency" exchange and payment services, which constituted disguised foreign exchange trading. He illegally profited more than 3 million yuan from this, and should be considered guilty of the crime of illegal business operations.
This clearly demonstrates that, compared to the earlier, broad-brush approach of "criminalizing any cross-border arbitrage involving virtual currencies," some judicial authorities are now paying more attention to a detailed analysis of the nature of the behavior, the transaction structure, the flow of funds, and the social harm. This change at least illustrates one fact: the adjudication logic for virtual currency cases is gradually shifting from simply applying charges to more refined judgments.
The situations described in the above-mentioned official cases have also appeared in previous cases handled by Attorney Shao. So, how should the judiciary accurately distinguish between crime and non-crime for such behavior of "buying and selling virtual currency and engaging in arbitrage"?
Therefore, Attorney Shao will now analyze this issue from a practical perspective, drawing on his experience in handling specific cases: Under what circumstances might such conduct be considered a crime of illegal business operations? And under what circumstances should it not be included in the evaluation scope of the crime of illegal business operations?
Whether buying and selling USDT cryptocurrency constitutes the crime of illegal business operations should be analyzed on a case-by-case basis.
First, we must confront a very real problem:
The reason why a case can become a guiding case is often because its chain of evidence is complete, the facts are clear, the argument is sufficient, and it can withstand repeated scrutiny. However, in real judicial practice, many cases are exactly the opposite—the evidence is insufficient , yet the court still "follows the example," simply referring to the conclusions and spirit of the guiding case to make a guilty verdict on the party involved.
From the perspective of protecting the rights of the parties involved and from the perspective of criminal evidence standards, this practice itself deserves vigilance.
It is against this backdrop that one of the core values of defense lawyers lies precisely in enabling investigators to truly understand the essential differences between the case and the so-called "reference case" by dissecting the evidence and factual details, thereby determining whether the case is comparable and suitable as a basis for judgment.
Secondly, the so-called "typical cases" themselves have obvious limitations in terms of time and context.
These can serve as a reference, but they are not "holy decrees" that must be followed at all times, much less mechanically applied to any specific case. For legal professionals, maintaining a necessary spirit of skepticism and the ability to make independent judgments is a basic professional quality, not a dispensable attitude.
Based on the above premises, when handling cases involving "cryptocurrency arbitrage," at least the following two core questions need to be addressed directly:
- Question 1: How to determine in a specific case whether a U merchant's "arbitrage" is legal arbitrage or constitutes a business activity?
- Question 2: If the so-called arbitrage profits come not only from exchange rate differences, but also include a certain percentage of "service fees" and "handling fees", does it necessarily constitute the crime of illegal business operations?
The reason for raising these two questions is that a very real contradiction has existed for a long time:
Legal provisions, officially disclosed typical cases, and theoretical discussions often present a relatively clear "black and white" logic; however, when it comes to specific criminal cases, the real situation is often highly complex and the boundaries are blurred, far beyond what can be covered by simply applying conclusions.
It is precisely because of this complexity that lawyers in specific cases cannot simply rely on mechanically citing legal provisions or precedents. Instead, they must return to the essence of the crime in question, starting from the behavioral structure, role positioning, and the substance of the transaction, to re-examine the boundaries of the application of the law, and construct a targeted defense strategy accordingly.
From the perspective of legal elements, the crime of illegal business operations requires at least two core elements:
First, the behavior is "commercial in nature";
Secondly, the behavior is for the purpose of "profit".
The term "business activity" generally refers to economic activities in which an individual, based on planning, organization, and management, continuously provides goods or services to external parties, steadily participates in market exchanges, and intends to obtain profits from them. In contrast, occasional and sporadic personal transactions are, in principle, difficult to be evaluated as "business activities" in the sense of criminal law.
Specifically, in cases involving illegal foreign exchange trading, the distinction between criminal and non-criminal activity is generally made as follows:
(1) If the actor meets the following conditions, it should be considered as personal use and not as illegal business operation:
- To meet one's own needs: to earn the price difference between buying and selling virtual currencies, or to have a genuine and reasonable need for foreign exchange.
- Profits come from the price fluctuations of virtual currencies in different markets.
- This refers to an individual's investment and exchange activities.
- Occasional and non-continuous. The counterparty, timing, and price of the transaction are not fixed.
- Funds and virtual currencies circulate in a one-way cycle within personal accounts: "fiat currency → virtual currency → fiat currency".
(2) If the actor meets the following conditions, he/she shall be deemed to have a business purpose and is suspected of illegal business operations:
- Providing financial services: Providing illegal foreign exchange or payment settlement services for profit.
- The profit is essentially the exchange rate difference and fixed handling fees or commissions.
- They engaged in cross-border fraudulent exchange activities involving "foreign currency → virtual currency → RMB".
- Long-term, stable, and organized. They have a fixed customer base or partners, and may even form well-defined groups with clear divisions of labor.
- By using (including borrowing) a large number of other people's accounts to form a fund pool, the matching and hedging of domestic and foreign funds can be achieved.
Take, for example, a case handled by Attorney Shao's firm. A U-type merchant was criminally detained on suspicion of illegal business operations because, from the perspective of the local law enforcement officers, the merchant exhibited the following characteristics:
Firstly, the trading time span is long, the trading frequency is high, and the trading volume is large, with long-term profit-making through buying and selling virtual currencies;
Secondly, a studio was set up, multiple staff members were hired, and all employees' bank accounts were used for receiving and making payments;
Third, some clients reside overseas for extended periods, resulting in a relatively stable client base, and each transaction involves substantial sums, exceeding one million yuan.
Based solely on these superficial characteristics, it is indeed easy to form an intuitive judgment: this behavioral pattern seems to closely match the typical characteristics of the aforementioned crime of illegal business operations, and even bears a striking resemblance to the circumstances involved in existing cases.
However, the nature of this case is fundamentally different from the aforementioned Lin case:
In Lin's case, the perpetrator was instructed by a Nigerian to complete the fund transfer according to the other party's arrangements. The essence of his actions was to provide cross-border currency exchange services for others. Virtual currency was merely a tool; the real purpose was to "help others achieve cross-border fund transfers."
In this case, the key issues—whether the parties involved were "directed by others," "provided payment services to specific individuals," or "acted as intermediaries for funds," whether the funds constituted a de facto fund pool, and whether client funds were commingled with their own funds—are significantly different from those in Lin's case. These differences are the core factors determining the nature of the case, rather than the frequency or amount of transactions themselves.
As pointed out in the aforementioned analysis by the Shanghai No. 2 Intermediate People's Court regarding the fact that the act did not constitute the crime of illegal business operations:
“The currency conversion behavior linked by U-coin is not directly equivalent to the buying and selling of foreign exchange, and the actor does not have the subjective intent to help others exchange foreign exchange, but only objectively causes the conversion and financing between different currencies”;
"Based on the essential characteristics of the crime of illegal business operations, the court should substantively determine whether the conduct in question violates national regulations and seriously disrupts the financial market order in order to distinguish between criminal and non-criminal conduct. For example, if a person uses virtual currency as a medium to circumvent national foreign exchange supervision and provides others with exchange services between RMB and foreign currencies, and exhibits characteristics of business operations such as earning handling fees or exchange rate differences... this constitutes the crime of illegal business operations."
"Based on factors such as the perpetrator's subjective cognition, objective behavior, and profit-making methods, accurately determine whether it is a joint crime... If the perpetrator knowingly engages in the illegal buying and selling or disguised buying and selling of foreign exchange, or conspires with others in advance... they shall be treated as an accomplice to the crime of illegal business operations."
Therefore, after Attorney Shao became involved in the case, he consistently maintained that the case should not be classified as a crime of illegal business operations. The core reasons can be summarized as follows:
First, large-scale, team-based, and high-frequency trading does not necessarily equate to "commercial operation".
While the parties involved in the long-term trading of virtual currencies and profiting from price differences certainly had a profit-making purpose, "profit-making" and "business activity" cannot be simply equated. Business activities in the criminal law sense should refer to providing services to external parties and intervening in the order of fund flows, rather than simply engaging in independent trading activities based on market fluctuations.
Secondly, having a relatively stable customer base does not equate to providing currency exchange services.
Although the party involved has some long-term clients, it has never carried out "foreign currency-virtual currency-RMB" or reverse exchange operations on behalf of clients according to their instructions. In other words, the party involved did not act as a fund transfer channel for others, nor did it substantially provide cross-border payment services. The nature of its transactions was still independent buying and selling, rather than "doing things for others".
Third, using someone else's bank card does not automatically constitute a "fund pool" or "underground payment".
The bank cards involved in the case were all held by relatives or acquaintances of the parties involved, and were not "cat pool accounts" purchased on the black market or illegally collected. The bank cards were always under the actual control of the cardholders, and the parties involved did not engage in the buying, selling, or renting of bank cards. This is clearly different in nature from typical underground banking operations.
Fourth, the existing evidence cannot form a closed chain of evidence and cannot prove subjective knowledge.
The existing evidence is insufficient to prove that the party concerned was aware of the other party's cross-currency exchange activities, let alone presume that they "should have known." Under the criminal standard of proof, if subjective intent cannot be proven, a guilty verdict should not be made.
Fifth, the nature of the behavior is "price difference trading" rather than "currency exchange service".
The true purpose of the parties involved is to profit from price fluctuations across different markets and platforms by buying low and selling high. Their profits come from market volatility itself, not from commissions earned through matching, redemption, or conduit services in currency exchange transactions. For them, cryptocurrency is a trading instrument, not a tool for channeling funds.
Based on the aforementioned facts and evidence structure, and adhering to the principles of clear facts and thorough evidence review, the case was ultimately successfully granted bail pending trial on the grounds of "unclear facts and insufficient evidence," achieving a phased result.
This answers the first question raised earlier: how to determine in a specific case whether a U-merchant's "arbitrage" is legitimate or constitutes a business activity?
So, the second question is: if the so-called arbitrage profits come not only from exchange rate differences but also include a certain percentage of "service fees" and "handling fees," does that necessarily constitute the crime of illegal business operations?
The core profit source of cross-border virtual currency arbitrage is indeed the "exchange rate difference" between different fiat currency zones, rather than the rise and fall of the virtual currency price itself.
However, Attorney Shao believes that whether or not the crime of illegal business operations is constituted does not depend on the appearance of "whether or not fees are charged," but on the substance of the behavior corresponding to the fees charged by the perpetrator.
If, during the arbitrage process, the perpetrator collects service fees and handling fees in addition to the exchange rate difference, but does not perform a closed-loop operation of "foreign currency ↔ virtual currency ↔ RMB" according to the client's needs, but instead uses virtual currency to conduct cross-currency exchange to achieve currency value conversion.
Legally speaking, this should not constitute the crime of illegal business operations. However, in practice, the criminal risk of such behavior remains high. Due to significant differences in the understanding of such cases among different investigators, there is a possibility that it could be classified as illegal business operations. The aforementioned case of Zhao Dong, where the business model was not classified as illegal business operations, serves as a warning.
Attorney Shao's advice
For U.S. merchants engaged in so-called "arbitrage trading," this remains a highly dangerous business. The risks stem not only from the policies themselves but also from the uncertainties in judicial practice—different regions and different law enforcement personnel often have vastly different understandings of such behavior, which directly affects whether the perpetrator is guilty or not, as well as the specific conviction and sentencing.
Therefore, for U merchants, the so-called "arbitrage" is essentially still a high-risk gray area. Related activities should be carefully assessed for potential risks, and they should not be entered lightly.
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