Is buying and selling prepaid cards for virtual currency a legal and good business?

Source: Lawyer Jin Jianzhi

01 Is it illegal to buy and sell prepaid cards?

Prepaid cards are divided into single-purpose commercial prepaid cards and payment institution prepaid cards, which are respectively subject to the "Administrative Measures for Single-Purpose Commercial Prepaid Cards (Trial) (2016 Revision)" and "Payment Institution Prepaid Card Business Management" Measures for supervision. The prepaid cards referred to in this article are single-purpose commercial prepaid cards, which are the various gift cards seen in daily life.

Depending on different circumstances, companies issuing prepaid cards need to register with the Municipal Supervision Bureau or the Commerce Department and have relevant fund management requirements. In addition to the regulation of issuance, there are no prohibitions on trading prepaid cards, that is, reselling prepaid cards is a completely legal market behavior.

Jiangsu prosecutors once prosecuted a citizen for recycling shopping cards in large quantities and selling them for profit, but in the end Wen was released in court because it did not constitute a crime. In this case, the court also carefully analyzed that engaging in shopping card recycling business did not constitute an illegal business crime (see [Criminal Trial Reference] Wen Fusheng’s Cover-up and Concealment of Criminal Proceeds Case [No. 1093] - Recycling a Large Number of Shopping Cards and Selling them Does profit-making behavior constitute a crime? See the end of the court review section).

02 Will buying and selling prepaid cards constitute illegal business?

Before interpreting whether it may constitute an illegal business crime, you need to understand this business model first. Why use virtual currency to sell prepaid cards? There may be many reasons. Doing business in the world? Or is it convenient to withdraw small amounts?

It is an established fact that in the virtual currency withdrawal process in mainland China, it is easy for bank cards to be frozen due to receipt of stolen money. Therefore, in the process of withdrawing money, not only do buyers guard against sellers, but sellers also guard against buyers. For users who only want to withdraw a small amount of money, the business model of selling prepaid cards with virtual currency is a genius solution to the concerns of both parties. When a buyer receives a prepaid card, it is absolutely impossible for it to be frozen. Sellers receive small amounts of virtual currency, and the possibility of black money is greatly reduced.

This model perfectly solves the pain points of the small-amount withdrawal market, but is it an illegal operation?

First of all, Lawyer Mankiw needs to popularize the fact that China’s criminal law has a wide scope of application.As long as any part of the business model has something to do with China, it may theoretically be governed by China’s criminal law. It just means that increasing foreign-related factors in the business model, such as having an overseas company as the main body of the company, can greatly reduce the probability of criminal risks in China.

Secondly, even though China’s criminal law has a wide scope of application, it still follows thebasic principle of statutory punishment. That is, Article 3 of the Criminal Law stipulates that "any act that is expressly defined as a crime by law shall be convicted and sentenced in accordance with the law; any act that is not expressly stipulated by law as a criminal act shall not be convicted and punished."

03 Is buying and selling prepaid cards an illegal fund payment settlement?

So is this business model an illegal operation expressly stipulated in China’s criminal law? According to lawyer Mankiw's previous analysis of the market demand for this business model, this business model is most likely to be sidelined by the act of "illegally engaging in fund payment and settlement business" in the crime of illegal business operations.

According to the judicial interpretation of the Supreme Court and the Supreme People’s Procuratorate on illegally engaging in fund payment and settlement business, lawyer Mankiw believes that this business model does not comply with the judicial interpretation’s “(1) Use of acceptance terminals or online payments. Interfaces and other methods to pay monetary funds to designated payers in illegal ways such as fictitious transactions, false prices, transaction refunds, etc.; (2) Illegally providing others with the service of cashing out the unit's bank settlement account or transferring the unit's bank settlement account to a personal account; (3) Any act of illegally providing check cashing services to others.

The reason is that (1) the transactions corresponding to this business model are real, and the prices follow the market price; (2) it does not involve providing bank accounts or cashing out checks; The important point that Lawyer Mankiw feels is (3) It is not a money-for-money behavior.

What is not money-for-money behavior? When friends of Mankiw are panicking, they must remember that supervision or punishment in any jurisdiction (including in China) will have a tendency of "substance over form", so when something happens, ask yourself, my What is the nature of behavior? What is the essence of the punishment for this illegal crime? The essence of "illegal engagement in fund payment and settlement business" that penetrates the criminal law is actually direct money-to-money exchange without approval.

To put it bluntly, the customer's business model may only involve money to money, because users who buy prepaid cards will go to other merchants to exchange the prepaid cards into RMB, just like the customer's The business model has no relationship at all, and it is best not to have any relationship. Once there is a relationship, the money-to-money exchange will form a closed loop, and no amount of formality can hide the essence of this "direct money-to-money exchange". It violates the criminal law. Bottom line.

Therefore, in the view of lawyer Mankiw, if you just use virtual currency to sell prepaid cards, it does not constitute illegal business, but if you intervene and match the prepaid cards to RMB on this basis, then It’s hard to talk about one-ring transactions.

Of course, when Mankiw’s friends saw this, they may have used their flexible business minds. Maybe you want to ask further, what if a domestic company does exactly the same thing? China does not prohibit all trading activities based on virtual currencies, but prohibits virtual currency-related business activities that are illegal financial activities. Having said that, if you want to ask further questions, you are welcome to consult lawyer Mankiw.

Reference materials

1. Criminal Law of the People's Republic of China (2020 revision)

Article 225 [Illegal Business Crime] Whoever violates state regulations and commits one of the following illegal business behaviors, disrupts market order, and the circumstances are serious, shall be sentenced to fixed-term imprisonment of not more than five years or criminal detention, and shall also be sentenced to: Or a fine of not less than one time but not more than five times the illegal income shall be imposed; if the circumstances are particularly serious, the person shall be sentenced to fixed-term imprisonment of not less than five years and shall also be fined not less than one time but not more than five times the illegal income or property shall be confiscated:

(1) Operating special items, monopoly items or other restricted items as stipulated in laws and administrative regulations without permission;

(2) Buying and selling import and export licenses, import and export certificates of origin, and other laws and administrative regulations operating license or approval document;

(3) Illegally operating securities, futures, or insurance business without the approval of the relevant national competent authorities, or illegally engaging in fund payment and settlement business >;

(4) Other illegal business activities that seriously disrupt market order.

2. Interpretations of the Supreme People's Court and the Supreme People's Procuratorate on several issues concerning the application of law in handling criminal cases of illegal fund payment and settlement business and illegal trading of foreign exchange

Article 1 Anyone who violates national regulations and falls under any of the following circumstances shall fall into the category of "illegal engagement in fund payment and settlement business" as stipulated in Article 225, Paragraph 3 of the Criminal Law:

(1) Using methods such as acceptance terminals or online payment interfaces to pay monetary funds to designated payers in illegal ways such as fictitious transactions, false prices, transaction refunds, etc.;

(2) Illegally paying for others Providing services for cashing out the unit's bank settlement account or transferring the unit's bank settlement account to personal accounts;

(3) Illegally providing check cashing services for others;

(4) Other illegal activities in capital The situation of payment and settlement business.

3. [Criminal Trial Reference] Wen Fusheng’s Cover-up and Concealment of Criminal Proceeds Case [No. 1093]