Using crypto assets to evade foreign exchange management? Starting from the Ten Billion Underground Bank Case

Source: Xiao Sa lawyer

For a long time, our country has been one of the more stringent countries in terms of foreign exchange management system. , Under normal circumstances, the annual domestic foreign exchange settlement and purchase limit per person is US$50,000. If this limit is exceeded, you need to bring a large amount of supporting documents to the bank for processing, which is extremely cumbersome and inconvenient. Therefore, in practice, some Chinese residents who work, travel abroad, study or immigrate abroad often need to use some "grey" means to transfer their assets abroad more conveniently and quickly.

Where there is demand, there is supply. Crypto-assets (especially cryptocurrencies) based on blockchain technology have characteristics such as point-to-point transmission and global transactions. Nowadays, there are more and more Individuals and organizations began to try to use cryptoassets as a tool to circumvent foreign exchange controls and evade taxes. Today, Sajie's team will start with a large underground bank case recently uncovered by the police in Qingdao, Shandong, involving a total amount of 15.8 billion yuan and involving 17 provinces and municipalities across the country, to analyze the "red line" risks of using crypto assets to evade the foreign exchange management system. .

01 What is my country’s foreign exchange management system like

Foreign Exchange Control, also known as foreign exchange management, simply means that a country's government in order to balance international payments To support and maintain the exchange rate of the domestic currency, restrictive measures are implemented on the import and export of foreign exchange. The concept of foreign exchange management first appeared during World War I. Due to the war, the international monetary system was already in a state of collapse. At that time, the more developed capitalist countries in the world had experienced huge international balance of payments deficits, and their currency exchange rates were sharply Fluctuations, a large number of capital flight incidents occurred, seriously affecting the country's financial order and social and economic development. Therefore, on the one hand, in order to concentrate funds for war; on the other hand, in order to prevent the flight of domestic capital from affecting the domestic economy, countries generally prohibit the free purchase and sale of foreign exchange and implement strict foreign exchange controls.

From the perspective of countries around the world, most underdeveloped countries generally adopt strict foreign exchange management systems out of consideration for the long-term stability of their own economic development, currency exchange rates and financial order. , such as our Southeast Asian neighbors Myanmar, Philippines, Thailand, etc. Some developed countries also have foreign exchange management, but the severity depends on the economic development status and industrial characteristics of each country. For example, the island countries next door do not control trade and non-trade balances in principle, but they still impose restrictions on foreign exchange. The receipts and expenditures of capital projects are controlled. Of course, there are also a small number of countries that have basically no controls on foreign exchange and allow their nationals, legal persons, and unincorporated entities to freely exchange their currencies. Such countries are generally old capitalist countries with extremely developed economies or some that have made their fortune in the energy export business. Exceptionally wealthy countries.

As mentioned before, our country is a country with relatively strict foreign exchange management. Friends who have experience in studying abroad or going abroad must be familiar with the "50,000 yuan rule". According to the "Implementation Rules of the Individual Foreign Exchange Management Measures" Article 2 stipulates: “The annual total amount of individual foreign exchange settlement and domestic individual foreign exchange purchase shall be managed. The annual total amount shall be the equivalent of US$50,000 per person per year. The State Administration of Foreign Exchange may adjust the annual total amount based on the balance of international payments. "In short, unless it is for a special purpose and the relevant procedures are completed in the bank, Chinese citizens can only exchange/receive foreign currency up to US$50,000 within a year. Therefore, the “50,000 yuan rule” is also called the “facilitation quota”.

It should be noted that the scope of use of the facilitation quota does not include "capital projects". In other words, if an individual wants to buy a house overseas, invest in overseas securities, insurance and other financial products, he cannot directly use this amount to purchase foreign exchange out of the country. Before crypto-assets became popular, Chinese residents would often “borrow” facilitated quotas from their family, friends, etc. to purchase foreign exchange to solve the problem of insufficient quotas. However, this kind of lending quotas and borrowing other people’s quotas are both Administrative violations, once verified, will be included in the "blacklist" by the my country Administration of Foreign Exchange. Not only will the facilitation quota for the next two years be cancelled, affecting personal credit, but in serious cases, they may also be suspected of crimes.

02 Ten billion cryptocurrency underground bank exchange case

November 2022 , Qingdao police discovered that thousands of accounts had abnormal transactions. The average daily turnover of these bank accounts was more than 3 million yuan, and the total transaction amount reached more than 2 billion yuan. After further verification, the police found that the large amounts of funds in these accounts were highly liquid. They were moved in and out of the accounts quickly and were all operated through online banking or mobile banking. The IP addresses of the operators were displayed overseas, but the account holders of these accounts were other than Jin’s son has been living abroad for a long time and has no record of leaving the country.

By inquiring about the fund flow of Jin’s account, it was found that a large amount of Jin’s funds were transferred to the bank account of Li, an employee of a county factory in the country, and the funds could only go in and out. After investigation, it was found that Li was a person in the currency circle who specialized in over-the-counter OTC and earned intermediary fees by helping others convert legal currencies into stable currencies such as USDT.

The case itself is not complicated. Jin is responsible for collecting the funds of Chinese residents who need to go abroad and handing them over to Li. Li exchanges legal currency for a variety of crypto assets through his own channels, and then Exchange crypto assets through overseas exchanges for stablecoins such as USDT that are easier to "sell". Because USDT is a crypto asset, not only is the transaction extremely convenient and concealed, it is also very convenient to carry it out of the country and exchange it for foreign currency abroad.

Currently, according to public information from the State Administration of Foreign Exchange, the persons involved in this case have been subject to criminal coercive measures on suspicion of illegal business operations.

03 What are the legal risks of using crypto assets to evade foreign exchange management?

1.Legal Risks of Underground Banks - Illegal Business Crime

It should be noted that foreign exchange management has always had a special "status" in our country. In my country's criminal law system, the "Decision on Punishing the Crimes of Fraudulent Purchase of Foreign Exchange, Evasion of Foreign Exchange and Illegal Purchase and Sale of Foreign Exchange" (hereinafter referred to as the "Decision") issued by the Standing Committee of the National People's Congress in December 1998 is the only one currently independent of In addition to my country's "Criminal Law", the separate criminal law in effect shows that my country attaches great importance to the foreign exchange management system. Article 4 of the "Decision" stipulates: "Whoever buys or sells foreign exchange outside the trading venues prescribed by the state and disrupts market order, if the circumstances are serious, will be convicted and punished in accordance with the provisions of "Illegal Business Crime" in Article 225 of the Criminal Law."

In 2018, the Supreme People's Court and the Supreme People's Procuratorate issued the "Interpretations on Several Issues Concerning the Application of Laws in the Handling of Criminal Cases of Illegal Fund Payment and Settlement Business and Illegal Trading of Foreign Exchange", which re-adjusted the prosecution standards for buying and selling foreign exchange. Specifically, Anyone who illegally engages in fund payment and settlement business or illegally buys and sells foreign exchange under any of the following circumstances shall be deemed to have “serious circumstances” for illegal business conduct: (1) The amount of illegal business is more than five million yuan; (2) The amount of illegal income is less than More than 100,000 yuan. The criteria for particularly serious circumstances are: (1) The amount of illegal business operations exceeds 25 million yuan; (2) The amount of illegal income exceeds 500,000 yuan.

Therefore, it is absolutely undesirable and a crime to use crypto assets to operate underground banks for currency exchange and circumvent my country's foreign exchange management system.

2.Legal Risks for Foreign Exchange Residents< /strong>

Generally speaking, for the model of direct exchange of legal currency for foreign currencies, the main targets of our country’s regulatory agencies are underground banks, and the intensity of investigation and punishment of individuals exchanging currency is not very strong. Moreover, Due to the strong inspection intensity of my country's customs and the small amount of funds required for traditional currency exchange, if detected, administrative penalties will generally be imposed. Under this traditional model, the risk of property loss for residents who exchange currency is high. bigger. However, if the model is to exchange fiat currency for cryptocurrency, it falls into a legal gray area for currency exchange residents, and this behavior has several potential risks.

First of all, currency exchange behavior violates the "Notice on Further Preventing and Dealing with the Risks of Speculation in Virtual Currency Transactions" (hereinafter referred to as the "9.24 Notice") issued by the People's Bank of China and other ten ministries and commissions. The "9.24 Notice" clearly stipulates that illegal financial activities such as the exchange business between legal currency and virtual currency, and the exchange business between virtual currencies are strictly prohibited and will be resolutely banned in accordance with the law. Those who carry out relevant illegal financial activities that constitute a crime will be investigated for criminal liability in accordance with the law. However, there are currently only cases of punishing individuals and organizations that conduct exchange business, and there have been no cases of punishing exchange customers.

Secondly, it depends on the purpose for which residents exchange currency, which may constitute a variety of illegal or even criminal acts. For example, some exchange residents take advantage of the fact that crypto assets are not easily investigated and use this new method of exchange as one of the means to evade tax supervision. Regulations" Chinese citizens' overseas income also needs to be taxed in accordance with the law, but cryptocurrency can effectively help users evade the tax supervision system under the traditional financial system. Such behavior by currency exchange users is illegal and may face administrative penalties or even criminal penalties.

04 Write it at the end

Sa The sister team reminds that in recent years, the use of cryptocurrency for money laundering, foreign exchange management evasion, terrorist financing and other crimes has been gradually increasing internationally. Mainstream countries in the world have also gradually strengthened the control of cryptocurrency, and our country is no exception. In fact, cryptocurrency-related businesses are illegal financial activities in my country. The use of cryptocurrency to evade tax supervision directly violates my country’s normal management order of foreign exchange and violates the “red line” of my country’s criminal law. Therefore, whether it is for underground banks or money exchanges, For Chinese residents with foreign exchange needs, there are various legal risks.