Why are cryptocurrency transactions frequently implicated in cross-border currency exchange-related crimes?

Cryptocurrency itself is not the “original sin”, the problem is whether it is cross-border, circumvented, anonymous, and evasive in the transaction process.

Author: Mankiw

Introduction

Since the birth of Bitcoin, its price has surged multiple times, driving a global wave of crypto assets. At its peak, Bitcoin had surpassed 100,000 USD, and the total market capitalization of crypto assets even temporarily exceeded the global USD circulation. Consequently, a large number of crypto asset trading platforms have emerged, and over-the-counter trading mediated by USDT has become active.

Under the current policies in our country, some people are using Crypto Assets for private exchanges between foreign currencies and Renminbi, earning profits from exchange rate differences and service fees. It seems technically harmless, but in reality, it is under legal pressure. Such operations may involve illegal business operations under Article 225 of the Criminal Law and money laundering under Article 191.

In this tweet, the Mankun Law Firm will combine practical experience to help you analyze: Why do crypto transactions frequently hit the “cross-border currency exchange” high-voltage line? What do you need to pay attention to?

Are Crypto Assets “Property” or “Data”? How Does the Law Determine?

1. Title

The description of crypto assets such as bitcoin is confusing in the literature in related fields at home and abroad, and the concepts of cryptocurrency, crypto assets, digital currency, digital assets, and virtual currencies are often confused. Is it because it is difficult for all parties to reach a consensus on the attributes of cryptocurrencies, such as whether cryptocurrencies are currencies, intangible assets, claims, or data that symbolize the rights of holders? The attitude of the judiciary on this issue is varied, and the academic community is also inconclusive.

2. The Positioning of Crypto Assets in Our National Law

1. From the perspective of civil law, Crypto Assets are neither currency nor securities. Civil legislation and judicial practice affirm the virtual property attribute of Crypto Assets (Article 127 of the Civil Code), which should be protected by law.

2. From the perspective of criminal law, Crypto Assets comply with the provisions of Article 92 of the Criminal Law regarding “property”. Crypto Assets can be transferred through money as consideration, generating economic benefits, and possess characteristics such as value, scarcity, and disposability. They meet the criteria for constituting network virtual property and are protected by law, thus also belong to a form of property.

Although morphologically, cryptocurrencies are embodied as a kind of digital or computer information system data. But we should see the essence of their assets or property in the form of data. Bitcoin, Ether, etc. are the digitization of assets, and at their core are assets rather than data. Like a ledger, its value is not in the paper, but in the contents. From the perspective of criminal law, many contents such as trade secrets and state secrets protected by the criminal law are displayed through data, and if the perpetrator steals digital technical information and state secrets stored in others’ computers through computer network means, it may constitute the crime of infringing on trade secrets and illegally obtaining state secrets, and the reason is that the data infringed represents trade secrets or state secrets.

In simple terms, although Crypto Assets are presented in the form of data, what they represent behind the scenes are tradable and monetizable economic interests, which should be regarded as digital assets with “property attributes” at the legal level.

Why are Crypto Assets transactions frequently categorized as “cross-border currency exchange”?

In recent years, more and more cases involving cryptocurrencies have been characterized as “disguised cross-border currency exchange”, and those responsible have even been held criminally liable. The reason for this is not that cryptocurrencies themselves are illegal, but that they highly overlap with traditional illegal exchange behaviors in terms of transaction paths, technical characteristics and capital functions. Specifically, it is mainly reflected in the following aspects:

1. The pattern of conduct “simulated” the exchange process and fell into the category of the crime of illegal business operation

Traditional illegal currency exchange often operates through underground banks, agents for purchasing foreign exchange, and fictitious trade backgrounds. In the context of Crypto Assets, traders complete value conversion through the path “Renminbi → Crypto Assets → Foreign Currency” or the reverse path, thereby achieving the purpose of circumventing official foreign exchange regulations and breaking through foreign exchange purchase limit restrictions.

Although such transactions do not directly touch upon the banking system in form, their result is still the illegal exchange of Renminbi and foreign currencies, which constitutes the “other seriously disturbing illegal business operations” as stipulated in Article 225 of the Criminal Law. In many cases, Crypto Assets platforms, market makers, and intermediaries have been held accountable as key roles in the “exchange chain,” and even convicted.

In judicial practice, the behavior of exchanging Crypto Assets often presents the following characteristics:

• Peer-to-peer matching, non-financial license: Transactions are matched through communities or platforms without obtaining qualifications related to foreign exchange or payment services.

• Separation of fund receipts and coin flows: Receiving funds domestically, issuing coins abroad, or reverse operations, resulting in the separation of fund transfers and Crypto Assets delivery.

• The nature of the service is clear: participants receive fees or exchange rate differences, which is no longer “personal asset allocation,” but rather provides a “currency exchange service.”

This path of “using coin as a bridge and exchanging in disguise” essentially bypasses the regulatory boundaries of the state on capital projects through technical means.

2. Technical features promote “concealment” and “high liquidity”, breaking through regulatory tracking capabilities

• Anonymity and mixing mechanisms weaken KYC capabilities

The decentralized mechanism of Crypto Assets allows most transactions to be conducted without real-name verification or reporting, and even further disrupts the on-chain association between addresses and identities through mixing services. This “disconnection + mixing” mechanism greatly reduces the ability of regulatory agencies to identify the flow of funds and participants.

• Cross-border transactions have no physical boundary restrictions

Crypto Assets can be transferred across borders simply through the internet, without relying on bank accounts or physical channels. A USDT address can send and receive assets at any global node without going through customs, banks, or foreign exchange systems—this technically provides unlimited global transfer capabilities, making regulatory oversight far more challenging than in traditional currency systems.

• “Grey channel” beyond the $50,000 limit

Some investors use the Crypto Assets channel to exchange Renminbi for USDT, then convert it into foreign currencies such as US Dollars and Hong Kong Dollars, thereby facilitating overseas investments, purchasing property, and buying cars. This method seems like mere asset investment, but it actually surpasses the annual personal foreign exchange limit of 50,000 USD, falling under the category of “hidden foreign exchange purchases.”

• The role of transaction matching is difficult to define, and platform risks are high.

Some platforms provide services such as address, fund custody, exchange rate mediation, and dispute resolution for both buyers and sellers during the matching of over-the-counter transactions, which goes beyond the scope of information matching and essentially participates in “currency exchange.” Once a large transaction or profit from exchange rate differences occurs, it is easy for judicial authorities to consider them as currency exchange organizers rather than ordinary users.

III. Macroscopic Factors Affecting National Financial Security and Regulatory Order

The payment and pricing functions of Crypto Assets partially replace the role of the Renminbi in cross-border scenarios. As more and more domestic funds flow out through the “coin-based” method, the cross-border settlement status of the Renminbi is being challenged, which may long-term impact macroeconomic regulation.

• Forming an “underground financial system” parallel to the banking system

The circulation of stablecoins like USDT has allowed some market participants to bypass the banking system and establish a gray financial network based on on-chain assets. Once it intersects with high-risk activities such as overseas gambling, fraud, and tax evasion, it can easily lead to systemic risks.

• It is difficult to trace the flow of funds, which facilitates illegal activities.

Anonymous transactions + mixing mechanism + no censorship channels facilitate money laundering, terrorist financing, and other illegal activities. This is not only a compliance issue but also a financial anti-terrorism and national security issue.

What should individual investors pay attention to in cryptocurrency trading?

1. Avoid participating in “over-the-counter foreign exchange purchasing” and “exchange rate hedging”.

Using Crypto Assets as a medium to earn profits from exchange rate differences by providing cross-border exchange and payment services, it circumvents national foreign exchange regulations by utilizing the special properties of Crypto Assets. The conversion achieved through “foreign exchange to Crypto Assets to Renminbi” represents a value transformation between foreign exchange and Renminbi, which is considered a disguised buying and selling of foreign exchange. Individual investors should exercise caution to avoid being implicated in “illegal business operations” and facing criminal liability.

2. Strictly adhere to the regulatory requirements for individual annual foreign exchange purchase limits.

Buying and selling Crypto Assets, on the surface, appears to be the act of buying or selling Crypto Assets, but in essence, it is a conversion of currency value between foreign currency and RMB, belonging to foreign exchange purchase and settlement. According to the “Implementation Rules for Individual Foreign Exchange Management”, there is an annual total amount management for individual settlement and domestic individual foreign exchange purchase. The annual total amount is equivalent to 50,000 USD per person per year.

3. Avoid using anonymous recharge channels

To trade cryptocurrencies, you should choose a platform that has a formal KYC process and ensures that your transaction records are transparent. through P2P over-the-counter trading; Coin mixer services; It is difficult to track the legitimacy of the source of funds, and if it is suspected of money laundering or financing illegal activities, the platform may freeze the account, resulting in the loss of funds. In addition, anonymous channels are easy to be exploited by hackers, and the safety of user funds cannot be guaranteed.

4. Retain Legal Proof Materials

If studying abroad, you can provide admission letters, tuition payment notices, and other supporting materials to verify the legitimacy of the transaction of Crypto Assets. If a citizen is working domestically, they can keep labor contracts, salary statements, tax payment certificates, etc., to prove that they are not engaged in the business of buying and selling Crypto Assets.

Conclusion

Crypto Assets themselves are not the “original sin”; the problem lies in whether the transaction process involves cross-border activities, circumvention of currency controls, anonymity, or evading regulation. Once these behaviors are linked to illegal operations, money laundering, or foreign exchange controls, they may cross the red line.

Not understanding the law is not frightening; what is frightening is rushing into the gray area in a state of “ignorance is bliss.” Whether you are an individual investor or a practitioner, you should clearly understand the legal boundaries and avoid unnecessary criminal risks before participating in Crypto Assets trading.