Guangdong High Court: "This kind of price difference cannot be profited from"—Does Buying and Selling USDT Constitute Illegal Business Operations?
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Guangdong High Court: "This kind of price difference cannot be profited from"—Does Buying and Selling USDT Constitute Illegal Business Operations?
Trading USDT does not constitute the crime of illegal business operations.
Navigating Web3 tides with focused insightsAuthor: Zhu Yong (Andy)
Let me state my conclusion upfront: personally, I believe that buying and selling USDT does not equate to de facto foreign exchange trading, nor does it constitute the crime of illegal business operations.
Now, let’s dive into why—read on below.
01 Cash USDT Trading Convicted as Illegal Business Operation
On December 16, 2023, the Guangdong Provincial High Court published an article titled "This Kind of Profit Should Not Be Made!" The article discussed a criminal case decided in 2022. It emphasized that U traders engaging in arbitrage by buying and selling USDT is equivalent to trading U.S. dollars—constituting a form of de facto foreign exchange trading. If the transaction amount exceeds 5 million RMB, it constitutes the crime of illegal business operation.
Prior to this, within the cryptocurrency community, the only recognized criminal liability arising from crypto transactions involved receiving illicit funds—where individuals were presumed to have acted knowingly, leading to charges either of aiding and abetting information network criminal activities (Bangxin crime), or concealing criminal proceeds (Yinyin crime). (Here we are only discussing potential charges applicable to pure U traders.)
However, the case highlighted by the Guangdong High Court shattered this understanding.
The incident occurred in February 2022. Defendant A was a U trader who frequently purchased USDT from retail investors and then resold them for cash to bulk buyers. On one occasion, A arranged a face-to-face transaction with buyer C in Zhongshan City, Guangdong Province—exchanging digital assets for physical cash. Given the large sum involved, A even hired bodyguard B to accompany him. They exchanged approximately 814,000 USDT at the prevailing USD-to-RMB exchange rate, totaling about 5.1 million RMB. However, during their return trip, A and B were intercepted at a police checkpoint and arrested.
This is a classic example of offline, person-to-person, cash-based USDT sales. The entire transaction involved no illicit funds and no actual currency conversion—only the act of buying and selling USDT—yet still resulted in a conviction for illegal business operations. The defendant did not appeal, and the judgment has become final.
The court ruled that A and B used virtual currency trading as a means to conduct de facto foreign exchange transactions, constituting serious circumstances under the crime of illegal business operations. A was deemed the principal offender, while B, though serving only as a bodyguard, participated throughout and was aware of the activity, thus qualifying as an accomplice.
Ultimately, both were convicted of illegal business operations, with A sentenced to eight months in prison and B to six months. The 5.1 million RMB seized was confiscated as illegal gains. Additionally, since B's mobile phone was used in the commission of the crime, it was also confiscated as a criminal instrument.
The presiding judge in the original trial stated:
According to Article 2 of the "Interpretation by the Supreme People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Application of Law in Handling Criminal Cases Involving Illegal Fund Payment Settlements and Illegal Foreign Exchange Trading," conducting unauthorized foreign exchange trading or de facto FX transactions that seriously disrupt financial market order shall be punished under Item (4) of Article 225 of the Criminal Law as the crime of illegal business operations.
Defendant A purchased USDT from retail "crypto circle" investors at below-market prices using cash, then resold them based on the daily USD exchange rate, profiting from the spread. According to A’s own confession, he even took out bank loans—amounting to over a million RMB—to finance these USDT purchases for resale. Such large-scale capital flows converting RMB into USD equivalents via USDT inevitably reduce national foreign exchange reserves, undermine macro-level FX management, damage the RMB’s exclusive legal tender status domestically, severely interfere with effective FX control mechanisms, destabilize official exchange rates, and disrupt normal financial market order. Therefore, this constitutes de facto foreign exchange trading and should be criminally sanctioned.
02 Is Buying/Selling USDT Equivalent to Buying/Selling USD?
I believe there is a clear logical flaw in the above legal reasoning. I do not agree with the judicial view that trading USDT equates to illegal foreign exchange trading.
First, we must clarify: what exactly is foreign exchange?
Article 3 of the "Regulations of the People's Republic of China on Foreign Exchange Control" defines foreign exchange as follows:
(1) Foreign currency notes, including paper money and coins;
(2) Foreign currency payment instruments or tools, such as bills, bank deposit certificates, bank cards, etc.;
(3) Foreign currency securities, including bonds, stocks, etc.;
(4) Special Drawing Rights (SDRs);
(5) Other foreign exchange assets.
Clearly, USDT is not included in any of these categories. Moreover, no law, regulation, rule, or normative document in China classifies USDT as foreign exchange.
Furthermore, the "Notice on Further Preventing and Responding to Risks of Virtual Currency Trading Speculation" ("September 24 Notice") issued on September 24, 2021, by ten departments led by the People's Bank of China—including the Supreme People's Court, Supreme People's Procuratorate, and Ministry of Public Security—also defined virtual currencies. Paragraph (1) of Article 1 states:
(1) Virtual currencies do not have legal status equivalent to fiat currency. Cryptocurrencies such as Bitcoin, Ethereum, and Tether (USDT) are characterized by non-issuance by monetary authorities, use of cryptographic techniques and distributed ledger technology, and digital existence. They lack legal tender status and should not and cannot be used as currency in market circulation.
The message is clear: virtual currencies are specific types of virtual commodities, not money. And if they are not money, they certainly cannot be considered foreign exchange. Therefore, buying and selling USDT does not equate to de facto foreign exchange trading.
03 Does Buying/Selling USDT Constitute Illegal Business Operations?
We can examine the official stance through typical foreign exchange-related cases involving virtual currencies jointly released by the State Administration of Foreign Exchange and the Supreme People's Procuratorate:
Scenario One where trading virtual currency constitutes illegal business operations:
Using USDT or other virtual currencies as intermediaries to convert RMB into foreign currencies, thereby constituting illegal business operations. When individuals use virtual currencies as a medium—exploiting their unique attributes to bypass national foreign exchange controls—and carry out value transfers through the "RMB → virtual currency → foreign currency" pathway, this qualifies as de facto foreign exchange trading and should be criminally prosecuted under the charge of illegal business operations.
Scenario Two where trading virtual currency constitutes illegal business operations:
When individuals collude in advance with or knowingly assist others engaged in illegal foreign exchange trading by providing virtual currency transaction services to facilitate conversions between domestic and foreign currencies, they constitute joint offenders in the crime of illegal business operations. Those who provide virtual currency trading services to such individuals but only generally recognize the illegality without specific knowledge of assisting in illegal FX trading may instead be charged with aiding information network criminal activities.
Only in the above two scenarios can such conduct be deemed de facto foreign exchange trading and thus constitute the crime of illegal business operations. In the Guangdong High Court case mentioned earlier, Defendant A’s behavior followed only the model of “RMB → virtual currency,” with no subsequent conversion into foreign currency. This fails to meet Scenario One, nor does it relate to Scenario Two in any way.
Secondly, a prerequisite for the crime of illegal business operations is "violation of state regulations." According to Article 96 of the Criminal Law, "violating state regulations" refers specifically to violations of laws, decisions made by the National People's Congress (NPC) and its Standing Committee, administrative regulations, administrative measures, decisions, and orders issued by the State Council.
In other words, only regulations established by the NPC, its Standing Committee, or the State Council qualify as "state regulations." The "September 24 Notice," however, was issued by ten ministerial-level departments including the People's Bank of China—it is classified as a departmental rule, not a "state regulation." Furthermore, the notice explicitly does not prohibit individual citizens from investing in virtual currencies. Therefore, buying and selling USDT does not violate any state regulations, and thus cannot constitute the crime of illegal business operations.
04 Conclusion
Therefore, I maintain that buying and selling USDT does not constitute the crime of illegal business operations. In the absence of clear legal provisions, criminal law should exercise restraint, uphold the principle of legality in criminal matters (nullum crimen sine lege), apply strict standards for criminalization, and avoid infringing upon citizens' legitimate rights and interests.
"The law favors no powerful person; justice bends not for wrong." This was the presiding judge’s motto, emphasizing fairness, impartiality, and equal treatment under the law. But upon re-examining this case—was justice truly served?
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