Why are cryptocurrency transactions frequently suspected of cross-border currency exchange-related crimes?
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Why are cryptocurrency transactions frequently suspected of cross-border currency exchange-related crimes?
Cryptocurrency itself is not the "original sin"; the issue lies in whether transactions are cross-border, involve foreign exchange evasion, anonymity, or circumvent regulatory oversight.
Navigating Web3 tides with focused insightsAuthor: Manqin
Introduction
Since Bitcoin's inception, its repeated price surges have fueled global cryptocurrency enthusiasm. At its peak, Bitcoin surpassed $100,000, and the total market capitalization of cryptocurrencies even exceeded the global circulation of U.S. dollars at one point. This has led to a proliferation of cryptocurrency trading platforms and active over-the-counter (OTC) trading using USDT as an intermediary.
Under current Chinese policies, some individuals use crypto assets for private exchanges between foreign currencies and RMB, profiting from exchange rate spreads and service fees. While seemingly technologically neutral, such activities operate under significant legal risk. These operations may involve illegal business operations under Article 225 of the Criminal Law and money laundering under Article 191.
In this article, the Manqin legal team draws on practical experience to help you understand: Why do crypto transactions frequently cross the high-voltage line of "cross-border currency exchange"? And what should you watch out for?
Is Cryptocurrency "Property" or "Data"? How Does the Law Define It?
1. Terminology
Terminology in domestic and international literature regarding crypto assets like Bitcoin is inconsistent—terms such as cryptocurrency, crypto asset, digital currency, digital asset, and virtual currency are often used interchangeably. Because there is no consensus on the nature of cryptocurrencies—whether they are currencies, intangible assets, claims, or merely data representing holder rights—judicial authorities hold differing views, and academia lacks a definitive conclusion.
2. Legal Positioning of Cryptocurrencies in China
1. From a civil law perspective, cryptocurrencies are not legal tender nor securities. However, civil legislation and judicial practice recognize their nature as virtual property (Article 127 of the Civil Code), which should be protected by law.
2. From a criminal law perspective, cryptocurrencies meet the definition of "property" under Article 92 of the Criminal Law. They can be transferred for monetary consideration, generate economic returns, and possess characteristics such as value, scarcity, and control—meeting the criteria for virtual network property and thus constituting a form of property protected by law.
Although cryptocurrencies appear in the form of digital or computer system data, we must look beyond the data format to recognize their essential nature as assets. Bitcoin, Ethereum, and others represent digitized assets—the core is the asset itself, not the data. Just as the value of a ledger lies not in the paper but in the information it records. Similarly, under criminal law, many protected items such as trade secrets and state secrets are represented through data. If someone steals digital technical information or state secrets stored in another’s computer via cyber means, they may be charged with crimes like infringement of trade secrets or illegal acquisition of state secrets—precisely because the data represents valuable protected content.
In short, while crypto assets manifest as data, they represent tradable and monetizable economic interests. Legally, they should be viewed as digitized assets with "property attributes."
Why Are Cryptocurrency Transactions Frequently Classified as "Cross-Border Currency Exchange"?
In recent years, an increasing number of cryptocurrency-related cases have been categorized as "de facto cross-border currency exchange," with responsible parties facing criminal liability. The reason is not that cryptocurrencies themselves are illegal, but rather that their transaction pathways, technical features, and financial functions closely resemble traditional illegal foreign exchange practices. Specifically, this manifests in the following ways:
1. Transaction Patterns Mimic FX Conversion, Falling Under Illegal Business Operations
Traditional illegal FX conversion typically occurs through underground banks, proxy purchases, or fabricated trade backgrounds. In cryptocurrency scenarios, users achieve value conversion via "RMB → Cryptocurrency → Foreign Currency" or the reverse path, effectively bypassing official foreign exchange controls and circumventing purchase limits.
Although these transactions technically avoid direct interaction with banking systems, the result remains the illegal exchange of RMB for foreign currency—constituting "other serious acts disrupting market order" under Article 225 of the Criminal Law. In many cases, cryptocurrency platforms, market makers, and intermediaries are held accountable as key players in the "exchange chain," sometimes leading to criminal charges.
Judicial practice shows that crypto-based FX conversion often exhibits the following traits:
• Peer-to-peer matching without financial licenses: Transactions are facilitated through communities or platforms lacking authorization for foreign exchange or payment services.
• Decoupling of fund settlement and token flow: Receiving RMB domestically while disbursing tokens overseas (or vice versa), creating separation between fund transfers and crypto delivery.
• Clear service orientation: Participants earn fees or spread profits, moving beyond "personal asset allocation" into providing "FX exchange services."
This "crypto-as-a-bridge" model essentially uses technology to circumvent national regulation of capital accounts.
2. Technical Features Enhance "Stealth" and "High Liquidity," Evading Regulatory Tracking
• Anonymity and coin mixing weaken KYC capabilities
The decentralized nature of crypto assets allows most transactions to occur without identity verification or reporting, and mixers can further break the on-chain link between addresses and identities. This "chain-breaking + mixing" mechanism greatly reduces regulators' ability to trace funds and identify participants.
• Borderless transactions without physical constraints
Crypto assets can move across borders with just internet access, independent of bank accounts or physical channels. A single USDT address can send and receive assets globally without passing through customs, banks, or foreign exchange systems—granting unrestricted global transfer capability far harder to regulate than traditional monetary systems.
• A "gray channel" bypassing the $50,000 limit
Some investors convert RMB into USDT, then into USD, HKD, or other foreign currencies, transferring funds overseas for investments, real estate, or vehicle purchases. Though framed as investment, this effectively exceeds the individual annual $50,000 FX quota—an act of "covert foreign exchange purchase."
• Ambiguous role of transaction facilitators, raising platform risks
Some platforms offering OTC matching provide wallet addresses, fund escrow, exchange rate mediation, and dispute resolution—going beyond mere information brokering to actively participate in "currency conversion." When large volumes or profit margins emerge, authorities may classify them as FX organizers rather than ordinary users.
3. Macro-Level Impact on National Financial Security and Regulatory Order
The payment and pricing functions of crypto assets partially substitute for RMB in cross-border contexts. As more domestic capital exits via "crypto-native" routes, the RMB's role in cross-border settlements is challenged, potentially undermining macroeconomic control in the long term.
• Creation of a parallel "underground financial system" alongside the banking sector
The circulation of stablecoins like USDT enables some market participants to build gray financial networks based on on-chain assets, bypassing traditional banks. When linked with offshore gambling, fraud, tax evasion, or other high-risk activities, systemic risks arise easily.
• Untraceable fund flows enabling illicit activities
Anonymous transactions + mixing + unregulated channels create convenient avenues for money laundering and terrorist financing—not just compliance issues, but threats to financial security and national safety.
What Should Individual Investors Watch Out For in Crypto Trading?
1. Avoid Participating in OTC Services Like "Foreign Exchange Proxy Purchase" or "Exchange Rate Hedging"
Using cryptocurrencies as intermediaries to provide cross-border payment and exchange services for profit exploits their unique properties to bypass national foreign exchange controls. Converting between "foreign currency → cryptocurrency → RMB" constitutes de facto foreign exchange trading. Individuals should proceed cautiously to avoid being prosecuted for "illegal business operations."
2. Strictly Comply With Annual Personal FX Quota Regulations
Purchasing or selling cryptocurrencies may appear to be simple crypto transactions, but in substance, they involve value conversion between foreign currency and RMB—equivalent to foreign exchange buying and selling. According to the Implementation Rules for the Administration of Individual Foreign Exchange, both personal FX sales and purchases by domestic individuals are subject to annual quotas, each capped at $50,000 per person per year.
3. Avoid Using Anonymous Funding Channels
Cryptocurrency transactions should occur on platforms with formal KYC procedures, ensuring transparent transaction records. Depositing via anonymous methods such as P2P OTC trading, mixer services, or privacy coin exchanges makes it difficult to verify the legitimacy of fund sources. If suspected of money laundering or funding illegal activities, platforms may freeze accounts, resulting in financial loss. Additionally, anonymous channels are vulnerable to hackers, leaving user funds unprotected.
4. Retain Documentation Proving Legitimate Purpose
If studying abroad, retain documents such as admission letters and tuition payment notices to demonstrate legitimate use of cryptocurrency transactions. If working domestically, keep employment contracts, salary statements, and tax payment records to prove that crypto trading is not your primary occupation.
Conclusion
Cryptocurrencies themselves are not inherently "guilty"; the problem arises when transactions involve cross-border movement, FX bypassing, anonymity, or regulatory evasion. Once such behaviors intersect with illegal operations, money laundering, or foreign exchange controls, red lines are crossed.
Lack of legal knowledge is not frightening; what is dangerous is charging blindly into gray zones under the illusion of invulnerability. Whether individual investors or industry participants, all should clearly understand legal boundaries before engaging in crypto asset transactions to avoid unnecessary criminal risks.
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