Why are cryptocurrency transactions frequently involved in cross-border currency exchange-related crimes?
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Why are cryptocurrency transactions frequently involved in cross-border currency exchange-related crimes?
Why Do Crypto Transactions Frequently Cross the Red Line on Cross-Border Currency Exchange? What Should You Watch Out For?
Navigating Web3 tides with focused insightsAuthor: Xu Qian, Partner at Shanghai Manqin Law Firm;
Xu Xiaohui, Lawyer at Shanghai Manqin Law Firm
Introduction
Since the creation of Bitcoin, its repeated price surges have fueled a global craze for cryptocurrencies. At its peak, Bitcoin surpassed $100,000, and the total market capitalization of cryptocurrencies briefly exceeded the global circulation of U.S. dollars. This has led to the emergence of numerous cryptocurrency trading platforms and active over-the-counter (OTC) trading using USDT as an intermediary.
Under current Chinese policy, some individuals use crypto assets to privately exchange foreign currency for RMB, profiting from exchange rate spreads and service fees. While seemingly technologically neutral, such practices operate under significant legal risks. These activities may violate Article 225 of the Criminal Law (Illegal Business Operations) and Article 191 (Money Laundering).
In this article, the Manqin legal team draws on practical experience to help you understand: Why do crypto transactions frequently cross the red line into "cross-border foreign exchange conversion"? And what should you watch out for?
Is Cryptocurrency "Property" or "Data"? How Does the Law Define It?
I. Terminology
Terminology in academic and industry literature—both domestic and international—is inconsistent when referring to crypto assets like Bitcoin. 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 money, intangible assets, claims, or merely data representing rights—judicial authorities hold varying views, and academia has reached no definitive conclusion.
II. Legal Position of Cryptocurrencies in China
1. From a civil law perspective, cryptocurrencies are not considered legal tender or securities. However, both civil legislation and judicial practice recognize their status as virtual property (Article 127 of the Civil Code), which is 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 controllability—meeting the criteria for virtual network property. Thus, they constitute a form of property protected by law.
Although cryptocurrencies manifest as digital or computer system data, we must look beyond their data form to recognize their underlying nature as assets. Bitcoin, Ethereum, and similar tokens represent digitized assets—the essence lies in the asset, not the data. Just as the value of a ledger resides not in the paper but in the information it records, many legally protected interests—such as trade secrets and state secrets—are also expressed through data. For example, stealing digitized technical information or state secrets via computer networks may constitute 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 appear as data, they represent tradable and monetizable economic interests. Legally, they should be recognized as digitized assets with "property attributes."
Why Are Crypto Transactions Frequently Classified as "Cross-Border FX Conversion"?
In recent years, an increasing number of cryptocurrency-related cases have been categorized as "de facto cross-border foreign exchange conversion," with responsible parties facing criminal liability. The reason is not that cryptocurrencies themselves are illegal, but rather that their transaction methods, technical features, and financial functions closely resemble traditional illegal FX exchange operations. Specifically, these overlaps include the following aspects:
I. Transaction Patterns Mimic FX Exchange, Falling Under Illegal Business Operations
Traditional illegal FX exchanges typically involve underground banks, proxy purchases, or fabricated trade backgrounds. In contrast, crypto users achieve value conversion through pathways like "RMB → Cryptocurrency → Foreign Currency" (or vice versa), effectively bypassing official foreign exchange controls and circumventing individual purchase limits.
Although these transactions technically avoid direct interaction with banking systems, their outcome remains the unauthorized exchange between RMB and foreign currencies—constituting "other serious acts disrupting market order" under Article 225 of the Criminal Law. In many cases, cryptocurrency platforms, market makers, and intermediaries have been held accountable as key players in the FX conversion chain, sometimes even prosecuted.
Judicial practice commonly identifies the following characteristics in crypto-based FX conversion:
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Peer-to-peer matching without financial licenses: Transactions are matched via communities or platforms lacking official qualifications for foreign exchange or payment services.
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Decoupling of fund flows and token transfers: Receiving RMB domestically while delivering crypto abroad (or vice versa), creating separation between fiat fund movement and crypto delivery.
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Clear service provision: Participants charge fees or profit from exchange rate spreads, moving beyond personal investment into providing FX conversion services.
This "crypto-as-a-bridge" model essentially uses technology to bypass national regulatory boundaries on capital account management.
II. Technical Features Enhance "Stealth" and "High Liquidity," Evading Regulatory Oversight
Anonymity and Coin Mixing Undermine KYC Effectiveness
The decentralized nature of crypto assets allows most transactions to occur without identity verification or reporting. Furthermore, mixing services can break the on-chain link between addresses and identities. This combination of "chain-breaking + obfuscation" significantly impairs regulators' ability to trace funds and identify participants.
No Physical Border Restrictions for Cross-Border Transfers
Crypto assets can cross borders instantly with just internet access—no bank accounts, physical channels, customs, or foreign exchange oversight required. A single USDT address can send or receive value globally from any node, making unrestricted international transfers technically feasible and far harder to regulate than traditional financial systems.
"Gray Channels" Bypassing the $50,000 Annual Limit
Some investors convert RMB into USDT, then into USD, HKD, or other foreign currencies, ultimately transferring funds overseas for investments, real estate, or vehicle purchases. While appearing as mere asset allocation, this method effectively exceeds the individual annual $50,000 FX purchase limit—an act of "covert FX buying."
Unclear Role Definition for Matchmakers, Increasing Platform Risk
Some OTC platforms provide services including address sharing, fund escrow, exchange rate mediation, and dispute resolution. These go beyond simple information matching and amount to active participation in currency exchange. If large volumes or profit margins are involved, judicial authorities may view platform operators as FX facilitators rather than ordinary users.
III. Macro-Level Threats to Financial Security and Regulatory Order
The payment and pricing functions of crypto assets partially replace the RMB’s role in cross-border scenarios. As more domestic capital leaves the country through "crypto-denominated" pathways, the RMB's position in cross-border settlements is undermined, potentially affecting long-term macroeconomic control.
Creation of Parallel "Underground Financial Systems" Outside Banking Infrastructure
The circulation of stablecoins like USDT enables certain market participants to build gray financial networks based on blockchain assets, bypassing traditional banking systems. When intertwined with overseas gambling, fraud, tax evasion, or other high-risk activities, systemic risks emerge.
Untraceable Fund Flows Enable Illicit Activities
Anonymous transactions combined with coin mixing and unregulated channels create fertile ground for money laundering and terrorist financing. This goes beyond compliance concerns—it's a matter of financial security and national safety.
What Should Individual Investors Watch Out for in Crypto Trading?
I. Avoid Participating in OTC Services Like "Foreign Exchange Proxy Purchasing" or "Exchange Rate Hedging"
Using crypto as an intermediary to provide cross-border payment and FX conversion services for profit exploits the unique properties of cryptocurrencies to circumvent state foreign exchange regulations. Converting between foreign currency, crypto, and RMB constitutes de facto FX trading. Individuals should exercise caution to avoid potential prosecution for "illegal business operations."
II. Strictly Comply With the Annual $50,000 FX Purchase Limit
Buying or selling crypto may seem like a simple asset transaction, but in substance, it involves converting between RMB and foreign currencies—equivalent to FX settlement or purchase. According to the Implementation Rules for the Administration of Individual Foreign Exchange, both individual FX settlement and purchase by domestic residents are subject to an annual quota of up to $50,000 per person.
III. Avoid Anonymous Funding Methods
Choose platforms with formal KYC procedures and ensure transaction transparency. Using anonymous funding channels—such as P2P OTC trades, coin mixers, or privacy coins—makes it difficult to verify the legitimacy of fund sources. If suspected of money laundering or supporting illegal activities, platforms may freeze accounts, resulting in financial loss. Additionally, anonymous channels are vulnerable to hackers, leaving user funds unprotected.
IV. Retain Documentation Proving Legitimate Purpose
If studying abroad, retain documents such as admission letters and tuition payment notices to demonstrate legitimate use of crypto transactions. Domestic workers should keep employment contracts, salary records, and tax payment receipts to prove that crypto trading is not their primary occupation.
Conclusion
Cryptocurrencies themselves are not inherently criminal—the issue arises when transactions involve cross-border movements, FX circumvention, anonymity, or regulatory evasion. Once linked to illegal business operations, money laundering, or foreign exchange control violations, individuals risk crossing legal red lines.
Not knowing the law isn't scary; what's dangerous is charging blindly into gray areas with a "what they don't know won't hurt them" mindset. Whether you're an investor or practitioner, understanding legal boundaries before engaging in crypto asset transactions is essential to avoid unnecessary criminal risks.
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