CoinWorld reports:
In international trade, cross-border e-commerce companies theoretically should conduct currency exchange and cross-border payments through legitimate channels. However, some business owners still choose to engage in private currency exchange through illegal means.
There are several reasons for opting for private currency exchange: considerations of economic costs (legitimate channels may involve higher fees and tax costs, whereas private exchanges offer more advantageous rates), time costs (formal exchange processes may require more time and documentation), regulatory avoidance (engaging in grey/black market transactions), and objective difficulties in currency exchange (such as economic sanctions imposed by the US on other countries, restrictions on Russian banks using the SWIFT system, and limitations on Iran conducting transactions in US dollars). If Chinese enterprises engage in trade with these countries, obstacles may arise in settlements between foreign currencies and the Renminbi.
Due to these reasons, some business owners directly convert funds through underground banks or currency exchange intermediaries, while others opt for indirect methods like converting to USDT cryptocurrency or game cards.
Transactions in currency exchange involve multiple parties including underground banks, intermediaries, currency traders, and company finance personnel following instructions from the boss. If any individual in this chain is investigated by the public security authorities, they may disclose the upstream and downstream parties involved in the transaction in an attempt to mitigate their own culpability.
As to whether currency exchange transactions conducted by bosses of foreign trade companies for operational needs constitute the crime of illegal business operations, this remains a point of legal discussion.
By Shiwei Shao, Lawyer
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There are many similar situations in practice. For instance, Zhang San frequently needs large amounts of US dollars, and Li Si, who has a wide network and knows many bosses of foreign trade companies, including Wang Wu, is one of them. Every time Zhang San needs US dollars, he transfers Renminbi to Li Si. After deducting his service fee, Li Si transfers the remaining amount to Wang Wu, who coincidentally also needs to convert funds received from overseas trade operations into Renminbi.
Li Si acts as an intermediary, providing currency exchange services for Zhang San and Wang Wu, profiting from the price difference. (Previously, Lawyer Shao has written several articles on whether “intermediaries in foreign exchange trading” constitute the crime of illegal business operations, and friends who have read them should know that Li Si, as an intermediary, does indeed constitute the crime of illegal business operations). One day, Li Si was arrested and, in order to “gain merit,” implicated Wang Wu, claiming that all the US dollars he transferred to Zhang San were provided by Wang Wu.
Subsequently, Wang Wu received a call from the police, requesting his cooperation in the investigation. He then consulted Lawyer Shao to determine if his actions constituted a crime. Lawyer Shao believes they do not, primarily because:
Wang Wu’s currency exchange activities are not business activities conducted with profit as the goal.
Why would Wang Wu, as the boss of a foreign trade company, cooperate with Li Si in currency exchange? Because his company’s accounts receive substantial payments in foreign trade, for various reasons, finding a convenient and quick intermediary like Li Si is beneficial. Therefore, the fundamental difference in the purpose of currency exchange between Wang Wu and Li Si is clear. Li Si brokers exchanges between the two for profit, whereas Wang Wu merely wishes to convert his foreign currency income into Renminbi.
The crime of illegal business operations, colloquially known as a “pocket crime,” requires that the act in question be of a commercial nature with the goal of profit. Wang Wu did not intend to profit from the currency exchange transaction itself. For example, judgments such as Erye Jijian, Xingshi Busu (2019) No. 70 and Wenjian Gongsu Bu Xingshi Busu (2019) No. 1 hold this view: “Although XX violated regulations on foreign exchange management by exchanging foreign exchange for others, the foreign exchange exchanged came from the foreign trade company managed by him personally, and the exchange of foreign exchange was not for profit. The behavior lacks the constituent elements of the crime of illegal business operations.”
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Opening the discussion: What if Wang Wu also received income from currency exchange in addition to converting his payments?
Zhang San urgently needs US dollars, but Li Si is facing a shortage of funds. Seeing Li Si’s predicament in exchanging US dollars for his client Zhang San, Wang Wu proposes that the exchange can proceed but he will charge a service fee. Li Si agrees. In this scenario, Wang Wu would be suspected of illegal business operations. However, whether this constitutes a crime still depends on a specific analysis of the case.
Defense points for lawyers can be expanded as follows:
1. Insufficient evidence to convict
Currency exchange through indirect “matching” is often covert in practice. The relationships depicted in the illustration are simplified for clarity, but in reality, Zhang San, Li Si, and Wang Wu typically do not directly handle payments. They instruct affiliated companies (or relevant personnel) both domestically and internationally. Besides Zhang San, who needs foreign currency, there may be Zhang San 1, Zhang San 2, Zhang San 3…, Li Si, and Wang Wu. Li Si’s role is actually that of a fund allocator among numerous currency exchange parties. Which transaction did Li Si facilitate between Zhang San and Wang Wu? What was the transaction amount? Is the evidence chain complete in establishing related relationships?
Was Wang Wu’s subjective intent in currency exchange purely to convert his own payment income, or did he also intend to profit from the currency exchange spread? Can there be evidence to prove this? If both of Wang Wu’s aforementioned purposes exist, the relevant amount related to payment should be deducted from the amount involved. If judicial organs cannot clarify this, according to the principle of benefit of the doubt in favor of the defendant, the amount that cannot be clarified should also be deducted from the amount involved.
For instance, in case No. (2020) Yue 0781 Xing Chu 181, the court held that:
Key witnesses did not provide related testimony, and this part of the facts could not be clarified. Consequently, it was concluded that Xie Xiaocan paid corresponding Renminbi to Wang Xiao based on the settlement method agreed upon between Xie Weican and Wang Xiaozhi during the currency exchange, Xie Xiaocan did not intend to profit, nor was there evidence to prove that the currency exchange was conducted with profit in mind. Thus, the doubts benefited the defendant, and Xie Xiaocan’s behavior was not deemed to constitute the crime of illegal business operations. The prosecution’s corresponding accusations lacked sufficient evidence and should be excluded from the case. The defense’s arguments that this behavior did not constitute the crime of illegal business operations were adopted.
2. Mitigating factors warranting non-prosecution due to minor circumstances
According to legal provisions, illegal foreign exchange trading must meet the standard of “serious circumstances” to constitute a crime. If the amount involved in the offender’s currency exchange transactions is around 5 million or the illegal gains are around 100,000, or lower than the aforementioned amounts, it may be argued that the circumstances of this case are minor. According to legal provisions, the procuratorate may decide not to prosecute or the public security organs may withdraw the case.
For example, in the case of Rongjian Xingbusu [2021] No. 64, Lin, operating a company in Hong Kong, needed to convert US dollars into Renminbi. Therefore, he used the “matching” method with his accomplice, Ma, to exchange US dollars for Renminbi. Specifically, Lin transferred US dollars from his Hong Kong account to Ma’s designated Hong Kong account, and Ma controlled bank accounts to transfer Renminbi to Lin’s bank account. Lin and Ma engaged in illegal foreign exchange trading, with a transaction amount exceeding RMB 5.13 million. The public prosecution considered that Lin had committed a minor offense and decided not to prosecute, given his confession.
3. Other defense points to seek leniency
For instance, committing crimes on behalf of an organization, accomplice, confession, merit, repayment, etc., are conventional defense points in criminal cases that require specific case analysis, which is not detailed in this article.
Lawyer’s advice:
The viewpoint of this article is that if the person’s currency exchange is not a business operation conducted with the goal of profit, it does not constitute the crime of illegal business operations, which is also the mainstream view in judicial practice. However, our country does not strictly follow precedent law, and in a few judicial cases, individuals have been convicted (such as the well-known case of Huang Guangyu), so criminal risks still exist.
Additionally, according to administrative regulations related to foreign exchange management, private currency exchange, even if not criminal, constitutes an administrative violation. Therefore, to avoid potential legal risks, currency exchange must go through legitimate channels.
