Lawyer's point of view | Analysis of the regulatory environment behind the investigation of the currency exchange

Author: Hu Tao

Source: The chain catcher's recent investigation of the currency exchange has triggered industry attention. What may be the reason for the currency market being investigated? What risks do you need to pay attention to when operating an exchange? What is the current regulatory environment for the exchange?

This time, the chain catcher (find the chain corporation to exchange views on the currency market event and the current regulatory environment, as a professional lawyer team engaged in blockchain enterprise compliance and digital asset dispute resolution, the professional perspective of the chain law team It is worth seeing.

Chain Catcher: How to understand the incidents of the currency exchange? There are important relationships between the rumors and the currency trading conducted by the currency exchange. What do you think? The chain method team: its promotional materials show that the currency trading in the currency market means that the user can directly trade the US stocks directly using the cryptocurrency USDT on the currency exchange. From the current legal requirements, the currency trading may involve three legal issues: First, illegally engaged in securities trading, suspected of constituteing illegal business

According to the NPC Law Committee's third item of "Illegal Business Crime" in Article 225 of China's Criminal Law, without the approval of the relevant competent authorities of the State, illegally operating securities and futures, disrupting market order, and serious circumstances constitute an illegal business operation. .

The illegal operation of securities and futures business here mainly refers to the following kinds of acts: without the approval of the relevant competent authorities, the securities or futures brokerage business is carried out without authorization; the securities, futures consulting companies and investment service companies engaged in securities and futures consulting business are unauthorized. Beyond the business scope, engaged in securities and futures business.

The official website of the currency city shows that it is wholly owned and operated by BISS Limited (a Cayman Islands company or its related authorized branch), which is an NFA registered licensed fund management agency. For the time being, regardless of the authenticity of the license , the currency transaction of the currency market itself is for domestic investors. If it involves crime, according to the principle of territorial jurisdiction, the domestic judicial authority has jurisdiction, that is, according to the provisions of our criminal law, if the currency Stock trading behavior is characterized as illegally operating securities and futures, which may be suspected of constituteing an illegal business operation .

Second, the lack of supervision of currency trading is huge, and the investment risk is huge.

The most profound and original purpose of the relevant securities management legislation in various countries is to "protect investors". Through the protection of investors, the interests of both the supply and demand sides of the securities market can be balanced to ensure the healthy and sustainable development of the securities market.

As mentioned above, the currency trading itself is carried out in the absence of supervision. It is difficult for investors' rights to be effectively protected after a dispute arises. From the perspective of investor protection, if the currency market event is the result of supervision, it should be justified.

Third, the relevant legal provisions for suspected violation of fund payment settlement and foreign exchange trading

On the whole, in the currency trading, the user does not really hold the US stock, but the CFD created by the currency market.

The currency market BISS stated in an AMA in the media: When you sell this Tesla, we will also sell it on the Nasdaq and convert the corresponding US dollar into USDT and return it to your account .

Here, when the user completes the USDT recharge, the platform gathers a large number of USDTs. What are these USDTs used for? What funds does the currency market use to buy the corresponding US stocks? We have no way of knowing these issues.

On January 31, 2019, the Supreme People's Court and the Supreme People's Procuratorate issued the "Interpretation of Several Issues Concerning the Application of Laws in Handling Illegal Funds Payment and Settlement Business and Illegal Trading of Foreign Exchange Criminal Cases" (hereinafter referred to as "Interpretation"). The definition of funds payment and settlement business, the definition of illegal trading of foreign exchange crimes, and the conviction and sentencing standards are clarified.

As is known to all, China implements a compulsory management system for foreign exchange, that is, any organization or individual engaged in foreign exchange trading and foreign exchange settlement in China must obtain the permission of the State Administration of Foreign Exchange and conduct it at a designated place.

The essence of the currency trading is " RMB purchases USDT (BMAN once told the media that the currency market does not involve this part of the business), the currency market team opened a US stock account overseas to help investors buy and sell US stocks ." According to the regulations on foreign exchange management, Chinese citizens can only exchange foreign currency of no more than 50,000 US dollars in one year, and the currency trading mode has substantially exceeded the quota of 50,000 US dollars. It is suspected that the exchange of dollars is not allowed in disguised form. .

The mode of currency trading, when the state's attitude toward the regulation of USDT digital assets is still unclear, there is great uncertainty and great risk. If it is used by lawless elements as a money laundering tool and a channel for transferring money, the platform will also ignite the upper body.

From the above three points, we can easily find that the legal issues of the digital currency trading platform focus on the " anti-money laundering " problem that it faces, and the " anti-money laundering " issue is undoubtedly the minefield of all exchanges and the regulatory focus of the government departments. .

As mentioned in the introduction of the background of the above-mentioned "Interpretation": underground money houses have become the main channel for criminals to engage in money laundering and transfer of funds. They not only involve crimes in the economic field, but also become channels for the transfer of criminal activities such as online gambling. The "money laundering tools" and "accomplice" of corrupt elements and terrorist activities have seriously disrupted the financial market order and seriously endangered the country's financial security and social stability. They must be severely punished according to law.

In addition, Article 5 of the Interpretation stipulates that illegally engaging in fund payment settlement business or illegal trading of foreign exchange constitutes an offence of illegal business operation, and at the same time constitutes a crime of helping terrorist activities as stipulated in Article 120 of the Criminal Law. Article 119 of the crime of money laundering shall be convicted and punished according to the provisions of heavier punishment.

Chain Catcher: In fact, there are many IEO projects in the currency market. Some of them have plummeted. What are the risks of the IEO model from a regulatory perspective?

Chain method team: In essence, the process of IEO is actually the process of project financing based on the exchange, and its essence is the behavior of token financing.

According to the Announcement on the Prevention of the Risk of Subsidy Issuance Financing jointly issued by the Central Bank and the Central Network Information Office on September 4, 2017, it was pointed out that the token issuance financing is suspected of illegally selling tokens and illegally issuing securities. And illegal criminal activities such as illegal fund-raising, financial fraud, and pyramid schemes. The chain law team believes that no matter what the " O " is in the current domestic regulatory status, it is difficult to guarantee the legality of issuing virtual currency (or disguised form) for the purpose of raising funds .

Chain Catcher: What are the risks of the platform currency issued by the exchange?

The chain law team: Whether it is the platform currency issued by the exchange or the IEO project, it is suspected of illegal fund-raising crimes .

Take the illegal absorption of public deposits as an example. According to relevant judicial interpretations, the characteristics of the crime of illegally absorbing public deposits include: (1) absorbing funds without the approval of relevant departments or borrowing legal business; (2) using the media, promotion conferences, flyers, mobile phone text messages, etc. Publicity; (3) Commitment to repay the principal or interest in the form of money, in kind, equity, etc. within a certain period of time; (4) to absorb funds from the public, that is, socially unspecified objects.

Formally, platform coins and IEO seem to meet the above conditions at the same time:

First, the fundraising activities have not been approved;

Second, invite celebrity platforms, referrals through vertical media, or exchanges for publicity;

Third, promise or disguised commitment to return;

Fourth, there is no relative or affiliation between the investor and the fundraiser and the number of people may increase at any time.

Chain Catcher: How do we understand the current Chinese digital currency regulatory environment? Will the currency market event become the starting point for the exchange rectification?

Chain Law Team: First of all, after considering various factors comprehensively, we believe that the state's attitude towards the blockchain is relatively clear, namely: encouraging the development of blockchain technology, recognizing the commodity attributes of some digital currencies, and prohibiting the issuance of tokens .

Secondly, from the legislative point of view, the main normative documents regulating the relevant behaviors in the field of digital currency include the “Notice on the Prevention of Bitcoin Risks”, “Announcement on Preventing the Risk of Subsidy Issuance Financing”, etc. The attitudes indicated in the above documents can be summarized as : The cryptocurrency represented by Bitcoin is a virtual commodity, but financing through token is illegal.

At the same time, it should be emphasized that the views expressed in the relevant normative documents cannot be concluded that " digital currency is illegal, because the bond debt generated by digital currency is not protected ", there has always been a misreading of the "June 4th Announcement" .

Third, in judicial practice, some judicial organs tend to deny the legality of digital currency and the creditor-debtor relationship caused by digital currency according to the "Announcement on Preventing the Risk of Subsidy Issuance Financing", but this view is debatable.

The early judgments with similar views gave the public the impression that digital currency was illegal. But with the spread of relevant concepts, the attitude of the judiciary is constantly changing. For example: On July 18, 2019, the "first domestic bitcoin infringement dispute case" represented by the chain law team was opened in the Internet Court of Hangzhou and sentenced to judge the virtual property attributes of tokens or digital currencies such as Bitcoin. Confirmed.

Finally, the recent People’s Daily published that the blockchain innovation does not mean speculating on digital currency. It should be prevented from using the blockchain to speculate on air currency. This shows that the official attitude is very clear.

The general view is that this wave of blockchain booms is not a market act but a policy act. Then, can we understand that this coin market incident is not an individual case, but a signal of supervision? We think the answer is yes .

On the one hand, the exchange is originally the main place for "speculating coins", which is already at the center of the whirlpool; on the other hand, the lending business and futures contract business should be carried out under the strict supervision of licensed financial institutions. The business model of currency trading is even more blatantly entering the regulatory focus. It is only a matter of time before the chaotic trading industry and the government departments rectify.

In view of this, the urgency and necessity of the exchange to conduct self-examination of its business model and conduct a compliance check is self-evident.

Chain Catcher: What are the risks of gambling-based games based on cryptocurrencies currently on some exchanges?

Chain Law Team: This type of behavior is suspected of driving a casino or illegal business.

According to China's "Criminal Law", if a casino is opened, it shall be sentenced to fixed-term imprisonment of not more than three years, criminal detention or control, and fined; if the circumstances are serious, it shall be sentenced to fixed-term imprisonment of not less than three years and not more than ten years. "Opinions of the Supreme People's Court, the Supreme People's Procuratorate, and the Ministry of Public Security on Several Issues Concerning the Application of Laws in Handling Cyber ​​Gambling Crimes" stipulates that the use of the Internet, mobile communication terminals, etc. to transmit gambling videos, data, and organize gambling activities has one of the following circumstances: The act of “opening a casino” as stipulated in the second paragraph of Article 303 of the Criminal Law:

(1) establishing a gambling website and accepting bets;

(2) Establishing a gambling website and providing it to others to organize gambling;

(3) acting as an agent for the gambling website and accepting bets;

(4) Participating in the profit sharing of the gambling website.

In addition to this, it is necessary to emphasize two issues. One is the jurisdiction, the law stipulates that the geographical jurisdiction of online gambling crime cases should adhere to the principle of the jurisdiction of the criminal land and the jurisdiction of the defendant's residence. The "criminal place" includes the location of the gambling website server, the network access point, the gambling website creator, the manager's location, and the gambling website agent and the gambling gambler to implement the online gambling behavior. In other words, as long as the creator and manager of the gambling website are in the territory, the domestic judicial authority has jurisdiction.

The second is about the issue of joint crimes. Knowing that it is a gambling website, and providing the following services or help, it is a joint crime of opening a casino. These services include providing Internet access, server hosting, network storage space for gambling websites, Communication transmission channels, advertising, membership development, software development, technical support and other services, the amount of service fees is more than 20,000 yuan.

On the other hand, according to the provisions of Article 6 of the Supreme People's Court and the Supreme People's Procuratorate's Interpretation on Several Issues Concerning the Specific Application of Gambling Criminal Cases, if the lottery is issued or sold without the approval of the state, which constitutes a crime, the crime of illegal business shall be punishable. On the table.

Chain Catcher: What are the operational risks of the exchange's OTC function?

Chain Law Team: For the exchange, the OTC business, on the one hand, may increase the compliance risk of anti-money laundering and anti-tax evasion . In the case of over-the-counter trading, users are more likely to break away from the platform for private transactions, which will make the flow of funds more difficult to track. As mentioned above, in any country, "anti-money laundering" is a regulatory focus and cannot be ignored.

On the other hand, China's law stipulates the joint liability of the network platform provider in the case of user infringement. When the OTC transaction is carried out, the platform is easily implicated by users, and the government's regulatory policies on blockchain and digital currency still have With certain uncertainty, trading platforms may face greater risk.

Chain Catcher: Nowadays, many exchanges use cryptocurrencies for foreign business cooperation, wages and internal settlement. What are the hidden dangers?

Chain Method Team: The main risks include two aspects.

First, anti-money laundering and tax compliance risks;

Since the decentralized cryptocurrency has natural anonymity and cross-border nature, the problem of anti-money laundering has always been a problem faced by cryptocurrency. Payment and settlement through cryptocurrency can easily lead to funds leaving the regulatory line of sight, leaving money laundering crimes Under the opportunity.

Franklin once said: "In this world, nothing but death and taxation is certain." Although in many people's eyes, only the former is truly certain, we must emphasize that it is for individuals or companies. In other words, tax compliance is crucial, especially today when tax rule of law is becoming more and more perfect.

In the United States, for example, there are already clearer digital currency tax guidelines. That is to say, payment settlement using cryptocurrency should also be taxed according to law. Generally, the US tax authority will use the fair value of the cryptocurrency as the tax basis to levy income tax on the cryptocurrency obtained by the taxpayer.

Although there is no clear regulation on cryptocurrency in China, from the current legislation, the use of cryptocurrency does not exempt taxpayers from tax liability. Therefore, for the payment and settlement behavior using cryptocurrency, the tax risk is a Dharma Chris's sword. According to the chain law team, some of the insiders of the circle are paying taxes according to the law for the income related to digital currency .

Second, due to the large fluctuations in the value of digital currencies and the uncertainties in regulatory policies, exchanges and risks may arise during the actual payment or settlement process.

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