U merchant selling USDT (Tether) got into trouble and was arrested. How to prepare for a criminal defense?

USDT (Tether) merchant arrested, how to prepare criminal defense?

Recently, many inquiries have been made about the profitability of being a U merchant. There are many people doing it online, but they are unsure about the legal risks involved. So today, let’s discuss my views on the business of OTC merchants using USDT for arbitrage.

What does “arbitrage” mean for OTC merchants (U merchants)?

Usually, it refers to U merchants making a profit by buying USDT at a low price and selling it at a higher price on virtual currency trading platforms such as Huobi, Binance, and OKEx.

Can the U merchant business be done?

The answer is yes, after all, our country does not prohibit the trading of legal tender and virtual currency between individuals. With just a few clicks of the mouse, you can easily make thousands, tens of thousands, or even more through arbitrage.

However, there is a catch.

(Note: Here comes the catch)

The above is just an ideal scenario. If the U merchant’s trading volume is too high, the transaction flow is too large, or the transfers are too frequent, then you will face:

Permanent account suspension on Alipay or WeChat Pay

Multiple phone calls from the bank’s risk control department for investigation

Frozen bank accounts

Suspected of money laundering

Summoned by the police

Scammed

(And other possible situations)

Facing administrative penalties or frozen accounts and suspension of services can indeed be overwhelming. U merchants may have to cooperate with banks and administrative departments multiple times, provide written explanations, and submit relevant evidence materials.

But the more serious situation involves criminal legal risks.

According to the laws and judicial practices in our country, in OTC transactions, U merchants may be involved in criminal charges such as illegal business operations, concealment and hiding of criminal proceeds, criminal proceeds income, money laundering, assisting internet crime activities, fraud, and opening a gambling house.

Criminal risk: Illegal business operations

(1) Involved case details

An example: Mr. Zeng introduced multiple people to buy virtual currencies and helped others buy and sell multiple times using his own bank card. He was sentenced for illegal business operations by the court[i].

Since OTC transactions have not been classified as illegal criminal activities under the laws of our country, and our country does not prohibit the trading of legal tender and virtual currency between individuals, why would OTC merchants be involved in illegal business operations?

Let’s take a look at the legal provisions. According to Article 225 of the Criminal Law, the circumstances specified for the crime of illegal business operations are: “(3) Engaging in illegal fund payment and settlement business without approval from the relevant competent authorities.”

The term “illegal engagement in fund payment settlement” here refers to the act of assisting others in conducting large-scale fund transfer businesses that are not cashing out.

According to the regulations of the People’s Bank of China on “Payment and Settlement Measures”, banks are intermediary institutions for payment settlement and fund clearing, and non-bank institutions engaged in payment settlement business should obtain the “Payment Business License” approved by the People’s Bank of China.

Therefore, if a person who does not have the legal qualifications to engage in fund payment settlement engages in illegal activities such as providing domestic fund transfers for others and dispersing cash withdrawals, it constitutes this offense. For example: underground money laundering.

(2) Defense Points

From the perspective of the criminal elements of this offense, the lawyer has a good chance of making a non-prosecution or not guilty defense. The defense strategy generally includes the following points:

First, how to understand “fund payment settlement”?

Our country does not deny that virtual currencies have certain value, such as Bitcoin, which is classified as a “specific virtual commodity”. However, the law stipulates that virtual currencies do not have the same legal status as currencies.

“Payment settlement” refers to the transfer of funds between currencies. Since virtual currency is regarded as a “commodity”, the exchange between legal currency and virtual currency cannot be regarded as “fund payment settlement”.

In addition, the typical behavior pattern of “fund payment settlement” in the offense of illegal operation generally involves receiving large amounts of money, deducting a certain percentage of fees/service charges, and then making large-scale transfers to the payment account. The offender assists others in providing services such as large-scale collection and payment (such as cashing out from public accounts to private accounts) with the subjective motive of obtaining fee income. However, OTC merchants only make profits by arbitrage and buying low and selling high, which obviously does not match the behavior pattern of “fund payment settlement” in this charge.

Second, the arbitrage behavior of OTC merchants belongs to transactions between individuals. In the “Announcement on Preventing the Risks of Token Issuance and Financing” (referred to as “Announcement 94”), only ICO and exchanges are prohibited from engaging in exchange and information intermediary businesses. Therefore, C-to-C transactions are not prohibited in our country and are civil acts of legal buying and selling of virtual currencies among citizens.

Third, the offense of illegal operation in criminal law requires a “serious circumstance”. According to the relevant provisions of the law on the filing criteria for this offense, the amount of “illegal engagement in fund payment settlement business” needs to be over 2 million yuan or the amount of illegal gains needs to be over 50,000 yuan. If the transaction volume of OTC merchants does not meet the above-mentioned standards, it naturally does not constitute a crime.

In addition, the act of earning price differences through arbitrage should be regarded as a reasonable way of making profits. According to the principle of restraint in criminal law, the offender’s behavior does not have social harm and does not require criminal punishment.

Conclusion

In judicial practice, OTC merchants are not often convicted of the “payment settlement type” illegal operation crime described in this article. More commonly, they are convicted of the “buying and selling foreign currency type” illegal operation crime, which will be introduced in subsequent articles.


[i] Case Number: (2021) Shaanxi 01 Criminal Final No. 131

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