Case Overview and Judicial Outcomes
Shanghai Jing'an District People's Procuratorate recently filed a public prosecution against a cross-border virtual currency illegal exchange case with a total amount exceeding 200 million yuan (approximately $28 million). The principal offender, Li, and four others were sentenced by the court: Li received 6 years in prison and a fine of 1.5 million yuan; other defendants received prison terms ranging from 2.5 years to 6 years, with fines between 300,000 yuan and 1.5 million yuan. Four additional individuals were granted relative non-prosecution due to minor involvement. The case originated from routine monitoring by the State Administration of Foreign Exchange (SAFE) in July 2024, which detected abnormal transactions suggesting Company Z was using virtual currencies to help domestic clients transfer assets abroad. Given the massive sums involved, SAFE transferred the case to police through the 'administrative-criminal linkage' mechanism. From September to December 2024, four suspects including Gao were arrested; two suspects including Chen voluntarily surrendered. To date, nine individuals have been brought to justice, while one remaining principal offender is still under investigation.
How the 'Book-Transfer' Crypto Scheme Worked
Company Z was registered offshore in 2019 by Zhou (handled in a separate case), marketed itself as a 'private bank', and developed a fake virtual banking app to appear legitimate. The company only set up an office in mainland China without obtaining any foreign exchange business license. The modus operandi was as follows: When clients needed to move money abroad, they were referred by study-abroad or immigration agents (such as Fu and Chen) to Company Z. Relationship managers Gao and Li arranged for traders and customer service staff to create group chats with clients. Clients were instructed to purchase cryptocurrencies from various crypto dealers and deposit them into Company Z's overseas crypto wallets. The group then exchanged the crypto for fiat currency overseas and transferred it to clients' designated overseas accounts. Throughout the process, no actual cross-border fund flows occurred; instead, domestic and offshore fund pools settled separately (a classic 'duikang' or book-transfer method). Company Z charged a 3% service fee and paid agents 0.5% as a commission.
Implications: Regulatory Crackdown on Crypto Cross-Border Flows
This case is a textbook example of how Chinese regulators use the 'administrative-criminal linkage' mechanism to combat crypto-based illegal foreign exchange activities. SAFE's account monitoring flagged suspicious patterns, leading to swift police action and the arrest of all key players. The case underscores that the anonymity and cross-border ease of cryptocurrencies are being exploited by underground banks for traditional 'duikang' operations. Chinese authorities maintain a strict ban on crypto trading and any unlicensed cross-border exchange activities, which now carry severe criminal penalties. For crypto industry participants, compliance with anti-money laundering (AML) regulations and foreign exchange controls is non-negotiable. Any business involving cross-border fund movements must be properly licensed and reportable. The case serves as a strong warning to those attempting to use crypto assets to circumvent China's capital controls.