Case Overview: Over 200 Million Yuan Involved, Main Defendants Sentenced
The Shanghai Jing'an District People's Procuratorate recently prosecuted a cross-border illegal foreign exchange case involving more than 200 million yuan (approximately $28 million) in virtual currency. The court sentenced the main defendant Li and four others to prison terms ranging from six years to two years and six months, and imposed fines from 1.5 million yuan to 300,000 yuan. Four other individuals were granted relative non-prosecution. The case originated from abnormal clues detected by the State Administration of Foreign Exchange in July 2024 during routine monitoring of Company Z. The clues were transferred to public security authorities through the administrative-criminal coordination mechanism. Between September and December 2024, suspects Gao and three others were arrested, while Chen and another surrendered. One main suspect remains under investigation.
Modus Operandi: Virtual Currency 'Knock-on' Model with Onshore and Offshore Fund Pool Settlement
Company Z was registered overseas in 2019 by Zhou (handled separately), and outwardly marketed itself as a 'private bank' with a companion virtual banking app to create a legitimate façade. It maintained only an office in China without obtaining the required foreign exchange business license, engaging in illegal forex activities. When clients needed currency exchange, they were referred to Company Z by study-abroad or immigration agents like Fu and Chen. Client managers Gao and Li arranged traders and customer service to set up group chats, requiring clients to purchase virtual coins from authorized dealers and deposit them into Company Z's overseas virtual wallet. The group then converted the virtual coins into foreign currency abroad and transferred it to the client's designated offshore account. No actual cross-border fund flows occurred; settlement was purely onshore versus offshore pool settlements. Company Z charged a 3% service fee and paid agents a 0.5% commission.
Legal Outcome and Warnings
In total, nine individuals were brought to justice. The court issued guilty verdicts for Li and four others, while four received relative non-prosecution. This case underscores that although virtual currency used for cross-border illegal forex exchange can bypass traditional supervision through blockchain technology, the combined monitoring of the State Administration of Foreign Exchange and public security forces, along with the administrative-criminal coordination mechanism, have formed an effective crackdown capability. Industry participants and individuals must strictly comply with foreign exchange regulations and avoid engaging in such illegal financial activities.