Case Overview and Sentencing
On July 1, 2026, the Shanghai Jing'an District People's Procuratorate announced the prosecution of a major cross-border virtual currency illegal exchange case involving over 200 million RMB. The court sentenced the principal offender Li and four others to prison terms ranging from six years down to two years and six months, along with fines between 1.5 million and 300,000 RMB. Four other individuals received a relative non-prosecution due to minor involvement. The case originated in July 2024 when China's State Administration of Foreign Exchange (SAFE) detected unusual transaction patterns linked to Company Z during its routine surveillance. Recognizing the large sums involved and potential criminal activity, SAFE promptly transferred the case to public security authorities through the administrative-criminal linkage mechanism. Between September and December 2024, four suspects including Gao were arrested, while Chen and another person voluntarily surrendered. In total, nine individuals have been apprehended, with one key suspect still under investigation.
Modus Operandi: Virtual Currency 'Leverage' and Pool Settlement
Company Z was incorporated overseas in 2019 by Zhou (handled separately) and marketed itself as a 'private bank' with a fake virtual banking app to create legitimacy. However, it operated only a small office in China and never obtained any foreign exchange license. The scheme worked as follows: clients seeking currency exchange would contact intermediary agents (e.g., study abroad or immigration consultants Fu and Chen). These agents referred clients to Company Z, where account managers Gao and Li assigned traders and customer support staff to set up WeChat groups. Clients were instructed to purchase virtual coins from various OTC vendors and deposit them into Company Z's overseas virtual wallets. The group then converted the coins into foreign currency abroad and transferred the funds to clients' designated offshore accounts. Critically, no real cross-border movement of fiat money occurred; instead, the company used separate domestic and offshore pools to settle transfers internally. Company Z charged clients a 3% service fee and paid the agents a 0.5% commission.
Regulatory Implications and Industry Warning
This case exemplifies how virtual currencies can be exploited for cross-border 'leveraging' (over-the-counter settlement without actual fund flows) to bypass traditional banking surveillance. The operation facilitated illegal capital outflows and money laundering. SAFE's proactive detection using big data analytics, combined with swift administrative-criminal handoff, demonstrates the authorities' determination to crack down on crypto-linked financial crimes. For crypto industry participants, this serves as a stark reminder: even if virtual coin trading is legal in some jurisdictions, using it for unauthorized currency exchange within China constitutes a serious violation of foreign exchange laws and criminal regulations. Company Z's high profit margin (3% fee) and kickback structure (0.5% to agents) highlight the attraction of such schemes, but the sentences handed down—up to six years in prison—underscore the severe legal consequences. As regulatory technology advances, similar 'leveraging' models will become increasingly detectable and prosecutable.