The Supreme People's Procuratorate released a case of illegal foreign exchange trading using virtual currency. How Zhao Dong was cheated by his teammates for seven years

On December 27, 2023, the Supreme People's Procuratorate and the State Administration of Foreign Exchange jointly released typical cases of punishing foreign exchange-related crimes. In the first case, Zhao and others were involved in illegal operations. Zhao was Zhao Dong, the former No. 1 over-the-counter trader. One of the key words in the case was "prosecution of missed crimes" . Today, Lawyer Liu will give you a deep look at how Zhao Dong was pitted by his bad teammates for seven years.

Zhao Dong was arrested in the early morning of June 24, 2020, and then entered the criminal prosecution process. On September 30, the Xihu District Branch of the Hangzhou Public Security Bureau transferred the fact that Zhao Dong and others illegally engaged in fund payment and settlement business to prosecution on suspicion of illegal business operations. On April 15, 2021, the Xihu District People's Court of Hangzhou issued an announcement that Zhao Dong's case was scheduled for 9:30 am on May 12, and the suspected crimes were "illegal business operations and assisting information network criminal activities."

According to OukeChain News, Zhao Dong had already pleaded guilty and accepted punishment before the trial, and the procuratorate gave a specific sentencing recommendation. According to the prosecutor, Zhao Dong's team provided virtual currency over-the-counter exchange services for part of the funds of the "Tiantianxiang" platform. The verifiable transactions involved amounted to more than 20 million yuan, and the profits were distributed according to the shareholding ratio of 70%. The procuratorate sued Zhao Dong:

The profit was more than 30,000 yuan, and the recommended sentence was two years, which could be suspended.

There was an uproar in the streets, and people generally thought that they looked down on Dong's ability to make money. According to the typical cases released by the Supreme People's Procuratorate's official account today (the Supreme People's Procuratorate and the State Administration of Foreign Exchange jointly released typical cases of punishing foreign exchange-related crimes), we can clearly understand the details of the case. At that time, the exact amount of the crime committed by Zhao Dong's team was as follows: From June to December 2019, Zhao Dong and others knew that You's money came from an illegal payment and settlement platform, but still used their personal bank accounts to collect RMB and exchanged virtual currency with You to make a profit, with a total transaction amount of more than RMB 24.29 million.

Zhao Dong made a profit of 35,000 yuan, while Zhao Moupeng and Zhou Moukai each made a profit of 5,000 yuan.

Zhao Moupeng and Zhou Moukai are members of Zhao Dong's team. During the stage of transferring their cases for review and prosecution, the procuratorate recommended a sentence of one and a half years for the two. Zhou Moukai voluntarily pleaded guilty and accepted punishment, but Zhao Moupeng insisted on not pleading guilty (stupid teammate). There was also an OTC named Yu Mou who insisted on his innocence, and the recommended sentence was also one and a half years.

According to the notice, "in response to Zhao and others' defense that they were not aware of You's illegal payment and settlement business and the suspected crimes of the funds involved, etc.", we learned that during the prosecution and trial process, Zhao Moupeng must not have pleaded guilty. I guess the reason for his innocent defense is that he felt that even if he did not plead guilty, the prosecutor's recommended sentence would only be one and a half years. Anyway, he had been in prison for a long time, so he might as well give it a try. Even if he was sentenced, he would be able to get out soon. If he was found not guilty, he would be copied.

Little did they know that the gears of fate had begun to turn, and this time, they were turning in the opposite direction.

The Xihu District People's Court held three public hearings on the case. In the trial on May 12, 2021, in order to clarify the subjective knowledge of each suspect in response to the issue of innocent defense, the prosecutorial technical personnel of the Xihu District Procuratorate further recovered and extracted the mobile phone data of the suspects transferred by the public security organs, and analyzed the chat records between You and the Zhao Dong gang, Zhou Moukai and others, which was sufficient to confirm the fact that Zhao Dong and others knew that You was engaged in illegal payment settlement.

The key point! The key point! The key point! When reviewing the extracted mobile phone chat records, the Xihu District Procuratorate found evidence that Zhao's gang also used virtual currency to provide foreign exchange exchange services, suspected of illegal foreign exchange trading crimes.

On February 11, 2022, the Xihu District Procuratorate filed a public prosecution against Xiao, You, Zhao and others for the crime of illegal business operation, and added the criminal facts of illegal foreign exchange buying and selling by Zhao, Zhao Moupeng and Zhou Moukai.

In other words, the procuratorate originally wanted to prove through the chat records of the people involved that Zhao Dong and others were aware of the illegality of the upstream funds, but in the process of checking the chat records, it was found that Zhao Dong had missed a crime. In other words, if Zhao Moupeng did not defend his innocence and voluntarily pleaded guilty, the procuratorate would not have dug deeper into the chat records of the people involved.

The Xihu District People's Court held three public hearings for this case, and on March 24, 2022, sentenced Zhao Dong to seven years in prison for illegal business operations and Zhao Moupeng to four years in prison. Compared with the sentencing recommendations given for the previous guilty plea, Zhao Dong and Zhao Moupeng certainly could not accept it. Seeing that they were about to be released, they were suddenly shocked and appealed. On September 5 of the same year, the Hangzhou Intermediate People's Court of Zhejiang Province ruled to dismiss the appeal and uphold the original verdict.

Gossip aside, Lawyer Liu Yang talks about the legal issues that everyone is most concerned about:

1. Don't always make a not guilty defense. This sentence was not said by me, but by the famous criminal law scholar Zhang Mingkai. The original words were "Lawyers should not always make a not guilty defense", "A case has gone through the public security, procuratorial and judicial departments, and the court. If it is not guilty, how can it proceed? The people in the public security, procuratorial and judicial departments cannot all be people who do not understand the law, right? So don't make a not guilty defense." I mentioned in my previous article that a lawyer's not guilty defense is just a job, while the client is life. If a lawyer succeeds in one out of 100 not guilty defenses, it is called a success, so as a client, you still have to know it in your mind. Today, I also saw that Liang Liang's wife, Ms. Lin Kai, posted a message saying that Liang Liang was sentenced to 10 years in prison in the first instance. This is the heaviest sentence for organizing and leading pyramid schemes, and it is also the heaviest sentence for this crime in the currency circle that I know of. Even if he does not hire a lawyer, it can't be any worse, not to mention that his sister and wife are facing criminal risks.

2. Not all U transactions constitute illegal business operations. This is the most concerning issue. The Supreme People's Procuratorate has eight typical cases, mainly involving cross-border illegal foreign exchange transactions (focusing on illegal foreign exchange transactions). The typical significance of Zhao Dong's case is that "using virtual currency as a medium to achieve the exchange of RMB and foreign exchange constitutes an illegal business operation." If only virtual currency is used as a medium to achieve the exchange of RMB and virtual currency, it does not involve foreign exchange and does not constitute an illegal business operation.

A closer look at the Zhao Dong case reveals what kind of evidence standards are required to prove that buying and selling virtual currency constitutes an illegal business operation: (1) Retrieve the transaction details of the domestic bank accounts involved in the 15 transaction records. The bank transaction details can be verified with the transaction data in the chat records in terms of amount and time. (2) Make interrogation records of the recipients of the 15 transactions, confirming that the 15 payment records are all foreign trade-related expenses paid by overseas persons. (3) Interrogate Zhao and his gang members. All criminal suspects admit that Zhao and others received dirhams in cash in Dubai, paid RMB to the domestic accounts provided by the other party, and used dirhams to buy Tether. At the same time, they let the domestic gang illegally sell Tether in exchange for RMB. (4) Conduct targeted inspections on the seized computers, mobile phones and other electronic data carriers, determine the virtual currency wallet address controlled by the criminal gang, and then compare the transaction records of the virtual currency wallet with the bank account flow to find out the capital flow link of Zhao's criminal gang "foreign currency-virtual currency-RMB".

Therefore, lawyer Liu Yang has repeatedly stated that the case of buying and selling U in Dapu County reported by the Guangdong Provincial High Court does not constitute the crime of illegal business operation, mainly because it lacks the link of exchanging virtual currency for foreign currency. The so-called illegal business operation cases of disguised foreign exchange trading must meet one condition, that is, on the surface, it is the act of buying and selling virtual currency, but in fact, the currency value conversion between foreign currency and RMB is realized by using Tether as a medium, which is illegal foreign exchange trading and constitutes the crime of illegal business operation.

3. Predictions of bloody storms for U merchants. The last time I made such a prediction was after the PLUSTOKEN case was exposed by the media in December 2020. After the release of this typical case, buying and selling U equals illegal business, which will form a solid impression in grassroots judicial organs. In addition, the crime of illegal business operation is characterized by the difficulty of explaining it in detail. It is predicted that there will be many cases of U merchants involving illegal business operations in the future, including many bigwigs who have already washed their hands of the business, which should be given enough attention.

4. I hope people in the circle don’t make money that they shouldn’t make. U merchants, as the most indispensable part of the currency circle, have been involved in online gambling fraud for the past few years, covering up and helping Xin, and then wading into the muddy water of foreign exchange. You should know that our country implements foreign exchange control. You can do whatever you want with OTC in your own country, and the money is nothing more than transferring from one hand to the other. But you have taken all the money out in this way, which is a bit too much. Underground banks, cross-border trade, and money laundering are absolutely not allowed.

5. Regarding the characterization of virtual digital currency, it is still not considered as funds. From the typical cases reported, virtual digital currency is always regarded as a "medium". From this statement, it can be seen that the property attributes of virtual digital currency are essentially denied.

6. The significance of the joint document issued by the State Administration of Foreign Exchange. The circular shows that the procuratorate and the foreign exchange administration department have made remarkable achievements in comprehensively using administrative law enforcement and criminal justice means, strengthening the connection between law enforcement and execution, and severely punishing foreign exchange-related crimes. My personal opinion is that there is no special significance. The typical cases released this time are all cases involving illegal foreign exchange transactions. The joint document issued by the State Administration of Foreign Exchange aims to emphasize that "we will earnestly implement the deployment and requirements of the Central Financial Work Conference, strictly enforce the law, dare to show the sword, and work with judicial organs to maintain a high-pressure crackdown on illegal cross-border financial activities." However, in the process of investigating specific criminal cases, the role it can play is limited. It is only to determine whether a certain type of foreign currency is foreign exchange. But so far, I have not seen a precedent for foreign exchange administrations at all levels to directly identify virtual digital currencies as foreign exchange.