Illegal operation? Analysis of the criminal case involving USDT

Recently, when we were communicating with some friends in the cryptocurrency circle, we found that their identification of the nature of USDT was different from that of my country's criminal justice practice. In order to avoid the legal risks brought about by this tendency, this article will sort out the criminal interests and currency nature extension of disrupting the financial management order for readers, and analyze the criminal possibility of engaging in USDT exchange business.

The Status of Foreign Currency in my country's Criminal Law

In the view of some friends in the cryptocurrency circle, my country's laws only protect the legal tender value of the RMB, and the legal tender of other countries does not have the legal tender meaning. Based on this understanding, virtual currencies anchored to foreign currencies naturally have no possibility of endangering my country's financial management order. But unfortunately, this is not the case in my country's laws.

According to Article 7 of the "Interpretation of the Supreme People's Court on Several Issues Concerning the Specific Application of Laws in the Trial of Cases of Counterfeiting Currency, etc.": "The term 'currency' as used in this interpretation refers to RMB and foreign currencies that can be circulated or exchanged in the domestic market. The currency denomination shall be calculated in RMB, and other currencies shall be converted into RMB at the exchange rate published by the State Administration of Foreign Exchange at the time of the incident."

It can be seen from this that when my country evaluates monetary crimes, the scope of recognition of legal currency includes foreign currencies, which also creates legal risks for stablecoins anchored to foreign currencies.

Analysis of the nature of USDT

USDT is called "Tether" in Chinese. It is a digital currency issued by Tether. Tether promises that USDT can be exchanged with US dollars at a 1:1 ratio. That is, for every USDT coin issued by Tether, 1 US dollar will be deposited into its company account as a deposit, which has the characteristic of stable exchange.

But it is precisely because of this stability that the Sister Sa team believes that the one-to-one peg to the US dollar gives USDT certain legal tender and financial attributes. In terms of the specific circulation of USDT, USDT has been used as a settlement currency by many foreign virtual currency exchanges, and has the objective performance of replacing legal tender as the pricing standard.

In my country, individuals are limited to US$50,000 per year in exchanging foreign currency. However, individuals can circumvent foreign exchange controls by exchanging USDT on overseas exchanges, which may infringe on financial management order.

In summary, USDT is a virtual currency issued by non-official entities, has the nature of legal tender, and has the potential to replace legal tender in circulation.

Criminal legal risks of USDT exchange business

Based on the above discussion, the Sister Sa team believes that engaging in USDT exchange business in China may constitute the crime of illegal business operation as stipulated in Article 225 of the Criminal Law of the People's Republic of China.

The third and fourth items of this clause stipulate: "Whoever violates state regulations and engages in any of the following illegal business operations, thereby disrupting the market order, shall, if the circumstances are serious, be sentenced to fixed-term imprisonment of not more than five years or criminal detention, and shall be fined not less than one times but not more than five times the illegal gains; if the circumstances are especially serious, he shall be sentenced to fixed-term imprisonment of not less than five years, and shall be fined not less than one times but not more than five times the illegal gains or have his property confiscated: (3) illegally operating securities, futures, or insurance businesses without the approval of the relevant state authorities, or illegally engaging in fund payment and settlement businesses; (4) other illegal business operations that seriously disrupt the market order."

As mentioned above, USDT has the nature of legal tender, and the exchange business is often linked to the fund settlement business. Its possibility of replacing legal tender circulation is also easily covered by the above-mentioned umbrella clause. The Sajie team believes that the performance of USDT exchange business is likely to be consistent with the illegal business operations listed in the crime of illegal business operations.

In addition, regarding the premise of "violating national regulations" for the crime of illegal business operation, the Sajie team previously believed that the "national regulations" that the investigation agency is most likely to apply are Document No. 94 issued in 2017. However, according to the "Notice of the Supreme People's Court on Accurate Understanding and Application of "National Regulations" in the Criminal Law", acts that violate local laws and regulations and departmental regulations shall not be deemed as "violating national regulations". Therefore, we believe that this is the key to the USDT exchange business being acquitted.

However, Article 22 of the revised draft of the "People's Bank of China Law" published on October 23, 2020 broke this idea of ​​​​exculpation: "No unit or individual may produce or issue token tickets and digital tokens to replace the circulation of RMB in the market." Combined with the fact that the "People's Bank of China Law" was promulgated by the Standing Committee of the National People's Congress, its effectiveness level has reached the standard of "national regulations" in the criminal law. The USDT exchange business is an act of assisting the issuance of tokens and has the possibility of replacing the circulation of legal currency. Practitioners who engage in this business constitute the crime of illegal business operations, which is "violating national regulations." This is no longer a problem.

Final Thoughts

The criminal risks of USDT exchange business are becoming more and more obvious, and the path to acquittal for illegal operation is becoming narrower and narrower. In the case of less controversy over the basic criminal constitution, how practitioners can protect themselves becomes the most important thing. The Sajie team recommends acting with caution and seeking help from professionals in a timely manner to prevent financial people from suffering in prison.