Mankun Lawyer | Why are Crypto Assets trading frequently suspected of cross-border Exchange Currency-related crimes?

Introduction Since the birth of Bitcoin, its price has surged multiple times, driving a global cryptocurrency boom. At its peak, Bitcoin had surpassed $100,000, and the total market value of cryptocurrencies even briefly exceeded the global circulating supply of US dollars. Following this, there has been a significant emergence of cryptocurrency trading platforms, as well as active over-the-counter trading mediated by USDT. Under the current policies in our country, some individuals utilize cryptocurrency assets for the private exchange of foreign currencies and Renminbi, earning profits from exchange rate differences and service fees. While this may seem technically harmless, it is actually under legal pressure. Such operations may involve illegal business operations under Article 225 of the Criminal Law, as well as money laundering under Article 191. In this post, the Mankun Law Firm team will combine practical experience to help you analyze: Why do crypto transactions frequently hit the "cross-border currency exchange" pressure point? What do you need to pay attention to? Is cryptocurrency "property" or "data"? How does the law define it?

1. Title The terminology used in the literature regarding crypto assets such as Bitcoin is rather chaotic both domestically and internationally. Concepts like cryptocurrency, crypto assets, digital currency, digital assets, and virtual currency are often conflated. This confusion arises because there is a lack of consensus on the properties of cryptocurrencies, such as whether they are currencies, intangible assets, rights of claim, or data that symbolizes the rights of the holder. Judicial authorities have varying attitudes towards this, and there is no definitive conclusion in academia.
2. The Positioning of Cryptocurrency by Our Country's Laws
3. From the perspective of civil law, cryptocurrency is not currency nor is it a security. Civil legislation and judicial practice affirm the virtual property attributes of cryptocurrency (Article 127 of the Civil Code), which should be protected by law.
4. From the perspective of criminal law, cryptocurrency meets the definition of "property" as stipulated in Article 92 of the Criminal Law. Cryptocurrency can be transferred as consideration in exchange for money, generating economic benefits, and possesses characteristics such as value, scarcity, and disposability. It satisfies the constitutive elements of virtual property on the Internet and is protected by law; therefore, it is also a form of property. Although cryptocurrencies manifest as a type of digital or computer information system data in form, we should see the essence of their assets or properties through the data form. Bitcoin, Ethereum, and others are the digitalization of assets, with the core being the assets themselves and not the data. Like a ledger, its value does not lie in the paper but in the recorded content. From the perspective of criminal law, many contents that criminal law protects, such as trade secrets and state secrets, are presented through data. If an individual uses computer network means to steal digital technology information or state secrets stored in another person's computer, it may constitute the crime of infringing trade secrets or illegally obtaining state secrets. The reason is that the data being infringed upon represents trade secrets or state secrets. In simple terms, although crypto assets are presented in the form of data, they represent tradable and realizable economic interests behind them, and from a legal perspective, they should be regarded as digital assets with "property attributes." Why are cryptocurrency transactions frequently characterized as "cross-border currency exchange"? In recent years, an increasing number of cases involving cryptocurrency have been classified as "disguised cross-border currency exchange" behavior, and the responsible parties have even been held criminally liable as a result. The reason for this is not that cryptocurrencies themselves are illegal, but rather that their trading paths, technical characteristics, and financial functions highly overlap with traditional illegal currency exchange behaviors. Specifically, this is mainly reflected in the following aspects:
5. The behavior pattern "fictitiously" created the currency exchange process, falling into the category of illegal business operations. Traditional illegal foreign exchange often operates through underground banks, agency purchases, and fictitious trade backgrounds. In the cryptocurrency scenario, traders complete value conversion through the path "RMB → Cryptocurrency → Foreign Currency" or the reverse path, thereby achieving the purpose of circumventing official foreign exchange regulation and breaking through foreign exchange purchase limits. Although such transactions do not directly touch the banking system in form, their result is still the illegal exchange of RMB and foreign currencies, which constitutes the "illegal business activities that severely disrupt market order" as stipulated in Article 225 of the Criminal Law. In many cases, cryptocurrency platforms, market makers, and intermediaries have been held accountable as key players in the "exchange chain" and have even been criminally charged. In judicial practice, cryptocurrency exchange behaviors often exhibit the following characteristics: Peer-to-peer matching, non-financial license: Transactions are matched through communities or platforms without obtaining qualifications related to foreign exchange or payment services. Decoupling of fund receipt and currency flow: Receiving funds domestically and issuing currency abroad, or vice versa, creates a separation between fund transfers and the delivery of crypto assets. Nature of service is clear: Participants collect fees or exchange rate differences, no longer engaging in "personal asset allocation" but rather providing "currency exchange services." This path of "using currency as a bridge for disguised exchange" essentially bypasses the regulatory boundaries of the state on capital projects through technical means.
6. Technical characteristics promote "concealment" and "high liquidity", breaking through regulatory tracking capabilities. Anonymity and mixing mechanisms undermine KYC capabilities The decentralized mechanism of crypto assets allows most transactions to be conducted without real-name verification or reporting, and can even further disrupt the on-chain association between addresses and identities through mixing services. This "disconnection + mixing" mechanism greatly reduces the ability of regulatory agencies to identify the flow of funds and the parties involved. Cross-border transactions have no physical boundary restrictions Cryptographic assets can be transferred across borders solely through the internet, without relying on bank accounts or physical channels. A USDT address can send and receive assets at any point globally, without going through customs, banks, or foreign exchange systems—this technically provides an unrestricted ability for global transfers, making regulatory oversight much more challenging than in traditional currency systems. The "gray channel" that breaks through the $50,000 limit Some investors use cryptocurrency channels to exchange RMB for USDT, and then convert it into foreign currencies such as USD or HKD, thereby remitting funds for overseas investments, home purchases, and car purchases. This method appears to be merely asset investment, but in fact, it has bypassed the annual limit of $50,000 for individual foreign exchange purchases, which falls under "implicit foreign exchange purchasing." The roles of trading matching are difficult to define, and the platform risks are high. Some platforms provide services such as address, fund custody, exchange rate intermediation, and dispute mediation for buyers and sellers when matching OTC transactions, which has gone beyond the scope of information matching and essentially participated in "currency exchange". Once there is a large transaction or a profit from the exchange rate difference, it is easy for the judicial authorities to consider it as a foreign exchange organizer rather than an ordinary user. Third, the macro level affects the country's financial security and regulatory order The payment and pricing functions of crypto assets partially replace the role of the Renminbi in cross-border scenarios. As more domestic funds flow out through a "currency-based" approach, the Renminbi's status in cross-border settlement is being challenged, which may affect macroeconomic regulation in the long run. Forming an "underground financial system" parallel to the banking system The circulation of stablecoins such as USDT has enabled some market participants to bypass the banking system to establish a gray financial network based on on-chain assets, which can easily form systemic risks once it crosses with high-risk behaviors such as overseas gambling, fraud, and tax evasion. The flow of funds is difficult to trace, facilitating illegal activities. Anonymous transactions + mixing mechanism + uncensored channels facilitate money laundering, terrorist financing, and other illegal activities. This is not only a compliance issue but also a matter of financial anti-terrorism and national security. What should individual investors pay attention to when trading cryptocurrencies?
7. Avoid participating in OTC businesses such as "purchasing foreign exchange on behalf of others" and "currency hedging." Using cryptocurrency as a medium, profits are earned by providing cross-border exchange and payment services, taking advantage of the exchange rate differences. This circumvents national foreign exchange regulations by converting foreign exchange and Renminbi's value through the exchange of "foreign exchange - cryptocurrency - Renminbi", which constitutes a disguised foreign exchange trading. Individual investors should exercise caution to avoid being prosecuted for "illegal business operations."
8. Strictly adhere to the regulatory requirements for individual annual foreign exchange purchase limits. Buying and selling cryptocurrencies may seem like the act of buying or selling cryptocurrencies on the surface, but in essence, it is a currency value conversion between foreign currencies and RMB, which falls under the category of foreign exchange purchase and settlement. According to the Implementation Rules of the Personal Foreign Exchange Management Measures, individual settlements and domestic individual foreign exchange purchases are subject to annual total amount management. The annual total amount is equivalent to 50,000 USD per person per year.
9. Avoid using anonymous recharge channels When trading cryptocurrencies, it is important to choose a platform with a legitimate KYC process and ensure that transaction records are transparent. Using anonymous channels such as P2P over-the-counter trading, mixer services, and privacy coin exchanges for deposits makes it difficult to trace the legality of fund sources. If there are suspicions of money laundering or funding illegal activities, the platform may freeze accounts, resulting in fund losses. Additionally, anonymous channels are prone to exploitation by hackers, compromising the security of user funds.
10. Retain legal proof materials If studying abroad, one can provide admission letters, tuition payment notifications, and other supporting documents to verify the legitimacy of cryptocurrency transactions. If it is citizens working within the country, they can keep employment contracts, salary statements, tax payment certificates, and other documents to prove that they are not engaged in buying and selling cryptocurrencies as a profession. Conclusion Cryptocurrency itself is not the "original sin"; the problem lies in whether the trading process involves cross-border transactions, circumvention of currency controls, anonymity, or evasion of regulation. Once these behaviors are linked to illegal operations, money laundering, or foreign exchange controls, they may cross the red line. Not understanding the law is not scary; what is scary is rushing into the gray area in a state of "ignorance is bliss." Whether you are an individual investor or a practitioner, you should be aware of the legal boundaries and avoid unnecessary criminal risks before participating in cryptocurrency asset trading.

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Author of this article: Lawyer Xu Qian