Illegal foreign exchange of 6.5 billion through cross-border 'matched trading'
Recently, (21st Century Business Herald) reported on a case of illegal foreign exchange involving virtual currency amounting to 6.5 billion yuan. In this case, Yang has long been providing illegal foreign exchange services for clients with foreign currency and RMB exchange needs both domestically and internationally under the guise of 'collection and payment' through cross-border 'matched trading' and virtual currency. Xu, aware that Yang was conducting illegal foreign exchange operations without the approval of relevant national departments, has been assisting him since 2021 in operating a shell company's corporate account to receive and transfer corresponding RMB funds. By the time the case was discovered, Xu had participated in illegal foreign exchange transactions totaling over 6.5 billion yuan and earned more than 300,000 yuan in illegal profits.
As new concepts such as stablecoins and decentralization have surged in the capital market, their unique anonymity and decentralized characteristics are being maliciously exploited by criminals, gradually evolving into a new channel for cross-border illegal foreign exchange. Recently disclosed cases by judicial authorities in multiple locations indicate that virtual currencies represented by USDT stablecoins are becoming core tools for cross-border 'matched trading' (illegal cross-border foreign exchange). In such illegal foreign exchange cases involving virtual currencies, the amounts involved are enormous, often reaching billions or even hundreds of billions.
Today, let's discuss the specific operations of illegal foreign exchange through virtual currency 'matched trading'.
01 Traditional 'matched trading' foreign exchange crimes remain high
In recent years, the total number of illegal foreign exchange penalty cases published by branches of the State Administration of Foreign Exchange has sharply increased, with the cumulative amount of fines and confiscations rising year by year, indicating an increasingly severe situation regarding illegal foreign exchange. Due to strict foreign exchange controls in our country, individuals are limited in the amount of foreign exchange they can exchange each year. Those who exceed the foreign exchange quota and urgently need to exchange currency, as well as businesses engaged in foreign trade and individuals wishing to transfer illegal proceeds across borders, often privately seek out 'companies' or 'institutions' that can facilitate exchanges.
'Matched trading' is currently the most common and typical model of illegal foreign exchange. In the 'matched trading' method, RMB flows within the country while foreign currencies flow abroad, with funds circulating unidirectionally without physical movement, typically achieving 'two-region balance' through reconciliation. Common forms of 'matched trading' foreign exchange in practice include:
Underground banks engaging in two-way 'matched trading' illegal foreign exchange
Underground banks open numerous accounts in different names both domestically and internationally. When there is a need for currency exchange, the party requiring the exchange transfers funds into the underground bank's domestic or foreign account, and the underground bank directly transfers an equivalent amount of foreign currency or RMB into the designated domestic or foreign account of the exchanger. Some large underground banks have vast capital pools; they also acquire foreign exchange through purchasing, directly exchanging from the capital pool when there is demand.
Using POS machines for foreign exchange transactions abroad
Criminals establish accounts or capital pools abroad and register shell companies domestically. They fabricate business transactions and receive 'goods payments' (the funds needing exchange) through corporate accounts. Abroad, they directly transfer foreign exchange into designated accounts using controlled capital pools or accounts. Similarly, when the overseas account receives a request for RMB exchange, the domestic shell company splits the funds through 'public to private' methods into personal accounts.
'Matched trading' new variant: virtual currency becomes core tool for foreign exchange
The rapid development and application of virtual currency have made it increasingly prevalent in illegal foreign exchange, characterized by strong anonymity, low crime costs, concealment, and high returns.
In practice, virtual currency serves as an intermediary for foreign exchange 'matched trading', being a variant and upgrade of traditional 'matched trading', with common methods including:
Underground banks + virtual currency
Using virtual currency as a 'medium' to achieve cross-border foreign exchange 'matched trading' of 'RMB - virtual currency - foreign currency'. Domestic 'clients' transfer RMB to underground banks, which convert this money into virtual currency and sell it through overseas platforms to obtain the required foreign currency, which is then transferred to the 'client's' overseas account. Overseas 'clients' can also exchange RMB through the same model, with much of the hot money flowing into the country through this channel. Currently, many underground banks not only purchase virtual currency through currency merchants but also acquire virtual currency via score-running platforms, EBpay, and other grey and black market platforms.
Foreign exchange exchange online stores + virtual currency
Some foreign exchange platforms disguise themselves as e-commerce online stores. Clients needing to exchange money only need to place an order on the online store and transfer RMB/foreign currency to a designated account. After receiving the RMB/foreign currency from the platform order, underground banks convert it into virtual currency and then sell the virtual currency to obtain foreign currency/RMB, transferring the exchanged funds to the account provided by the 'client'. The complete fund flow is: foreign exchange client orders foreign currency/RMB from the exchange platform online store - platform confirms receipt and uses the ordered funds to purchase virtual currency - platform sells the virtual currency in exchange for RMB/foreign currency - transfers the exchanged RMB/foreign currency to the 'client's' designated account.
'OTC' reselling virtual currency as a disguised foreign exchange
Some criminals pose as 'OTC' agents for illegal foreign exchange. On one hand, they let clients with exchange needs purchase virtual currency with foreign currency/RMB and recharge it to the criminals' account addresses; on the other hand, they exchange the virtual currency for RMB/foreign currency through currency merchants; finally, they transfer the exchanged RMB/foreign currency to the 'client's' designated account.
In traditional illegal foreign exchange cases, tracking funds is already difficult, and the introduction of virtual currency as a 'new intermediary' adds a new link in the fund circulation between domestic and foreign pools, further concealing related crimes, lengthening the criminal chain, complicating the fund flow path, and making tracking even more difficult.
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