What should I do if I don't have enough foreign exchange for studying abroad? Is it safe to exchange US dollars with a private person? In order to circumvent the US$50,000 foreign exchange limit per person per year, many people will seek private foreign exchange, looking for foreign exchange scalpers, underground banks, or foreign exchange companies to achieve their purpose of exchange.
So, are there any legal risks in private currency exchange? Is it illegal to help friends exchange foreign currency? If so, where is the boundary of potential legal risks?
Author: Lawyer Shao Shiwei
1. “Fines are fine, but jail time is not.”
Quite a number of clients would say this when seeking legal advice from Lawyer Shao.
From a legal perspective, the difference between "being fined" and "going to jail" lies in whether a person's behavior should be evaluated as an administrative violation or a criminal offense.
Even if they don't understand the relevant legal provisions, most people's simple understanding of private currency exchange is that if I exchange currency for my own use rather than for profit (earning exchange rate differences), or if I am just helping others introduce currency exchange channels, it may be illegal, but it should not constitute a criminal offense, right?
Let’s consider the following scenario:
1. A established Company A, which required RMB 10 million or equivalent in foreign exchange as foreign capital injection. So A exchanged foreign exchange privately, in a "counter-knocking" way, and asked the other party to transfer the equivalent amount of Hong Kong dollars to Company A through a Hong Kong company for company registration.
2. B is a compulsive gambler. In order to repay his gambling debts in Macau casinos, he uses an underground bank to "counter-knocking" to transfer RMB to the RMB account designated by the underground bank in the country. The underground bank then repays the casino with the corresponding Hong Kong dollars.
3. C has been engaged in studying abroad and immigration business for a long time. One day, C’s client said that his friend wanted to exchange 9 million US dollars into RMB, and asked C if he knew any friends who wanted to exchange US dollars. After C found a candidate who was interested, he acted as an intermediary between the two parties to exchange RMB and US dollars.
So are these actions illegal or criminal?
Is it a crime if there is no explicit provision in the two laws?
A few months ago, I met a party involved in an economic crime case in a local detention center. He said: I clearly checked the legal provisions and found that our company’s business model did not violate the law. Moreover, our company has been engaged in this business for several years and the local police have never come to us. Why do they (referring to the public security organs in this case) say that my behavior is suspected of being a crime?
Lawyer Shao is often asked this question in his daily work. This involves the application of the law in judicial practice, which is actually very complicated. If we simply put the complex question - why does the law not clearly stipulate that a certain behavior constitutes a crime, but in practice it will be investigated by uncles?
(Of course, there are many factors involved. Considering that if I say too much, this article will be deleted due to violations, so I will just talk about what I can say.)
The lag in the law and the judicial authorities' broad interpretation of the law are part of the reasons.
What does the lag of law mean? For example, in recent years, Shao's team has handled more than ten criminal cases involving digital collection platforms. However, it has been four years since the rise of digital collection platforms in China in 2021, and there are still no clear laws and regulations to guide the judicial organs in handling such cases.
What is the extended interpretation of the law by the judicial authorities ? The legal provisions related to private currency exchange discussed in this article can explain this issue.
First, the relevant regulations are listed:
Foreign Exchange Administration Regulations 2008
Article 45 Anyone who buys and sells foreign exchange privately, buys and sells foreign exchange in disguised forms, speculates on foreign exchange, or illegally introduces the purchase and sale of foreign exchange in large amounts shall be given a warning by the foreign exchange administration authorities, and his illegal gains shall be confiscated, and he shall be fined not more than 30% of the illegal amount; if the circumstances are serious, he shall be fined not less than 30% of the illegal amount but not more than the equivalent of the illegal amount; if a crime is constituted, the criminal liability shall be pursued in accordance with the law.
Notice of the State Administration of Foreign Exchange on the Content, Meaning and Applicable Principles of the Legal Liabilities Section of Chapter VII of the Foreign Exchange Administration Regulations of the People's Republic of China in 2015
3. The “relatively large amount” mentioned in Article 45 of the Regulations refers to the amount of private foreign exchange purchases and sales, disguised foreign exchange purchases and sales, or foreign exchange speculation of the equivalent of US$1,000 or more, or the amount of illegal foreign exchange purchases and sales introduced of the equivalent of US$50,000 or more.
2019 Interpretation of the Supreme People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Application of Law in Handling Criminal Cases of Illegal Engagement in Fund Payment and Settlement Business and Illegal Foreign Exchange Trading (hereinafter referred to as the 2019 Interpretation)
Article 2 Whoever, in violation of State regulations, engages in illegal foreign exchange trading such as speculation or disguised foreign exchange trading, thereby disrupting the order of the financial market, shall, if the circumstances are serious, be convicted and punished for the crime of illegal business operations in accordance with the provisions of Article 225, Paragraph 4 of the Criminal Law.
[Sentencing Standards for Illegal Business Operations] Article 3 Illegal fund payment and settlement business or illegal foreign exchange trading, if any of the following circumstances exists, shall be deemed to be "serious circumstances" of illegal business operations:
(1) The amount of illegal business operations is more than RMB 5 million;
(2) The amount of illegal gains is more than RMB 100,000.
By consulting the legal provisions, it seems that we can clearly draw the following conclusions:
Only the two acts of speculation and disguised foreign exchange trading, where the illegal business amount is more than 5 million or the illegal income is more than 100,000 yuan, constitute criminal offenses;
In other cases, depending on the specific behavior, administrative penalties may only be imposed if the amount exceeds US$1,000 or US$50,000;
The crime of illegal business operation, as the name suggests, should be a business behavior. If the currency is exchanged for one's own use, it should not constitute a crime.
Are the above conclusions correct? Practice is the only criterion for testing truth , so let us return to the three situations mentioned in the first part of this article. These three situations are actually excerpted from three criminal judgments.
Scenario 1: A was sentenced to two years’ imprisonment for illegal business operation [(2018)豫刑终号481].
In case 2, B was sentenced to eight years’ imprisonment for illegal business operation [(2010) No. 689 of the Second Intermediate People’s Court].
In case 3, C was sentenced to five years’ imprisonment for illegal business operation [(2019) Sichuan 01 Criminal Final No. 1114].
Exchanging foreign currency for the registered capital of one's own company (Case 1) and repaying gambling debts (Case 2) are both for personal use. No economic benefits are sought through the exchange itself, and they do not involve the "for the purpose of profit" in the crime of illegal business operations. From a legal point of view, they should not be convicted of the crime of illegal business operations.
The act of illegally introducing the purchase and sale of foreign exchange in Situation 3 was listed as one of the acts subject to administrative penalties in the 2008 "Foreign Exchange Management Regulations", but the 2019 Interpretation did not explicitly stipulate that the act of "illegally introducing the purchase and sale of foreign exchange" constituted the crime of illegal business operation.
3. Where is the boundary line that triggers criminal risk ?
1. Do clear boundaries really exist?
The word "boundary" is a high-frequency word often heard by lawyers and used by consultants. From the perspective of ordinary people, it seems that there is a line that can clearly and accurately define criminal risks and other legal risks (civil, administrative), but legal issues are actually very complicated, and the final outcome of a matter may be caused by multiple factors. Even if a line can be drawn, many variables will occur when it comes to the actual implementation level, and many situations that were not initially envisioned will be faced.
2. Same case, different verdicts: Comparison between Liu Han’s case and Huang Guangyu’s case
When discussing illegal foreign exchange transactions, we have to mention the famous Liu Han case and Huang Guangyu case. The same reason for exchanging foreign exchange (repaying overseas gambling debts) and the same method of exchange (counter-trading) were used. The final judgment of the Liu Han case determined that the defendant did not commit the crime of illegal business operation. However, Huang Guangyu was found guilty (i.e. B in the above scenario 2).
The reason can be found in the verdicts of the two cases. In the Liu Han case, although the perpetrator had the objective behavior of exchanging foreign currency, that is, transferring money, it was determined that the purpose of exchanging foreign currency was to repay overseas gambling debts. Since it did not have a profit-making purpose, it did not belong to business behavior. In the Huang Guangyu case, the defense lawyers and judges listed did not discuss whether the defendant had a profit-making purpose at all . They kept discussing whether "the act of paying foreign exchange gambling debts with RMB is considered buying and selling foreign exchange?" This has gone astray, so the wrong verdict was made. Unfortunately, the wrong verdict is also an effective verdict.
3. It is necessary to find out what can be gained in specific cases
Why are there cases in practice where introducers are sentenced for illegally introducing the buying and selling of foreign exchange, but the 2019 interpretation of the law does not explicitly stipulate that such behavior is an illegal business crime?
Lawyer Shao believes that this is not the negligence of the legislators, but the behavior of the introducer, which can be big or small and is very controversial, so it can only be judged on a specific basis in practice.
From the cases I have handled, for example, is the introducer paid or free? If paid, how much service fee is charged? How many currency exchanges have been helped and how much is the amount? Did the introducer specifically participate in the negotiation of specific matters such as exchange rate, transfer time, transfer account, transfer amount, etc.? How deeply is the introducer involved? Should he be identified as the principal or accomplice? What are the specific reasons for the buyer and seller to have the need to exchange currency? Is it for money laundering, earning exchange rate differences, or overseas real estate, investment, etc.? Different purposes of currency exchange will also affect the severity of the introducer's involvement in the case; is it for the buyer or seller, or both?
The criminal object of illegal business operation is the market order, and it is obvious that the harm to the market order in the above-mentioned different situations may be great or small.
Four written at the end
For criminal cases, according to Article 8 of the 2019 Interpretation, if the case meets the standards for filing a case of illegal business operation, "if the perpetrator truthfully confesses the facts of the crime, pleads guilty and repents, actively cooperates with the investigation, and returns the illegal gains, he may be given a lighter punishment; if the circumstances of the crime are minor, he may not be prosecuted or exempted from criminal punishment in accordance with the law." Therefore, even if a criminal case has been filed, through in-depth analysis of the case and digging out powerful defense points, the case may see a turnaround.
However, it is important to remind you that although private foreign exchange transactions such as "foreign exchange counter-trading" are indeed more covert, and the relevant transaction entities rarely lead to a case due to just one transaction, once the related transaction entity is investigated, the upstream and downstream will be investigated, and the amount of administrative penalties will not be low. In addition, if you unfortunately receive stolen money due to foreign exchange transactions, you may also be involved in the possibility of having your credit card frozen or being suspected of aiding or concealing crimes.
Therefore, everyone must abide by the law and not take chances, so as not to be involved in related legal risks and cause unnecessary trouble.
