Web3 Legal Education | Who is responsible for receiving illicit funds when buying and selling USDT?
Author: Shao Shiwei
Source: PANews
Introduction
It is quite common for bank cards to be frozen due to the buying and selling of virtual currencies. Friends who frequently trade cryptocurrencies often educate themselves about relevant legal knowledge and understand that our country's policies do not prohibit the trading of virtual currencies. However, many consultants have told me that when they communicate with the freezing authorities to unfreeze their cards, not only are they denied, but they are also scolded, even though they are victims themselves. Clearly, trading virtual currencies is not illegal, so why are they treated as "bad people" by the public security authorities?
So, why is it so difficult to unfreeze? Lawyer Shao often says, “The visible transactions in the eyes of U merchants are just the tip of the iceberg.” Let’s start with a case to see the part above the iceberg * (real case, with slight modifications to protect privacy regarding the industry and amounts, but the rest is real) *.
0 1. A Virtual Currency Transaction Leading to a 'Frozen Card Stalemate'
Old Wang is in the fur business, and trading cryptocurrencies is just an occasional hobby. One day, as usual, he placed an order to sell USDT on the exchange, and someone contacted him to buy it. However, the buyer seemed to be a novice and was not very skilled, so they added each other on WeChat. The buyer, named Xiaoyu, was patiently guided by Old Wang step by step until the transaction was completed. Later, as Xiaoyu became more skilled, they got along well, and Xiaoyu often sought Old Wang to buy USDT.
But Old Wang was curious; Xiaoyu looked like a newcomer to the crypto world, so why did she have such a large demand for USDT? He asked her what she was doing with so much USDT and kindly reminded her not to get scammed. Xiaoyu replied that she was investing with a few friends, and although she might not understand much, her friends knew more than she did. She assured Old Wang not to worry and stated that every payment she made to him was from her salary, even providing Old Wang with her salary transaction records.
Old Wang confirmed that Xiaoyu's source of funds was legitimate and that each transfer was indeed from her, so he felt reassured. However, he kept reminding her to buy less at first and to see if the project could be profitable, advising her not to invest all her funds in one project at once.
Over three months, they completed about ten transactions, and Old Wang received 600,000 yuan from selling USDT. One day, Old Wang found that his bank card had been frozen. Through the bank, he contacted the freezing authority and learned that it was actually Xiaoyu who reported the case. Old Wang tried to reach Xiaoyu, but she never replied to any messages.
The police informed Old Wang that the victim, Xiaoyu, reported that she had been scammed. The reason was that Xiaoyu met someone online who became familiar with her and claimed to have a virtual currency investment project, even showing her profits. Believing it to be true, Xiaoyu expressed her desire to try it out. The person then instructed her to buy USDT from the exchange and transfer it to him, promising to help her with the investment. Xiaoyu downloaded a certain exchange app and contacted Old Wang. She initially transferred a small amount of USDT to him, and at first, she did see good returns, so she increased her investment. Unexpectedly, three months later, the person blocked Xiaoyu.
The police told Old Wang, the victim Xiaoyu claims that you and the person who scammed her into investing in the virtual currency project are accomplices who defrauded her of 600,000 yuan. Is this true?
Old Wang presented his phone to the police, submitting all his chat records with Xiaoyu. The investigating officer was diligent and reviewed all communication records between both parties, also conducting multiple rounds of questioning with Xiaoyu. Xiaoyu admitted that the person who scammed her instructed her to find a USDT seller at the exchange, which is how she contacted Old Wang.
Thus, the case handler could confirm that Old Wang was innocent. Moreover, the relevant chat records showed that Old Wang had repeatedly reminded Xiaoyu to buy less and to be cautious of being scammed by others.
Old Wang thought, since he was innocent, unfreezing his card should be no problem, right? Unexpectedly, the case handler not only did not unfreeze his card but instead froze all of his bank cards!? This not only affected his basic daily life but also significantly impacted his fur business. The payments from clients to Old Wang's company account were also implicated due to transactions with this card.
After that, the case fell into a stalemate—Old Wang was only willing to compensate the victim 20,000 yuan, while the victim demanded that Old Wang fully compensate her 600,000 yuan. The police neither unfreezing Old Wang's card nor deducted the funds from the card for the victim. Nearly a year has passed with all of Old Wang's bank cards frozen.
0 2. Everyone Has Their Own Position
Why did it fall into such a frustrating stalemate? Because everyone has their own perspective.
1. Victim's Perspective
The victim was scammed, and due to a lack of relevant evidence and clues, in some places, it is extremely difficult to even file a case for rights protection. After finally filing a case, due to many practical reasons, the police indeed cannot catch the real "bad guys," and even if they do catch them, it is very difficult to recover the victim's funds. As for the reasons, you will understand after watching these two videos.
2. Seller's Perspective
Buying and selling virtual currencies between individuals is not illegal. My USDT is also from a legitimate source; it was not stolen or scammed. The RMB I received is also at the normal market price for USDT. Why does a victim suddenly appear out of nowhere claiming to have been scammed, resulting in my card being frozen, and even demanding that I fully compensate her for all her losses?
She was scammed; what does that have to do with me? Why don’t the police go after the real scammers?
3. Police Perspective
Through the chain of fund transactions, Zhang San's involvement can be ruled out. However, since the upstream scammers cannot be caught, and the victim keeps insisting that the police catch someone to recover her losses, even continuously complaining and petitioning, claiming we are not taking action. We tried to mediate and explain to the victim that Zhang San is not the person who scammed her, and he is willing to compensate her, so she cannot demand so much. The victim surprisingly said we are in cahoots with Zhang San!? The victim is currently quite agitated, and both parties cannot agree on a compensation amount. If we unfreeze Zhang San's card now, wouldn’t that make the victim even more upset? Our work and case handling are also subject to evaluation… But indeed, Zhang San has no suspicion of committing a crime, and we do not have the authority to directly deduct money from Zhang San's account, so let’s keep the account frozen. Perhaps this way, Zhang San will take the initiative to negotiate with the victim?
0 3. Thoughts on Resolving the Stalemate
Lawyer Shao has encountered many cases where bank cards were frozen due to the buying and selling of virtual currencies. It is not uncommon for individuals to have all their bank cards frozen after selling a USDT. But does existence equate to reason? Certainly not.
1. Regarding "Buying and Selling Virtual Currencies Not Protected by Law"
When many cardholders communicate with the case handlers, stating that their buying and selling of USDT is not illegal, many officers respond: Yes, we know that buying and selling virtual currencies is not illegal, but it is also not protected by law.
However, Lawyer Shao believes that the above viewpoint is a misinterpretation of "buying and selling virtual currencies not protected by law." Not being protected by law means that, for example, if you entrust someone else to invest in your virtual currency and end up losing money, or if you lend your virtual currency to someone and they refuse to return it, then you should bear the risk yourself. There are indeed court rulings that support this viewpoint, which can be referenced in my previous article “Court Opinion: Transferring Virtual Currency to Others Constitutes Illegal Debt! Once Borrowed, Don't Expect to Get It Back!—Lawyer's Tips: How to Recover Your Money?.”
However, for those whose cards are frozen, and even for the receiving party (seller) who is being implicated due to trading virtual currencies, they not only lose virtual currencies but also have to refund the so-called victim's losses. Their loss scope has already exceeded the "risk-bearing" category. This is clearly unfair. The victim is a victim, and the seller is also a victim.
2. Regarding Freezing All Bank Cards
As mentioned in the real case above, even though existing evidence has ruled out Zhang San's involvement, in order to cope with pressure from the victim, the case handlers actually froze all of Zhang San's bank cards, hoping to force him to negotiate with the victim. This is clearly unreasonable.
Some case handling units, although their attitude is: if the victim's losses are not compensated, the card will not be unfrozen, are willing to issue a statement to clarify the situation, ruling out the cardholder's involvement, so that the cardholder can apply for unfreezing from the bank. While this does bring some convenience to the parties involved, allowing other bank cards under their name to be used normally, the core demand for the cardholder is still to not return the money. Of course, in many cases we handle, the public security authorities eventually do unfreeze the cardholder's account without liability, but this is relatively rare.
According to legal provisions, in telecom fraud cases, public security authorities do have the right to deduct funds to return to the victim, but there is a premise— the receiving account must be controlled by criminals. A normal USDT seller clearly has no collusion with criminals, and their receiving account is obviously not a bank account controlled by criminals. Therefore, public security authorities do not have the right to deduct funds from the receiving party's account in such transactions— this is also the reason why many cardholders whose cards are frozen have communicated with public security authorities, and although they have been stuck for years, the account balance has not been deducted.
“Several Provisions on the Return of Frozen Funds in Telecom Network New-Type Criminal Cases” Article 2: The so-called telecom network new-type criminal cases refer to criminal cases in which criminals use telecommunications, the Internet, and other technologies to deceive (steal) victims' funds into bank accounts controlled by them through methods such as sending text messages, making phone calls, and implanting Trojans.
Article 4: Public security authorities are responsible for clarifying the flow of victims' funds, promptly notifying the victims, and making decisions on fund returns and implementing returns.
3. Regarding the Determination of Good Faith Acquisition by the Receiving Party
Lawyer Shao believes that for the receiving party (i.e., the USDT seller), the receiving party cannot control whether the buyer makes the payment themselves, nor can they predict whether the funds transferred by the buyer to a third party are illegal. Since virtual currencies are recognized as a type of virtual commodity, and transactions between individuals are not prohibited, as long as the USDT seller can provide evidence proving that both parties are engaging in normal buying and selling of USDT (such as communication screenshots from Binance or OKEx exchanges, communication records between both parties, and proof of legitimate sources of the USDT they hold), then according to legal provisions, the seller's act of selling virtual currencies constitutes good faith acquisition and should not be reclaimed or returned to the relevant victim.
“Several Provisions on the Return of Frozen Funds in Telecom Network New-Type Criminal Cases” Article 2: The so-called telecom network new-type criminal cases refer to criminal cases in which criminals use telecommunications, the Internet, and other technologies to deceive (steal) victims' funds into bank accounts controlled by them through methods such as sending text messages, making phone calls, and implanting Trojans.
Article 4: Public security authorities are responsible for clarifying the flow of victims' funds, promptly notifying the victims, and making decisions on fund returns and implementing returns.
According to the Supreme Court's “Interpretation on Several Issues Concerning the Application of Law in Handling Fraud Criminal Cases” Article 10 If the perpetrator has used the defrauded property to pay off debts or transferred it to others, and any of the following circumstances exist, it shall be reclaimed according to law:
(1) The other party knows that it is defrauded property and accepts it;
(2) The other party has obtained the defrauded property without compensation;
(3) The other party has obtained the defrauded property at a price significantly lower than the market price;
(4) The other party's acquisition of the defrauded property is derived from illegal debts or criminal activities.
The good faith acquisition of defrauded property by others shall not be reclaimed.
In a recent virtual currency trading frozen card case handled by Lawyer Shao, when communicating with the case handlers, they understood "buying and selling virtual currencies between individuals in China is not illegal" as: personal transactions can only be through wallet transactions. If it is through an exchange, then it is not C to C, so buying and selling virtual currencies on exchanges is illegal. As long as they receive funds related to fraud, they must fully refund the victim. ------ Such viewpoints directly explain why the unfreezing of virtual currency cards is often obstructed. The understanding of virtual currency transactions by case handlers varies greatly across different regions.
0 4. Final Thoughts
Due to varying degrees of understanding of virtual currencies and related transactions by case handling units across different regions, not only is it difficult to achieve "same case, same handling" for bank card unfreezing, but even more concerning, in criminal cases handled by Lawyer Shao, where the case facts are over 95% similar to those leading to frozen cards due to transactions, the parties involved have been charged with concealment and aiding crimes. As a criminal lawyer with many years of practice, I occasionally find it perplexing when encountering such cases.
So, returning to the initial question of this article: When receiving stolen funds from selling USDT, who should bear the responsibility? Share your views in the comments below.