Real Case | Is the Digital RMB Wallet a New Tool for Money Laundering?

Author: Xiaoza Team

Digital Renminbi is a new form of legal currency in our country, possessing the dual advantages of legal currency and electronic payment tools. However, recently, the Zhejiang Supervisory Authority released a report titled "Using Digital Renminbi Accounts to Cash Out Over 200,000 Yuan in Four Days, Resulting in Conviction!" which disclosed a criminal case where individuals used digital Renminbi to conceal and hide the proceeds of overseas fraud. This article will analyze the potential criminal legal risks involved in digital Renminbi transactions in light of this case for the readers' reference.

Case Summary

At the end of August 2023, Yuan learned about the channel for cashing out digital Renminbi for profit through a part-time job advertisement. By finding merchants with digital Renminbi, he could receive a commission of 0.8% of the cash-out amount from the upstream provider.

Yuan attracted merchants with digital Renminbi accounts through shopping and casual chatting. After the merchants agreed to cash out, he first converted a certain amount of his money into virtual currency as a deposit to transfer to the upstream provider, and then sent the digital Renminbi payment code to the upstream provider. Once the fraudulent funds entered the merchant's digital Renminbi account, the merchant would deduct a handling fee ranging from 1% to 1.5%, allowing Yuan to withdraw the corresponding amount of cash.

In the process, the amount Yuan cashed out would be higher than the amount he deposited with the upstream provider, and the difference would be the commission given to Yuan. The cash withdrawn would then be used as a deposit for the next cash-out.

To earn more money, Yuan, despite realizing the upstream provider's funds were of unclear origin, could not resist the temptation of profit. He involved his girlfriend Zhang and friend Kou, promising them a reward of 50 yuan for every 10,000 yuan they cashed out, to profit from the difference. Since there were not many stores supporting digital Renminbi payments, repeated operations could easily be discovered. To evade law enforcement, Yuan and others communicated with the upstream provider using niche overseas chat tools and began moving around Shaoxing, Jinhua, Hangzhou, and Jiaxing since early September. After successfully cashing out, they would drive to new locations to convert the upstream provider's fraudulent funds from "black" to "white."

A few days later, law enforcement received reports and discovered abnormal fund flows in the digital Renminbi accounts of several merchants in the area. They quickly identified the suspects, including Yuan, and arrested them. In just four days, the suspects cashed out over 200,000 yuan in Shaoxing.

Recently, the Yuecheng District Prosecutor's Office filed a public prosecution, and the court sentenced Yuan, Zhang, and Kou to prison terms ranging from one year and four months to seven months for the crime of concealing and hiding the proceeds of crime, along with fines.

Case Analysis

1. Why does cashing out constitute concealing a crime?

Article 312 of the Criminal Law stipulates the crime of concealing and hiding the proceeds of crime: "Anyone who knows that the property is the proceeds of crime and conceals, transfers, purchases, sells on behalf of others, or otherwise conceals or hides it shall be sentenced to fixed-term imprisonment of not more than three years, criminal detention, or control, and may also be fined or fined separately; if the circumstances are serious, they shall be sentenced to fixed-term imprisonment of three to seven years and fined."

For the punishment of "fixed-term imprisonment of not more than three years, criminal detention, or control," it is not required that the act of concealing or hiding the proceeds of crime meets the standard of "serious circumstances"; it is sufficient that the person "knows it is the proceeds of crime" and assists in concealing or hiding it.

Returning to this case, the earlier factual description indicates that "Yuan was aware that the upstream provider's funds were of unclear origin," thus Yuan meets the subjective element of "knowing" in the crime of concealing and hiding the proceeds of crime. At the same time, Yuan's actions involved the merchant receiving digital Renminbi "criminal proceeds" from the overseas provider, while he withdrew cash from the merchant and provided virtual currency to the upstream provider. This can be understood as Yuan providing a service to the overseas criminals to convert digital Renminbi "criminal proceeds" into virtual currency, achieving the transfer of "criminal proceeds." Given the anonymity and decentralization of virtual currency, Yuan at least achieved an effect of "concealing and hiding" equivalent to concealing, transferring, purchasing, or selling on behalf of others. The behavior patterns of Zhang and Kou in the same case were similar to Yuan's, and it is speculated that the statements of the suspects can confirm that they were aware that the digital Renminbi was of unclear origin and might belong to criminal proceeds. Based on the above, the court ultimately determined that Yuan and others constituted the crime of concealing and hiding the proceeds of crime.

2. What happens if they deny "knowing"?

If Yuan and his accomplices in this case refuse to acknowledge the upstream funds' illegitimate source, can it still be determined that they had the "knowledge" of criminal intent?

The first article of the "Interpretation on Several Issues Concerning the Specific Application of Law in the Trial of Money Laundering and Other Criminal Cases" stipulates the "knowledge" of concealing a crime: "The 'knowledge' as stipulated in Articles 191 and 312 of the Criminal Law should be determined in conjunction with the defendant's cognitive ability, the circumstances of their contact with others' criminal proceeds and their benefits, the types and amounts of criminal proceeds and their benefits, the methods of conversion and transfer of criminal proceeds and their benefits, and the defendant's statements, among other subjective and objective factors."

If any of the following circumstances exist, the defendant can be deemed to have knowledge that it is criminal proceeds and their benefits, unless there is evidence proving they genuinely did not know: (1) knowing that others are engaged in criminal activities and assisting in the conversion or transfer of property; (2) assisting in the conversion or transfer of property through illegal means without justifiable reasons; (3) purchasing property at a price significantly lower than the market price without justifiable reasons; (4) assisting in the conversion or transfer of property and receiving a fee significantly higher than the market price without justifiable reasons; (5) assisting relatives or others with close relationships in converting or transferring property that is clearly inconsistent with their occupation or financial status; (6) other circumstances that can be determined as knowledge.

In this case, Yuan and others assisted the upstream provider in converting digital Renminbi into virtual currency and charged high fees, which aligns with the fourth circumstance stipulated in the judicial interpretation, sufficient to determine that the suspects were aware that the digital Renminbi involved was criminal proceeds and their benefits.

Based on this, we believe that even if Yuan and others refuse to acknowledge their subjective intent, judicial authorities can still determine that they had "knowledge" of concealing and hiding the proceeds of crime, and Yuan and others would lose the opportunity for leniency in punishment for confessing and pleading guilty.

3. Why would the criminal proceeds be in digital Renminbi?

Unlike deposits in third-party payment institutions or banks, digital Renminbi can operate independently through digital wallets for payments, and can still be used without electricity or internet. Compared to carrying and measuring cumbersome cash, digital Renminbi is more convenient, and compared to heavily regulated and restricted bank deposits, digital Renminbi is safer. These characteristics have led some criminals to choose to receive criminal proceeds in the form of digital Renminbi.

Final Thoughts

Although China's digital Renminbi employs blockchain technology, it does not belong to decentralized virtual currency. Once online payments are completed or transferred to bank accounts, the unusual movements will attract the attention of the anti-money laundering mechanism for digital Renminbi, which is also the reason for the rapid resolution of this case. However, the cash-like characteristics of digital Renminbi may still make it a primary form of criminal proceeds for criminals in the near future. Balancing the risk of circulation regulation with users' rights to dispose of their property may be the next challenge that digital Renminbi needs to face for further development.