Can ordinary people use U cards? Will the U card issuer run into trouble?

Author: Xiaoza Team

As the use of crypto assets becomes increasingly widespread, we can see that the traditional financial system is undergoing deep integration with crypto assets, giving rise to a series of products such as Bitcoin and Ethereum spot ETFs, U Cards, and more.

So, under the current validity of the 9.24 notice, do U Card service providers and related business service providers, as well as ordinary people using U Cards for daily transactions, currency exchanges, and fund transfers, face legal risks?

The Xiaoza team will discuss this issue in detail today.

What is a U Card?

In simple terms, a U Card is a bank card that supports deposits, consumption, and withdrawals using USDT.

Using a U Card is also very simple and quite similar to using a traditional bank card: users can directly deposit U from their wallet address into the U Card address, after which they can use the U Card like a regular bank card, shopping on various platforms, buying groceries and meat, or withdrawing cash (in legal currency) from ATMs, essentially functioning like a normal bank card.

In fact, the U Card does not directly use the U deposited by users for payment settlement. In practice, when users deposit U, the U Card service provider will convert the U into a certain country's legal currency at a specific exchange rate. When users spend using the U Card, the U Card service provider will settle the legal currency with banks or other entities.

Therefore, when you use a U Card for consumption, you are actually spending legal currency, and the cash withdrawn from ATMs is also legal currency. Currently, common U Cards on the market include Mastercard U Cards, UnionPay U Cards, and so on.

Friends, doesn't what a U Card can do sound similar to what crypto exchanges do? That's right; to some extent, you can view U Card service providers as "licensed" crypto exchanges.

Are U Card service providers and related business service providers compliant?

Conclusion first: Non-compliant, risky!

As we all know, in 2021, China's central bank and ten other ministries issued the "Notice on Rectifying Virtual Currency 'Mining' Activities" (referred to as the 9.24 notice), clearly stating that activities such as "conducting exchange services between legal currency and virtual currency, exchange services between virtual currencies, acting as a central counterparty for buying and selling virtual currencies, and providing information intermediary and pricing services for virtual currency transactions" are identified as "illegal financial activities" and are strictly prohibited, with resolute legal enforcement against them. Moreover, if these illegal financial activities involve the illegal issuance of token vouchers, unauthorized public issuance of securities, illegal operation of futures business, illegal fundraising, and other illegal financial activities that constitute crimes, criminal responsibility will be pursued according to law.

Additionally, the 9.24 notice also clarifies: "Overseas virtual currency exchanges providing services to residents in China via the internet also constitute illegal financial activities. Relevant domestic staff of these overseas virtual currency exchanges, as well as legal entities, non-legal entities, and individuals who knowingly or should have known that they are engaged in virtual currency-related businesses and still provide marketing, payment settlement, technical support, and other services for them, will be held legally accountable."

Therefore, according to the relevant provisions of the 9.24 notice, the nature of U Card service providers offering exchange, trading, and settlement services between U and legal currency to users in China is quite clear, which indeed constitutes a violation of the 9.24 notice.

Activities related to promoting U Card services, providing network technical support, and operational maintenance also fall under violations of the 9.24 notice.

As of now, there has been no administrative approval mechanism related to crypto assets introduced in the financial regulatory field in mainland China, and naturally, there are no administrative licenses applicable to U Card-related businesses.

Thus, the Xiaoza team believes that even if one holds a financial license from an overseas country, any entity providing U Card services and related business services to citizens in China should exercise caution in their operations.

Do ordinary users using U Cards face legal risks?

Conclusion first: As long as the source of U is clean, there shouldn't be much of a problem.

Our judgment that domestic residents holding and occasionally trading some crypto assets does not violate laws and regulations and does not constitute a crime remains unchanged. Under this premise, there is actually not much difference between directly trading crypto assets with others and using a U Card for consumption.

Will using a U Card result in receiving dirty money?

Moreover, the Xiaoza team has not seen any cases of administrative penalties or criminal risks arising from the use of U Cards while handling various crypto-related cases. In contrast, situations where individuals receive dirty money through OTC transactions with crypto exchanges or trading on exchanges leading to card freezes are relatively common.

As mentioned earlier, since the funds of U Card service providers are compliant funds circulating within the traditional financial system and have undergone relatively strict scrutiny, the compliance of the source of funds on the legal currency side is quite good, so the probability of U Card users receiving dirty money is actually very low.

Therefore, if you have U on hand, as long as you don't find the card issuance fee and transaction fees for U Cards issued by major banks like UnionPay too expensive, using them for personal and family daily expenses or normal outbound travel can actually be a convenient choice.

Note: The above views do not constitute any investment advice. Involvement with crypto carries risks; please make independent judgments based on comprehensive information.

Is it feasible to use a U Card for asset outflow?

From practice, most of the crypto community members in mainland China who have had their cards frozen were due to receiving dirty money (gambling or fraud funds) during the process of cashing out U. Generally, exchanging RMB or USD for U is relatively safe.

So, since there is not much risk for individuals using U Cards, can we use U Cards to facilitate convenient asset outflow? Is it feasible?

First, China has strict foreign exchange management regulations. Friends with study abroad experience or overseas travel experience must be familiar with the "50,000 yuan rule." According to Article 2 of the "Implementation Rules for the Management of Personal Foreign Exchange," "The total amount of personal foreign exchange settlement and domestic personal foreign exchange purchases is managed on an annual basis. The annual total is equivalent to 50,000 US dollars per person per year. The State Administration of Foreign Exchange may adjust the annual total based on the balance of payments."

In simple terms, unless for special purposes and with relevant procedures at the bank, an individual can only exchange/receive foreign currency up to 50,000 US dollars within a year. Therefore, the "50,000 yuan rule" is also known as the "facilitation quota."

Now, if the U Card does not set a personal limit for depositing and withdrawing U (currently U Cards generally do not support U transfers), can I convert an amount far exceeding 50,000 US dollars into U and deposit it into the card, then go to places like the US or Dubai to withdraw cash?

The Xiaoza team believes that even if it is feasible in practice, this behavior also constitutes a violation of China's "Implementation Rules for the Management of Personal Foreign Exchange" and other foreign exchange regulatory laws and regulations. If discovered by foreign exchange management authorities, administrative fines will be imposed.

Additionally, if this method is used to evade taxes, illegally transfer involved assets, hide personal assets to resist court enforcement, or conduct related businesses for profit using currency exchange channels, it may constitute a crime and needs to be analyzed on a case-by-case basis.

In conclusion

In fact, the Xiaoza team has certain concerns about the U Card as a new entity. As mentioned earlier, the U Card serves as a bridge between traditional finance and the crypto world, which can help users more conveniently spend and transfer U. However, does this mean it could become a new channel for money laundering or hiding and transferring funds?

Moreover, based on the Xiaoza team's current observations, the KYC and AML processes of U Card service providers are still somewhat "rough." Coupled with the previous analysis, the related businesses of U Card service providers operating in China are quite gray, leading to significant legal risks. Therefore, the Xiaoza team advises U Card service providers to strive for compliance to effectively combat unknown risks.