Professional Interpretation

Foreword: With the continued depreciation of the RMB, the net outflow of capital has increased, and the risk of foreign exchange loss has intensified. The SAFE has strengthened supervision over the exchange of arbitrage. It seems that only the virtual currency trading platform is still outside the direct supervision of foreign exchange. However, in September 2017, the People's Bank of China, the Central Network Information Office, the Ministry of Industry and Information Technology, the State Administration for Industry and Commerce, the China Banking Regulatory Commission, the China Securities Regulatory Commission, the China Insurance Regulatory Commission on the Prevention of the Risk of Issuing Token Financing" (hereinafter referred to as "Announcement" ), which cut off the exchange between virtual currency and fiat money in China, thus fundamentally curbing the tendency to use tokens to circumvent foreign exchange controls. The International Department of Beijing Docvit Law Firm intends to analyze the reasons and inevitability of the prohibition of Bitcoin transactions from the perspective of foreign exchange supervision.

1. The Supervision of Foreign Exchanges

According to Article 2 of the “Implementation Rules for the Administration of Individual Foreign Exchanges” promulgated in 2007, “the annual total amount of foreign exchange settlement and domestic purchase of foreign exchange is administered. The total annual amount is equivalent to 50,000 US dollars per person per year. The SAFE may, in the international balance of payments situation, the total amount of the year is adjusted. That is to say, the amount of US dollars remitted per person per year must not exceed 50,000 yuan.

Besides, according to Article 1 of the “Notice of the State Administration of Foreign Exchange on Regulating the Large-Scale Cash Withdrawal of Bank Cards”, which came into effect on January 1, 2018, "if an individual holds a domestic bank card to withdraw cash overseas, the bank card (including the supplementary card) in his name must not exceed the equivalent of 100,000 yuan per natural year. If the annual amount exceeds the annual quota, the domestic bank card will be suspended for cash withdrawal outside the country this year and the following year.

In order to avoid this regulation, Chinese investors with capital outbound needs have made every move, including using underground money houses, carrying large amounts of cash to cross the border, and sending money to family and friends, that is, using multiple accounts of “ant moving”. However, the above methods are not compliant and the risks are high. In the judicial practice, the underground money houses are convicted of illegal business, money laundering, cover-up, concealing criminal proceeds, etc.; carrying cash transit clearly violates the provisions of the cash quota, and the possibility of being detected at the time of customs clearance is extremely high; for the application of the "ant moving" type of small batches of people to move funds out of the way is prohibited by the SAFE.

In addition, The "Notice on Further Improving the Management of Personal Settlement and Sale of Foreign Exchange" provides that "individuals may not arbitrarily evade the management of personal settlement of foreign exchange and the annual total amount of foreign exchange purchases by domestic individuals.

Therefore, Bitcoin has won the favor of capital outbound demanders with its security, anonymity, large amount and real-time arrivals before the Announcement has been introduced.

2. Bitcoin Exchange Practice

The process of using Bitcoin to exchange foreign exchange is very simple. You only need to buy Bitcoin in RMB and then sell it in US dollars abroad to complete the process of currency conversion. It is with this point that many foreign startups have begun to play a role in the small exchange business. However, based on China's foreign exchange control situation, Bitcoin has a huge risk as a means of cross-border exchange, which is why the circle's business has not been opened to China.

3. Legal Analysis of Bitcoin Exchange: Loss and Risk

Even before the Announcement is introduced, it is inevitable to use Bitcoin to exchange foreign exchange for the losses caused by the following measures.

(1) Anti-money laundering risk review of domestic platforms;

Buying a large amount of bitcoin in China will be subject to strict anti-money laundering investigations on the trading platform. For example, to buy bitcoin from the OK Coin currency platform, first the OK Coin bank will review the review of the source of funds, the amount of assets, and so on.

(2) Risk review of overseas receiving platforms;

Foreign banks and trading platforms should also conduct anti-money laundering examinations when accepting bitcoin, such as proof of legal source that requires users to provide funds.

(3) The price loss during the exchange process;

Defects include handling fees, price differences between domestic and foreign platforms, and fluctuations in Bitcoin's own value.

(4) Criminal Responsibility;

Article 190 of the Criminal Law of the People's Republic of China stipulates that the crime of escaping foreign exchange refers to a company, enterprise or other unit that violates state regulations and arbitrarily deposits foreign exchange abroad, or illegally transfers foreign exchange within the territory to the outbound.

According to the relevant regulations of the Chinese foreign exchange administration department, the purchase and sale of foreign exchange shall be carried out through domestic institutions that have obtained the qualifications for the business of the sale and purchase of foreign exchange and the business of the franchise exchange business, or at the trading places stipulated by the State Administration of Foreign Exchange.

The act of collecting and paying RMB in China through the institutions or places stipulated by the aforementioned countries and receiving and paying foreign currency in respect of the foreign currency shall be deemed as illegal trading of foreign exchange. According to the above description, whether it is through the Bitcoin trading platform or offline OTC transactions, the foreign exchange that has not passed the license has an overseas behavior, which is a criminal law.

Any act that does not though the above-mentioned institutions or places to collect and pay RMB in the territory and collect and pay foreign currency in respect of the foreign currency shall be deemed as illegal trading of foreign exchange.

In addition, according to Article 225 of the Criminal Law, the crime of illegal business is defined as a violation of state regulations and one of the following illegal business operations, the case specified in paragraph (3) means that the securities, futures and insurance businesses are illegally operated without the approval of the relevant competent authorities of the State, or that the funds are paid and settled illegally.

According to the judicial case, the platform for the exchange of foreign exchange, which is similar in nature to Bitcoin exchanges and has no license for others, is generally treated as an illegal business.

(5) Administrative responsibility

According to the "Regulations on the Administration of Foreign Exchanges of the People's Republic of China", if the foreign exchange management or foreign exchange business is operated without authorization, the foreign exchange administration shall order it to make corrections. If there is illegal income, the illegal income will be confiscated. If the illegal income is more than 500,000 yuan, it shall be imposed a fine of 1 time or more and 5 times or less of the illegal income. If there is no illegal income or less than 500,000 yuan, a fine of not less than 500,000 yuan but not more than 2 million yuan shall be imposed. If the circumstances are serious, the relevant competent authority shall order it to suspend business for rectification or revoke the business license. Constitute a crime, be held criminally responsible.

In summary, whether it is through the virtual currency trading platform for bitcoin exchange or through offline off-exchange bitcoin transactions, the essence is that the foreign exchange transaction is not carried out in the foreign exchange trading place specified by the state, so it is not only possible to bear the administrative responsibility of violating the regulations of the SAFE, it may also bear criminal responsibility for violating the criminal law.