Bihuan.com reports:
This article is inspired by a recent case handled by Lawyer Shao involving criminal charges against an introducer in a currency exchange fraud. To protect privacy, no specific case details are disclosed. This is intended as a legal knowledge dissemination piece to help more people understand such scams and take precautions to avoid potential criminal risks in the future.
People with currency exchange needs can be roughly divided into two categories: those with legitimate needs, such as studying abroad, outbound tourism, cross-border trade, etc., and those with illegal purposes, such as asset transfer and money laundering.
Due to China’s foreign exchange control system, private currency exchange transactions, although convenient and fast, are illegal but common in practice. The differences in the financial systems between Hong Kong and the mainland, where funds being credited does not equal being deposited, provide opportunities for fraudsters.
Written by Lawyer Shao Shiwei
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Funds already credited, but later revoked?
In Hong Kong, bank checks are a common payment method, akin to mobile payments in the mainland, used for transactions like bill payments, salary payments, and down payments. However, when a remitter initiates a check payment, the money is actually in a pending state, with a 24-hour verification period between check crediting and depositing.
The recipient receives two bank SMS notifications:
1. The first SMS indicates that the funds are “credited,” which is just a number displayed in the recipient’s account (also known as “pending”), and the remitter can revoke it within 24 hours;
2. The second SMS indicates that the funds are “deposited,” which means the money has truly arrived, and the remitter cannot revoke it. The interval between the two notifications exceeds 24 hours.
Even if the remitter does not revoke the check, it might not clear due to insufficient funds, mismatched signatures, or other issues, leading to a bounced check. Banks like HSBC, Bank of China, Wing Lung Bank, Nanyang Commercial Bank, Bank of East Asia, and Hang Seng Bank support such operations.
Fraudsters often choose Fridays for transactions, as banks do not work on weekends. By the time the victim realizes the scam on Monday, the fraudster has disappeared.
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Introducer sentenced for illegal business operation due to currency exchange introduction
Cross-border currency exchange is a common private currency exchange method where domestic A and overseas B trade: A transfers RMB to B’s designated domestic bank account, and B transfers foreign currency to A’s designated overseas bank account. However, A and B may not know each other initially, so many intermediaries act as introducers to facilitate the transaction.
These introducers usually work in fields like study abroad consulting, immigration services, brokerage finance, foreign currency exchange, insurance business, trust, banking, and wealth planning, allowing them to access many high-net-worth clients.
An example is a 2020 Chengdu court case, case number (2019) Chuan 01 Xing Zhong 1114.
Gao, who long worked in study abroad and immigration services, was contacted by Zhao, a financial consultant in Australia, about Jason’s need to exchange $9 million into RMB. Gao reached out to Wu, a real estate agent in Australia. Wu then contacted his client Xiong through WeChat. After Xiong agreed, Wu sent Xiong’s contact to Gao.
Xiong sent Gao a screenshot of a CCB account balance of 150 million RMB, and Jason sent a screenshot of an HSBC account balance of $8.5 million. They then further discussed the exchange details.
The transaction process was:
Jason deposited a total of $4 million in checks into Xiong’s HSBC account and sent a screenshot of the HSBC transaction notice to Gao. Xiong, at the given exchange rate, transferred 26 million RMB to the bank account Jason provided to Gao. After deducting a 600,000 RMB fee for facilitating the transaction, Gao transferred the remaining amount to Jason.
The case was reported when Xiong found the check was returned by the bank, leading to Gao’s arrest and the full return of the 600,000 RMB fee. After the first and second trials, Gao was sentenced to five years in prison and fined 600,000 RMB.
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Legal Analysis
According to the law, privately buying and selling foreign exchange, disguised buying and selling of foreign exchange, speculating on foreign exchange, or illegally introducing foreign exchange transactions are administrative violations. However, the criminal law stipulates that “engaging in speculation of foreign exchange or disguised buying and selling of foreign exchange” constitutes illegal business operations, without clearly defining the introduction of foreign exchange transactions as a crime.
Thus, in practice, many lawyers argue that the introduction behavior does not constitute a crime due to the lack of clear legal provisions. This was one of the key defense points of Gao’s lawyer.
For a detailed legal explanation of whether introducing foreign exchange transactions constitutes illegal business operations, please refer to Lawyer Shao’s previous article: “Introducing Currency Exchange, Middlemen Convicted as Principal Offenders, Sentenced to 8 Years. Is it Unjust? – Avoid Introducing Others to Buy and Sell Foreign Exchange, Beware of Illegal Business Crime!” This will not be repeated here.
Generally, the court’s explanation is that the middleman objectively provides a trading platform for buyers and sellers of foreign exchange (outside the state-regulated foreign exchange trading venues). Therefore, the middleman’s behavior is not just an introduction but constitutes disguised trading.
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In Conclusion
Private currency exchange is illegal in itself. Although the act of introducing others to exchange currency is not clearly defined as a criminal offense, if the transaction amount exceeds 5 million RMB, or the introducer’s fee exceeds 100,000 RMB, the risk of criminal charges is very high. Even if the primary transaction facilitated by the introducer succeeds without incident, the risk of bounced checks in transactions like the one discussed above is ever-present.
As for the fraudster in the above case, were they held accountable?
According to the verdict, they were not. The court stated: “Regarding appellant Gao Rui’s argument that no criminal responsibility was pursued for the foreign exchange buyers and sellers. The prosecution did not charge anyone else except Gao Rui in this case, so the court does not evaluate whether the other parties constitute crimes.” (Excerpt from the judgment)