In my country's criminal law system, crimes related to the proceeds of crime involving virtual assets are primarily concentrated in three articles. Understanding their differences is crucial for Web3 practitioners:
(1) Article 191 of the Criminal Law: Money Laundering
This is the core crime. The key to constituting this crime lies in the specificity of the upstream crime. The perpetrator must be "knowing" that the funds are proceeds from the following seven specific crimes: drug-related crimes, organized crime of a mafia nature, terrorist activities, smuggling, corruption and bribery, crimes that disrupt financial management order, and financial fraud. Key Development: "Self-laundering" is now criminalized. Following the 2021 "Criminal Law Amendment (XI)," perpetrators of these seven crimes who then launder their criminal proceeds (such as converting illegally raised funds into USDT) will be guilty of money laundering and subject to concurrent penalties. (II) Article 312 of the Criminal Law: Concealing or Hiding Criminal Proceeds and Proceeds of Criminal Proceeds (Criminal Concealment) This offense applies when the predicate crime does not fall into one of the seven categories listed above. In judicial practice, if the funds originate from online gambling, ordinary fraud (non-financial fraud), pyramid schemes, pornographic live streaming, etc., even if the perpetrator engages in "laundering" activities such as exchanging USDT, they are generally convicted of concealment. This is currently the most common charge in cases involving USDT fund transfers. (III) Article 287-2 of the Criminal Law: Assisting Information Network Criminal Activities (Aiding and Assisting) In USDT "running" activities, if the perpetrator has only a vague subjective understanding that the other party may be committing cybercrime, and the circumstances are relatively minor (such as low-volume, low-level "cannons" or junior OTC service providers), they may be convicted of aiding and Assisting. (IV) The Core of the Judicial Interpretation: Determination of Subjective "Knowledge" The core difficulty in determining the above charges lies in proving the perpetrator's "subjective knowledge." The judicial interpretation allows subjective knowledge to be inferred from objective behavior, which has far-reaching implications for cases involving USDT: 1. Abnormal transaction prices: For example, in the Hunan case, USDT was purchased at a price 0.8 yuan higher than the market price. This premium, significantly deviating from the market price, is often considered a "money laundering service fee" and is strong evidence of knowledge. 2. Abnormal transaction methods: Frequent use of overseas encrypted messaging apps (such as Telegram), requests for new addresses or wallet addresses not controlled by the user for payment, and refusal to undergo KYC verification. 3. Abnormal sources of funds: The other party's funding sources are complex and dispersed, or funds flow in and out rapidly without stopping. Money Laundering Models in the Web3 Era and the Core Role of USDT Money laundering activities in the Web3 space often combine traditional methods with emerging technologies, with USDT playing a key role. (I) USDT's Core Position: Why Is It the Preferred Method for Money Laundering? Among numerous virtual currencies, USDT (Tether) has become the preferred medium for money laundering for several key reasons: 1. Value Stability (Core Advantage): Pegged to the US dollar, USDT's price volatility is minimal. Money laundering takes time, and criminals don't want to see their stolen funds diminished by a price drop during the process. USDT provides the perfect hedge. 2. High Liquidity and Widespread Acceptance: USDT is the world's most traded stablecoin, enjoying widespread acceptance across various exchanges, OTC markets, and even on the dark web and illegal gambling platforms. Its strong liquidity makes it a veritable "digital dollar." 3. Cross-border convenience and low cost: Compared to traditional international wire transfers or underground banks, transferring USDT using blockchain networks is fast and inexpensive, and is not restricted by the business hours and geographic locations of traditional financial institutions. 4. Multi-chain deployment and the proliferation of TRC20: USDT is issued on multiple public blockchains. USDT on the Tron blockchain (TRC20-USDT) is particularly favored by money laundering rings due to its extremely low fees and high efficiency. (II) OTC trading and "run-point" platforms: The main channel for USDT money laundering. Over-the-counter (OTC) trading, particularly by so-called "U-traders," is the primary channel for exchanging fiat currency for USDT and a major target for money laundering. Criminal rings establish "run-point" platforms and utilize numerous decentralized accounts to quickly convert illicit proceeds into USDT. In-depth Case Analysis: Hunan's 170 Million Yuan USDT Money Laundering Case This case clearly illustrates the chain of cross-border criminal money laundering using USDT, exemplifying the typical model of combining traditional "running points" with virtual currencies: Upstream criminals: Overseas online gambling and telecom fraud rings ("financial sponsors"). Money laundering channels (four-level model): First level (placement): Stolen funds are deposited into domestic "dummy accounts." Second level (beginning of separation): The "running points fleet" quickly splits the funds and transfers them to secondary cards at multiple levels. Third level (physical isolation): The "drivers" withdraw cash in the early morning. This step aims to completely cut off the online banking system's tracking path. Fourth level (conversion and integration): The "backpackers" hand over the cash to underground banks or large over-the-counter merchants. This is the most crucial step. After receiving the cash, the OTC merchant immediately releases the equivalent amount of USDT to the wallet address designated by the overseas "financier." Thus, the domestically acquired RMB funds are successfully converted into overseas digital assets. In this case, the gang purchased USDT at a price 0.8 yuan above the market price. This significant premium reflects the "risk premium" associated with money laundering services and is an important basis for determining subjective malice. (III) Specific Money Laundering Models Derived from USDT 1. The "Acceptor" Model: This is extremely common in cross-border gambling or illegal payment platforms. Platforms rely on professional "acceptors" to process deposits and withdrawals. Acceptors receive users' fiat currency (often containing significant amounts of illicit funds), convert it into USDT, and then pay it to the platform. They also help the platform convert USDT proceeds back into fiat currency. 2. The Integration of USDT and Underground Banks (Digital Counter-Trading): Traditional underground banks are accelerating their "digitalization." They directly use USDT as a cross-border settlement tool. Domestic customers pay RMB to a bank, which then directly pays USDT to a designated address overseas, and vice versa, achieving physical isolation and cross-border transfer of funds.
3. Exploiting "slow top-up" to launder money: As mentioned in the materials, some platforms offer "top-up discounts" (e.g., top up 80, get 100 yuan in phone credit). Users pay legitimate funds to money laundering intermediaries, who then use the matching stolen funds to top up the user's account. Users unknowingly become part of the money laundering chain.
4. Trade-based money laundering (TBML) variant of USDT: Criminals fabricate international trade contracts and use USDT to pay for goods, thereby transferring funds across borders.
(IV) Emerging Money Laundering Channels
1. DeFi and cross-chain bridges: Exploiting the liquidity pools of decentralized finance (DeFi) protocols to quickly convert assets; using cross-chain bridges to transfer USDT between different blockchain networks makes it more difficult to track.
3. Mixers and Privacy Coins: Using mixers to scramble transaction records or exchanging USDT for privacy coins (such as Monero) to hide transaction information.
3. NFT Money Laundering: Driving up prices through self-trading or transferring funds by purchasing low-value NFTs at high prices.
Offense and Defense: Key Points of Criminal Defense for Web3 Money Laundering
For practitioners accused of money laundering or related crimes using USDT, the core of the criminal defense lies in breaking the prosecution's chain of evidence, particularly at the level of subjective intent and technical evidence.
(I) Core Battleground: Challenging "Subjective Knowledge"
Given the unique nature of USDT transactions, the defense strategy must focus on proving that the defendant was unaware of the illegal source of funds and that their actions were consistent with normal OTC business logic. 1. Argument of Reasonable Business Conduct: Explanation of Price Fluctuations: To address the allegation of "buying U at a high price and selling U at a low price," the defendant must provide evidence demonstrating the reasonableness of the prevailing market supply and demand, liquidity premiums, or specific services provided (such as the risk premium for large cash transactions), refuting the prosecution's logic that the price differences are simply "money laundering service fees." Regularity of Trading Patterns: Prove that the use of encrypted software for communication and frequent trading are common practices in the OTC industry, rather than deliberate attempts to circumvent regulation. 2. Proof of Due Diligence (KYC Defense): Provide evidence that the parties conducted reasonable KYC prior to the transaction (such as requiring real-name authentication, providing bank statements, and signing a "Legal Source of Funds Undertaking") to demonstrate the fulfillment of their duty of care and preclude the claim of "willful blindness." 3. Technical Awareness Defense: Assess the defendant's technical awareness and demonstrate whether they possess the ability to identify complex money laundering tactics or whether information asymmetry makes it difficult to verify the nature of the funds. (II) Offense Differentiation Strategy: Money Laundering vs. Concealment/Aiding and Confirming Crime
Given that the penalty for money laundering (Article 191) is generally heavier than that for concealment (Article 312) and aiding and convincing crimes (Article 287-bis), distinguishing between offenses is crucial.
1. Challenging the Characterization of the Predicate Crime: If the prosecution cannot prove that the predicate crime falls within the seven statutory felonies, or cannot prove that the perpetrator knew that the proceeds were from one of these seven categories, the prosecution should seek to change the offense to concealment.
2. Lowering the Level of Subjective Intent and Status: If it can be proven that the perpetrator had only a general understanding of the crime and played a minor role in the overall USDT exchange chain, the prosecution should seek to designate the perpetrator as aiding and convincing or an accomplice.
(III) Review and Rebuttal of Technical Evidence
USDT cases rely heavily on electronic evidence, particularly blockchain data analysis reports. 1. Legality and Integrity of Evidence: Examine the compliance with the extraction and preservation process of electronic data, and the legality of the acquisition of wallet private keys. 2. Scientificity of On-Chain Analysis Reports: Involve expert assistants to question the scientific nature of the methodology (e.g., address clustering analysis, risk scoring model) and the certainty of the conclusions of the third-party blockchain analysis reports relied upon by the prosecution. Pay particular attention to the accuracy of the analysis of USDT's circulation across different chains (e.g., ERC-20 and TRC-20). 3. Fund Identity and "Contamination" Challenges: USDT is highly homogeneous. The "fund contamination" theory—that is, whether, after multiple transfers and commingling of funds, the final recipient can still be considered to have received the original stolen funds, and whether they were subjectively aware of the possibility of such knowledge—necessarily raises important defense points. Compliance First: Risk Prevention Tips for Web3 Practitioners In an era of strict regulation, compliance is the cornerstone of survival for Web3 businesses and individuals, especially those handling large amounts of USDT. (I) Risk Prevention for Individuals and OTC Merchants (U-Merchants) 1. Avoid "running points" and protect your account. Never rent or lend your personal bank card or USDT wallet address to avoid becoming a "toolman" or "money mule." 2. Be wary of unusual transactions and "slow deposit" traps: Stay away from transactions that significantly deviate from market prices. Be wary of USDT transfers disguised as "slow deposits," fake orders, and agency collection and payment. 3. Strictly enforce KYC and KYT (Know Your Transaction/Token): Merchants must conduct strict real-name authentication for counterparties and require them to provide reasonable explanations of the source of funds. Establish a fund risk control model (e.g., reject transfers between non-identical names). Conduct preliminary risk screening (KYT) on all USDT addresses received to avoid directly accepting funds from high-risk addresses. (II) Compliance for Web3 Projects and Virtual Asset Service Providers (VASPs) 1. Establish a robust AML/CFT system: Build internal anti-money laundering controls commensurate with business risks, referencing international standards (e.g., FATF recommendations). 2. Strengthen the use of on-chain analytical tools: Leverage professional RegTech tools to conduct real-time risk screening of counterparty addresses, identify addresses associated with the dark web, sanctioned entities, and mixers, and intercept tainted USDT. 3. Focus on data compliance and privacy protection: When collecting customer information, data protection regulations must be strictly adhered to. Privacy-enhancing technologies (PETs), such as federated learning or multi-party secure computation, mentioned in the FATF report, can be explored to conduct risk analysis while protecting privacy. 4. Implement the "Travel Rule": Monitor global regulatory trends and ensure accurate transmission of sender and receiver information when transferring virtual assets. The Web3 world is brimming with innovation and opportunities, but the widespread use of USDT also presents unprecedented money laundering risks. The Hunan USDT money laundering case demonstrates once again that, regardless of technological evolution, regulators' resolve and ability to combat money laundering are growing, and on-chain data tracking technology is maturing. For participants in the Web3 space, understanding legal boundaries, establishing compliance systems, and staying away from illegal financial activities are crucial for long-term success. Innovation is not a crime, but exploiting innovation to commit crimes will inevitably be severely punished by law. When facing legal risks, seeking the assistance of a lawyer with a solid foundation in criminal law and professional technical knowledge, and accurately grasping the key points of defense, is the key to safeguarding one's own legitimate rights and interests.
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