Web3 popularization丨Buying and selling prepaid cards to receive virtual currency is good business, but is it legal?

Question

**Written by: Kim Jianji**Recently, Mr. Mankiw received a consultation from a client who registered a company overseas, the company's main business is the sale of prepaid cards around the world, the collection method is virtual currency, there are many Chinese among the buyers, the client wants to know, whether there are any legal risks in his business?### Is it illegal to buy and sell prepaid cards?Prepaid cards are divided into single-purpose commercial prepaid cards and prepaid cards of payment institutions, which are respectively regulated by the Measures for the Administration of Single-Purpose Commercial Prepaid Cards (Trial) (2016 Revision) and the Measures for the Administration of Prepaid Card Business of Payment Institutions. The prepaid cards referred to in this article are single-purpose commercial prepaid cards, that is, various gift cards seen in daily life.Depending on the circumstances, enterprises issuing prepaid cards need to file with the Municipal Regulatory Bureau or the Department of Commerce and have relevant capital management requirements. In addition to the regulated issuance, there is no prohibition on trading prepaid cards, i.e. the resale of prepaid cards is completely legal in the market.Jiangsu prosecutors once prosecuted a citizen for recycling a large number of shopping cards and selling them for profit, but in the end, Wen did not constitute a crime and was released on the spot. In this case, the court also carefully analyzed whether engaging in the business of recycling shopping cards did not constitute the crime of illegal business operation (see [Criminal Trial Reference] Wen Fusheng Concealing and Concealing the Proceeds of Crime Case [No. 1093] - Does the act of recycling shopping cards in large quantities and selling them for profit constitute a crime?). See the end of the court hearing).### Does buying or selling prepaid cards constitute illegal business?Before interpreting whether it may constitute the crime of illegal operation, it is necessary to understand this business model, why use virtual currency to sell prepaid cards? There could be several reasons for doing the world's business? Or is it convenient for small withdrawals?In the Chinese mainland virtual currency withdrawal process, it is easy to be frozen due to receiving stolen money, etc., and it is an established fact that bank cards are frozen. Therefore, in the process of withdrawal, not only buyers prevent sellers, sellers also prevent buyers. For users who only want to withdraw in small amounts, the business model of selling prepaid cards with virtual currency is a very genius solution to the concerns of both parties. The buyer receives a prepaid card, which is absolutely impossible to freeze. Sellers receive small amounts of virtual currency, and the possibility of black money is greatly reduced.This model perfectly solves the pain point of small withdrawal market demand, but is it illegal?First of all, what Mankiw needs to popularize is that the scope of application of Chinese criminal law is very large, as long as any part of the business model has something to do with China, it may theoretically be subject to the jurisdiction of Chinese criminal law. It is only to say that increasing the foreign-related factors in the business model, such as the fact that the company entity is an overseas company, can greatly reduce the probability of criminal risk in China.Second, even though the scope of application of China's criminal law is large, it still follows the basic principle of criminalization. That is, Article 3 of the Criminal Law stipulates that "if the law expressly stipulates that it is a crime, it shall be convicted and punished in accordance with the law; Whoever does not expressly provide for an offence in the law shall not be convicted and punished."### Is buying and selling prepaid cards illegal fund payment settlement?So is this business model an illegal operation under the Chinese Criminal Law? According to the market demand on which the business model is based on the aforementioned analysis by Mankiw, this business model is most likely to be marginalized by the behavior of "illegally engaging in fund payment and settlement business" in the crime of illegal operation.According to the judicial interpretations of the Supreme People's Court and the Supreme People's Procuratorate on illegally engaging in fund payment and settlement business, Mankiw lawyers believe that this business model does not comply with the judicial interpretation's enumeration: "(1) using methods such as acceptance terminals or online payment interfaces to pay monetary funds to the designated payer in illegal ways such as fictitious transactions, false prices, transaction refunds, etc.; (2) Illegally providing others with services for cashing out the unit's bank settlement account or transferring the unit's bank settlement account to an individual account; (3) illegally providing cheque cash-out services for others".The reason is that: (1) the transaction corresponding to the business model is real, and the price also follows the market price; (2) It does not involve the provision of bank accounts or cash out by cheque; Mr. Mankiw feels that the important point is (3) it is not money-to-money behavior.What is not a money-to-money act? When Mankiw's friends are panicking, they must remember that there is a tendency to "substance over form" in any jurisdiction (including in China) for supervision or punishment, so ask yourself, what is the essence of my behavior? What is the essence of the punishment for this crime? The essence of "illegally engaging in fund payment and settlement business" that penetrates the criminal legal system is actually directly engaging in money-to-money exchange without approval and permission.The customer's business model may only involve money to money in one link, because the user who buys a prepaid card will not go to other merchants, and the prefabricated card is exchanged for RMB, which has nothing to do with the customer's business model, and it is best not to have a relationship, once there is a relationship, the exchange of money to money forms a closed loop, and the form can not cover up the essence of this "direct money-to-money exchange", stepping on the bottom line of the criminal law.Therefore, in the view of Mankiw's lawyers, if only selling prepaid cards with virtual currency does not constitute illegal business, but if you intervene and match the transaction between prepaid cards and RMB on this basis, it is difficult to say.Of course, Mankiw's friends may have used their flexible business brains when they saw this. Maybe I want to further ask, what if a domestic company is engaged in exactly the same thing? All trading activities based on virtual currency are not prohibited in Japan, but virtual currency-related business activities as illegal financial activities are prohibited. Having said that, if you would like to pursue further questions, please feel free to consult Mankiw.### References1. Criminal Law of the People's Republic of China (2020 Revision)Article 225:[Crime of Illegal Business Operation] Where one of the following illegal business operations is committed in violation of state regulations, disrupting market order, and the circumstances are serious, he shall be sentenced to fixed-term imprisonment of not more than five years or criminal detention, and shall be given a fine of not less than one time but not more than five times the unlawful gains concurrently or individually; where the circumstances are particularly serious, they shall be sentenced to fixed-term imprisonment of not less than five years, and shall also be fined between one and five times the unlawful gains or have their property confiscated:(1) Dealing in franchised or monopoly articles or other items restricted from trading as provided for by laws and administrative regulations without permission;(2) Buying and selling import and export licenses, certificates of import and export origin, and other business licenses or approval documents provided for by laws and administrative regulations;(3) Illegally engaging in securities, futures, or insurance business without the approval of the relevant competent departments of the State, or illegally engaging in fund payment and settlement business;(4) Other illegal business activities that seriously disrupt market order.2. Interpretations of the Supreme People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Application of Law in Handling Criminal Cases Involving Illegal Engagement in Fund Payment and Settlement Business and Illegal Trading of Foreign ExchangeArticle 1: In any of the following circumstances, those who violate state regulations fall under the "illegal engagement in fund payment and settlement business" provided for in paragraph 3 of article 225 of the Criminal Law:(1) Using methods such as acceptance terminals or network payment interfaces to pay monetary funds to designated payers in illegal methods such as fictitious transactions, false prices, or transaction refunds;(2) Illegally providing others with services for cashing out the unit's bank settlement account or transferring the unit's bank settlement account to an individual account;(3) Illegally providing cheque cashing services for others;(4) Other situations where funds payment and settlement are illegally engaged.3. [Criminal Trial Reference] Wen Fusheng Concealed and Concealed the Proceeds of Crime Case [No. 1093]