Based on blockchain technology, the value of virtual currency has gradually become apparent and continues to develop with the maturity of information technology. Unlike Bitcoin, which has a large fluctuation space, U Coin (USDT) is stable and pegged to the US dollar, making it a stable coin with low volatility, and it has become a medium for transactions in the coin circle. Due to the legal issues associated with the withdrawal of U Coin, U Card has emerged. Due to the restrictions on virtual currency in China, the domestic operation and use of U Card also involve some legal compliance issues.

I. Operation Mechanism of U Card

(1) Concept and Nature of U Coin

USDT, also known as Tether, is a virtual currency launched by Tether company, with functions such as trading, storage, and consumer payments. U Coin is a stable coin pegged to the US dollar to achieve value stability. Tether company provides a 1:1 reserve of pre-deposited US dollar funds for U Coin, and users can exchange between U Coin and the US dollar at any time. Its establishment aims to provide a relatively stable virtual currency to accelerate currency circulation and enhance trading trust. Compared to Bitcoin (BTC), U Coin has higher value stability. However, unlike the Chinese yuan and other legal tender, U Coin does not have the important characteristic of legal tender. Therefore, according to the regulations in China, U Coin and other virtual currencies are still considered virtual commodities and should not be used as currency in the market.

(2) Introduction and Usage Process of U Card

U Card includes physical and virtual cards with similar functions, supporting U Coin recharge, consumption, or cash withdrawal beyond basic functions. The most significant feature is the convenient and fast cross-border fund transfer and conversion using U Coin. Common U Cards include Unioncash Card, UnionPay Card, Dupay, etc. Physical cards like Unioncash Card issued by Paytend are international credit cards with wider acceptance and are more suitable for overseas travel or consumption, while UnionPay Card has a relatively wider acceptance range domestically. Virtual cards like Dupay are mainly used for e-commerce or international payments, offering more convenience and flexibility but cannot be used for cash withdrawal at ATMs.

The usage process of U Card can be summarized as follows: Users hold U Coin and U Card, recharge U Coin from the wallet address into the U Card address, and then can directly use U Card for consumption or cash withdrawal. The wallet address is a unique combination of numbers and letters randomly generated by the cryptocurrency wallet provider when the user creates it, allowing users to freely conduct cryptocurrency transactions, including U Coin. When U Coin is recharged, the U Card operator settles it as foreign currency and conducts international clearing and settlement with domestic banks. Therefore, users can directly use U Card in China, and the objects of consumption or cash withdrawal are still the Chinese yuan, the legal tender.

II. Criminal Legal Risks of Domestic Agents or Operating Companies of U Card

(1) Legal Issues of U Coin Transactions

It is known that when recharging U Card, the virtual currency being recharged into the card is U Coin. However, in the process of consumption and payment settlement, the ultimate currency used is not the virtual currency but the legal tender. Taking Unioncash Card as an example, during its service period, users can use the Chinese yuan to purchase U Coin domestically, recharge U Coin into Unioncash Card, and withdraw the corresponding foreign currency at overseas ATMs. Similarly, users can purchase U Coin with foreign currency and recharge it into Unioncash Card to withdraw the Chinese yuan at domestic ATMs. This process of depositing and withdrawing currency is metaphorically referred to as "deposit" and "withdrawal." Although there is a KYC process when depositing and withdrawing, which requires users to provide identity verification materials as a threshold, this threshold is relatively basic and simple. In practice, deposit and withdrawal can still be completed, allowing the exchange of the Chinese yuan and foreign currency outside the national foreign exchange management system. Although China has not yet enacted specific legislation for virtual currencies, the policy attitude has always been clear, denying their legal tender status and not allowing their exchange with legal tender. For example, the third article of the 2017 Announcement emphasizes that platforms are not allowed to engage in the mutual exchange of legal tender and virtual currency, or to buy, sell, or provide pricing, information intermediary, and other services. Based on this, by bypassing the national foreign exchange management system and providing objective and private channels for the exchange of the Chinese yuan and foreign currency, related platforms may also be involved in illegal foreign exchange. According to Article 225 of the Criminal Law of China, illegal foreign exchange falls under the category of "illegally engaging in fund payment and settlement business." Therefore, both domestic agents and operating companies of U Card, by providing support for U Card deposit and withdrawal, may commit the crime of illegal business operation if they engage in U Coin transactions and seriously disrupt market order.

(2) Other Legal Issues Related to U Coin Transactions

According to the third item of the first article of the 2021 Notice, domestic employees of U Card platforms, qualified domestic agents, or operating companies will be held accountable according to the law for violating the national foreign exchange management system. In addition to administrative violations resulting from violating the national foreign exchange management system and the aforementioned criminal responsibility for illegal business operation, domestic agents or operating companies of U Card may also be involved in the crime of aiding and abetting in internet-related criminal activities. Since existing U Cards are issued overseas, domestic agents and operating companies of U Card inevitably provide internet technology support, advertising, and promotion services for U Coin and U Card transactions. According to Article 287-2 of the Criminal Law of China, if there is evidence of using internet-related crimes during the transaction process and it is proven or presumed that they knowingly assisted others in committing crimes using the internet, domestic agents and operating companies of U Card may be charged with aiding and abetting in internet-related criminal activities.

Furthermore, as a relatively new existence, most people do not fully understand U Coin and cannot see through its essence. On one hand, taking advantage of the public's unfamiliarity with U Coin, there have been cases of network marketing and fraud conducted in the name of U Card agents or operators. On the other hand, as U Coin is a token with financial properties pegged to the US dollar, its circulation and trading fall under financial activities. Under the premise that the country does not recognize its legal tender status and prohibits related business activities, the provision of U Card and its channels by agents or operators may be illegal and may also involve offenses that disrupt financial management order.

III. Analysis of U Card User Behavior

Assuming that the transactions and sources of U Coin on the exchange are legal, non-operational and routine use of U Card by users generally does not constitute the crime of illegal business operation. However, based on the operation mechanism of U Card, in the "Chinese yuan-U Coin-foreign currency" or "foreign currency-U Coin-Chinese yuan" transaction model, because it bypasses China's foreign exchange management, according to Article 45 of the Regulations on Foreign Exchange Administration, it may be subject to administrative penalties by the foreign exchange management authority.

Due to the anonymity and confidentiality of U Coin, the U Coin deposited into U Card or the funds used to purchase U Coin may come from upstream criminal activities. If the funds involved in the exchange or the source of U Coin are illegal, based on the objective behavior of U Card users, including but not limited to providing accounts, asset conversion, asset transfer, and providing payment and settlement assistance, users of U Card may, under specific circumstances, be involved in the crimes of money laundering, concealing or disguising criminal proceeds, benefiting from criminal proceeds (hereinafter referred to as concealment crimes), or aiding and abetting in internet-related criminal activities (hereinafter referred to as aiding and abetting crimes).

For example, in the case of Liu's smuggling and trafficking, Liu used U Coin for settlement in drug transactions, concealed the funds, and transferred them, constituting the crime of money laundering. However, in practice, except for self-laundering and other special cases, it is less common to directly determine the condition of knowing. Usually, the defendant's subjective state needs to be inferred based on judicial interpretations and related regulations. According to the 2009 Judicial Interpretation of the Supreme People's Court on crimes such as money laundering, if there is no legitimate reason and the transaction is conducted through abnormal means, prices, or methods, it is usually presumed to be knowing. In the cases of Wan Lisheng and Yu Zhenu concealing and disguising criminal proceeds, the court ruled that the four defendants assisted in the transfer of criminal proceeds, knowing that they were criminal proceeds, and sentenced them for concealment crimes. Similarly, in practice, charging or indirectly charging high "fees," using anonymous or encrypted communication tools for trading, etc., can prove that U Card users have the condition of knowing, and depending on the different types of upstream crimes, they may constitute the crime of money laundering or concealment crimes.

In the second "Guo Mouzhao and others' illegal business operation, aiding and abetting in internet-related criminal activities" case in the "Typical Cases," the defendant Zhan Mouxiang provided an ID for Fan Moupin and others to register a virtual currency trading account for the transactions involved. Although there was no specific knowledge of Fan Moupin and others' illegal business operations, it was generally known that the behavior assisted was criminal, thus constituting the crime of aiding and abetting. According to the 2019 Judicial Interpretation of the Supreme People's Court and the Supreme People's Procuratorate on aiding and abetting crimes, if U Card users directly or indirectly provide assistance to upstream network criminals through U Card transactions, even if they do not have specific knowledge of others' criminal behavior, they may still be charged with aiding and abetting crimes.

IV. Conclusion

China's policies regarding activities related to virtual currencies have evolved from restrictions to comprehensive prohibition. For U Card, a new entity, the risk prevention and governance system for the behavior of domestic agents or operating companies and U Card users is not yet mature, but the legal compliance risks cannot be ignored.

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