Legal Risks in Personal Foreign Currency Exchange—Legal Classification and Practical Interpretation of Fees

The need for foreign currency can arise for anyone. Studying abroad, business trips overseas, immigration… In such cases, when exchanging money personally, is it truly illegal? Many people have doubts, but the answer is not simple. Under China’s legal system, “currency exchange = illegal” is not the correct interpretation; rather, “the nature of the exchange” is the key criterion for judgment.

“Is currency exchange always illegal?” — Distinguishing personal use from commercial activities

Many clients visiting law firms ask the same question: “I can pay the fines, but I want to avoid imprisonment.”—This one statement clearly reflects the distinction between administrative penalties and criminal offenses.

According to the 2008 Regulations on Foreign Exchange Control, private buying and selling of foreign currency may constitute an “administrative violation.” However, if an individual exchanges currency for personal use without profit motives, it generally does not qualify as a criminal offense. The problem lies in how ambiguous the “purpose” determination can be.

Let’s look at actual cases. If someone raises 10 million yuan worth of foreign capital through private channels for establishing a company, is this for personal use or for business? In another case, someone exchanged a large amount of yuan into Hong Kong dollars to repay overseas gambling debts. Both could be considered “personal purposes,” but in reality, they have been prosecuted as criminal offenses.

The reason for this contradiction is that judicial authorities tend to interpret laws broadly.

Amount thresholds and fees—The boundary that constitutes a crime

Legally, the severity of illegal currency exchange is judged by the amount involved. According to the 2015 Interpretation of the People’s Republic of China on the Foreign Exchange Control Regulations, the following standards are considered relatively large sums:

• Private foreign currency transactions: equivalent to or exceeding 1,000 USD
• Illegal foreign currency introduction: equivalent to or exceeding 50,000 USD

Furthermore, the 2019 interpretation by the Supreme People’s Court and the Supreme People’s Procuratorate stipulates that the following constitute serious circumstances of “illegal business operations”:

• The amount of illegal business exceeds 5 million yuan
• The amount of illegal income exceeds 100,000 yuan

An important point is that fees and exchange rate differences are calculated as “illegal income.” In other words, if you earn fees by acting as an intermediary in currency exchange, the amount of those fees becomes part of the judgment criteria.

For example, if you facilitate a currency exchange of 1 million USD and earn a fee of 30,000 yuan, this 30,000 yuan is counted as “illegal income,” and if it reaches 100,000 yuan, it satisfies the criteria for illegal business operations.

Learning from cases—the reasons why judgments can differ even for the same exchange

In China’s judicial practice, the same act related to foreign currency exchange can lead to very different verdicts. The most famous comparison is between the “Liu Han case” and the “Huang Guangyu case.”

Both cases share remarkable similarities:

• Reason for exchange: repayment of overseas gambling debts
• Method of exchange: both used a technique called “reverse buy-sell”

However, the rulings were completely opposite. In Liu Han’s case, it was judged that “there was no profit motive, so it does not constitute a business activity,” whereas in Huang Guangyu’s case, he was convicted of “illegal business operations.”

The reason for this discrepancy, as seen in the verdicts, is that in Huang Guangyu’s trial, “whether the defendant had a profit motive” was not sufficiently discussed, and the focus was wrongly placed on “whether exchanging foreign currency to repay yuan-denominated foreign debt constitutes foreign exchange trading.”

In other words, even for the same currency exchange:

• Whether there is a profit motive
• Whether fees or gains are obtained
• Whether it is a one-time or continuous transaction

these factors greatly influence the legal evaluation.

Risks for intermediaries and introducers—how fees alter legal responsibility

Particularly important are the roles of “introducers” and “intermediaries.” When helping friends who need foreign currency by introducing channels or mediating between buyers and sellers, where is the line between legality and illegality?

In practice, the following judgment factors are crucial:

Presence and amount of fees If the exchange is introduced free of charge versus for a fee, the legal responsibility differs greatly. Receiving a fee is likely to be judged as a profit-making activity.

Frequency and total amount of mediation How many exchanges have been mediated, and what is the total amount? This can be a criterion for determining ongoing business activity.

Depth of involvement Are you merely introducing someone (“here is a person who wants to exchange”), or are you actively involved in negotiations over exchange rates, transfer times, accounts, and amounts? The more involved, the higher the risk of being considered a principal or accomplice.

Purpose of the exchange The purpose of the currency exchange for both buyer and seller is also important. If there is suspicion of money laundering or receipt of stolen funds, the introducer may also be charged with aiding or concealment crimes.

In actual cases, there has been a verdict of five years’ imprisonment for an intermediary involved in illegal business activities. Simply “introducing a friend” is not enough; the overall impact on market order is considered.

Ambiguity of laws and judicial interpretation

A key issue arises: why are there cases of prosecution and conviction despite the absence of clear legal provisions?

The answer lies in the “delay” of laws and the “broad interpretation” by judicial authorities.

As digital collections, blockchain, and other new financial technologies rapidly develop, legislation has not kept pace. Similarly, laws regarding foreign exchange trading are not sufficiently detailed to address complex realities.

As a result, judicial authorities tend to interpret the old regulations from 2008 and 2015 broadly, and by adding new categories through the 2019 interpretation, they respond to individual cases. This “broad interpretation” is the reason why the same act can lead to different verdicts.

Practical measures for safe currency exchange

To minimize legal risks, attention should be paid to the following:

1. Use official channels Exchanging through banks or legitimate financial institutions is the safest. If exceeding the official limit of $50,000 per year, consider spreading the transactions over multiple years.

2. Clarify the purpose Clearly state the purpose of the exchange, such as studying abroad, medical expenses, or legitimate business funds. Vague purposes can arouse suspicion from authorities.

3. Do not accept fees When helping friends or acquaintances with currency exchange, absolutely avoid accepting fees. Receiving fees is a key criterion for profit motive.

4. Avoid large one-time exchanges Distributing a large amount in a single transaction is riskier than multiple smaller transactions, which are less likely to be judged as business activities.

5. Avoid dealings with suspicious parties Refrain from exchanging with individuals suspected of theft, fraud, or money laundering. In such cases, the introducer may also be charged as an accomplice.

6. Consult professionals If in doubt, do not hesitate to consult lawyers or tax experts. Pre-emptive consultation is the most effective way to avoid risks.

If facing illegal risks

If you are subject to investigation, according to Article 8 of the 2019 legal interpretation, the following circumstances may lead to reduced penalties:

• The offender honestly confesses the criminal facts
• Acknowledges guilt and shows remorse
• Actively cooperates with investigations
• Returns illegal income

Even if criminal charges are filed, discovering strong defense points can turn the case around.

However, private currency exchange has high concealment, and once investigated, upstream and downstream parties tend to be involved one after another. Administrative penalties can also be substantial.

In conclusion, personal foreign currency exchange is a “gray area.” Legally, it is not entirely legal nor illegal; there is a zone of ambiguity. However, stepping into this gray area can bring unforeseen risks.

The principle of safety first: strictly conduct currency exchange within the legal framework, and always consult professionals if in doubt. This is the only way to avoid unnecessary trouble.