Schemes of Violations and Analysis of Penalty Cases Amidst Tightened Foreign Exchange Regulation in the People’s Republic of China – A Practical Guide from Dacheng
Armstrong Chen, Joseph Yang, with contributions from Leonard Chen
Table of Contents
I. General Context: Tightening Enforcement and Inter-Agency Coordination
1.1 Types of Administrative Violations in Foreign Exchange Regulation and Regulatory Framework
1.2 Constituent Elements of Criminal Offenses in Foreign Exchange Transactions and Penalties
1.3 Bidirectional Linkage Between Administrative and Criminal Enforcement
1.3.1 Direct Referral of Cases (from Administrative to Criminal Jurisdiction)
1.3.2 Reverse Referral of Cases (from Criminal to Administrative Jurisdiction)
1.3.3 Evidentiary and Procedural Issues in Case Referrals
II. Typical Models of Foreign Exchange Violations and Analysis of Judicial Practice
2.1 Illegal Purchase and Sale of Foreign Exchange: “Underground Exchange Houses” and New Schemes
2.1.1 Brokerage Offset Clearing (Exchange Without Fund Movement)
2.1.2 Cross-Border Clearing Using Virtual Currencies
2.1.3 Virtual Currency Platforms
2.2 Fraudulent Acquisition of Foreign Exchange: Misappropriation of Currency Using Forged Documents
2.2.1 Acquisition of Currency Through Fictitious Transactions via Cross-Border Payment Licenses
2.2.2 Fraudulent Acquisition via Fictitious Orders on Third-Party Payment Platforms
2.2.3 Fraudulent Acquisition Using Authentic but Misappropriated Documents
2.2.4 Concurrence of Fraudulent Acquisition and Evasion of Repatriation of Foreign Exchange Proceeds
2.3 Evasion of Repatriation of Foreign Exchange Proceeds / Illegal Capital Outflow: Multiple Forms
2.3.1 Capital Outflow Using Fictitious Trade Operations
2.3.2 Capital Outflow in Violation of Registration Rules for Overseas Investment and Foreign Exchange Control
2.3.3 Fragmented Capital Outflow (Splitting Individual Quotas)
III. Conclusion
I. General Context: Tightening Enforcement and Inter-Agency Coordination
At present, the PRC’s foreign exchange control has entered a phase of tightened and comprehensive, chain-based suppression of violations. Against the backdrop of growing cross-border economic activity, the number of foreign exchange offenses continues to rise steadily, and the scale of penalty sanctions is constantly becoming more severe. The number of administrative penalties issued by the State Administration of Foreign Exchange (SAFE) and the total amount of fines collected are steadily increasing.
According to SAFE’s 2024 statement, during the period 2022–2023, in cooperation with law enforcement authorities, more than 200 criminal cases related to illegal business operations in the foreign exchange sector were suppressed. During the same period, administratively, more than 1,100 cases of illegal purchase and sale of foreign exchange, evasion of repatriation of foreign exchange proceeds, and fraudulent acquisition of foreign exchange were identified, with the total amount of confiscated funds amounting to approximately RMB 1.5 billion [1]. According to third-party statistics, in the first half of 2025, SAFE issued more than 400 penalty decisions totaling over RMB 450 million. Particularly strict measures are applied to non-bank financial institutions, which accounted for about 27% of the total number of penalty decisions and 45% of the total amount of penalties [2].
Since 2026, the country has launched a three-year national campaign to prevent and combat illegal financial activities. At the level of inter-agency joint meetings, SAFE, the National Financial Regulatory Administration, and the Ministry of Public Security set the task of ensuring comprehensive, chain-based, and full-cycle regulation, further reinforcing the trend toward regular and high-intensity supervision of the foreign exchange sector [3].
From a legal perspective, violations of foreign exchange regulations are divided into two levels: administrative violations and criminal offenses, which are closely interconnected. When qualifying criteria are met (severity of consequences, attainment of statutory amounts), an administrative violation crosses over into the category of a criminal offense.
1.1 Types of Administrative Violations in Foreign Exchange Regulation and Regulatory Framework
Pursuant to the “Regulations of the People’s Republic of China on Foreign Exchange Control” (2008 revision) and SAFE Circular No. 59 of 2008 on the application of the provisions of Chapter 7 on liability, the principal constituent elements of administrative violations are: illegal purchase and sale of foreign exchange, illegal conduct of foreign exchange transactions, and evasion of repatriation of foreign exchange proceeds. When such qualifying criteria as “large amount” or “serious consequences” are met, these acts may be qualified as criminal offenses.
The regulatory framework for administrative violations in foreign exchange control is built on three principal constituent elements. The first element is illegal purchase and sale of foreign exchange, established under Article 45 of the Regulations on Foreign Exchange Control of the PRC. This article covers both direct private purchase and sale and disguised exchange transactions, as well as resale of foreign exchange or unlawful intermediation in such transactions. The key criterion for imposing liability is a “significant amount”: for direct transactions, it is triggered at an amount equivalent to USD 1,000 or more, and for intermediation services, at an amount equivalent to USD 50,000 or more. The legal consequences include issuance of a warning, confiscation of illegal gains, and imposition of an administrative fine not exceeding 30% of the amount of the illegal transaction; under aggravating circumstances, a fine of 30% or more of the said amount may be imposed. Furthermore, if the act contains elements constituting a crime, the case materials are referred to law enforcement authorities for consideration of criminal liability.
The second element of administrative violations is illegal conduct of foreign exchange transactions (illegal arbitrage), provided for in Article 40 of the Regulations. The violation consists of non-compliance with rules for receiving foreign exchange proceeds and conducting settlements in RMB where payment in foreign currency is required by law, as well as engaging in manipulations with foreign exchange funds by providing banks and financial institutions with forged or invalid documents. The legislator also includes in this element payment in RMB for goods and services provided by overseas counterparties, with subsequent discharge of obligations in foreign currency by other persons (a form of clearing), as well as conducting unlawful investment activities within PRC territory without SAFE approval. As sanctions, SAFE issues an order to convert illegally obtained foreign exchange funds back into RMB, and also imposes a fine of up to 30% of the transaction amount (or more than 30% under aggravating circumstances). As in the previous case, when signs of a criminally punishable act are established, the mechanism of referral to investigative authorities applies.
The third element is evasion of repatriation of foreign exchange proceeds, or illegal capital outflow abroad, regulated by Article 39 of the Regulations. This covers violations of rules for exporting foreign exchange funds abroad, capital outflow abroad through fraud, and unlawful placement of foreign exchange funds outside the PRC. SAFE is empowered to issue an order for the compulsory return of the exported foreign exchange funds to PRC territory, and also to impose a fine, which may reach 30% of the amount of illegally exported funds, or exceed this threshold in particularly serious cases. In addition, the fact of such a violation, when it reaches the statutory large amounts, entails criminal prosecution.
1.2 Constituent Elements of Criminal Offenses in Foreign Exchange Transactions and Penalties
In December 1998, the Standing Committee of the National People’s Congress adopted the “Decision on Punishment for Crimes Involving Fraudulent Acquisition of Foreign Exchange, Evasion of Repatriation of Foreign Exchange Proceeds, and Illegal Purchase and Sale of Foreign Exchange” (hereinafter the “1998 Decision”). This act introduced a new offense — fraudulent acquisition of foreign exchange, expanded the scope of subjects and tightened sanctions for evasion of repatriation of foreign exchange proceeds, and also qualified illegal purchase and sale of foreign exchange under aggravating circumstances as illegal business operations under Article 225 of the PRC Criminal Code. Thus, three main offenses in the field of foreign exchange transactions emerged: illegal business operations, fraudulent acquisition of foreign exchange, and evasion of repatriation of foreign exchange proceeds. Turning to criminal law qualification, the basis consists of three offenses. The first is illegal business operations, qualified as illegal purchase and sale of foreign exchange. This offense is based on Article 225 of the Criminal Code of the PRC, Article 4 of the “1998 Decision”, and paragraph 2 of the Supreme People’s Court Interpretation (2019) No. 1. The objective aspect includes the commission of direct or disguised purchase and sale of foreign exchange outside the state-established foreign exchange platforms, if these actions destabilize the financial market and are of a serious nature. Criminal liability arises when the total amount of transactions exceeds RMB 5 million, or the illegal income exceeds RMB 100,000. An alternative condition is a transaction amount exceeding RMB 2.5 million with a prior conviction within the last two years, repeated commission of the violation, or refusal to cooperate with the investigation. In such cases, the penalty provides for imprisonment for up to 5 years or detention, and the court may impose a fine of up to five times the amount of illegal income, or may limit itself to a fine only. If the act is qualified as committed under particularly aggravating circumstances (transaction volume exceeding RMB 25 million, or illegal income exceeding RMB 500,000), the punishment is increased to imprisonment for 5 years or more, with a mandatory fine of up to five times the amount of income or full confiscation of property.
The second offense is fraudulent acquisition of foreign exchange, introduced by Article 1 of the “1998 Decision”. The objective aspect covers three main forms of conduct: (1) use of forged or altered customs declarations, import certificates, and SAFE permits to unlawfully obtain foreign currency from banks; (2) repeated use of the same documents to acquire foreign currency; and (3) use of other methods of fraudulently acquiring foreign currency. The law emphasizes that the fabrication of forged documents or alteration of genuine ones for the purpose of acquiring foreign currency is punished more severely, and persons providing RMB funds for such operations are deemed accomplices. The measure of punishment depends on the amount: for a large amount, the penalty is limited to imprisonment for up to 5 years or detention, with a concomitant fine of 5% to 30% of the amount of currency acquired. When committed in an especially large amount or with other aggravating circumstances, the term of imprisonment increases to 5–10 years, with the fine remaining at the same percentage. In exceptionally large amounts or under exceptionally serious circumstances, the court may impose imprisonment of 10 years to life, as well as a fine of 5–30% of the amount or confiscation of property.
The third offense is evasion of repatriation of foreign exchange proceeds (or illegal capital outflow), provided for in Article 190 of the Criminal Code of the PRC and Article 3 of the “1998 Decision”. The most important feature of this offense is that its subjects are exclusively legal persons (enterprises, organizations, and other legal entities). Natural persons for such actions bear only administrative liability. The qualifying feature consists of the unlawful placement of foreign exchange funds abroad or the unlawful transfer of capital abroad, committed by a legal person in a large amount. Sanctions are dual in nature: for a large amount, the legal person itself is fined from 5% to 30% of the amount of illegally exported foreign currency, while managers and other directly responsible persons are subject to imprisonment for up to 5 years or detention. If the crime is committed in an especially large amount or with other aggravating circumstances, the legal person pays an increased fine at the same percentage, and the responsible managers and officials face imprisonment of 5 years or more.
1.3 Bidirectional Linkage Between Administrative and Criminal Enforcement
The linkage between administrative and criminal enforcement (the so-called “bidirectional interaction”) operates both in the form of direct referral of cases and in the form of reverse movement, forming a closed-loop control system.
1.3.1 Direct Referral of Cases (from Administrative to Criminal Jurisdiction)
The principle of “priority of administrative proceedings” applies. In the course of reviewing administrative cases, if the amount of the imputed act or the nature of the violation reaches the threshold for initiating a criminal case, or if administrative measures are insufficient for punishment, SAFE is obliged to transfer the materials to the public security authorities (police). Crimes in the field of foreign exchange transactions are often intertwined with crimes such as telecommunications fraud, cyber-related gambling, money laundering, and fraud with export tax rebates. Therefore, law enforcement agencies conduct a comprehensive review of the flow of funds along the entire chain [4]. At the same time, the police and procuratorate, relying on SAFE’s professional analysis for evaluating new types of offenses, when discovering signs of administrative violations, redirect cases back to SAFE [5].
1.3.2 Reverse Referral of Cases (from Criminal to Administrative Jurisdiction)
If the procuratorate decides to decline to initiate a criminal case or to terminate criminal prosecution, but concludes that the person should bear administrative liability, the prosecutor sends a corresponding recommendation to SAFE for administrative penalty. This eliminates gaps in enforcement, where one could escape punishment through “impunity in criminal proceedings and impunity in administrative proceedings.” Based on typical cases, three principles can be identified: (1) Exemption from criminal liability does not exempt from administrative liability; disputes over jurisdiction in trans-regional cases are resolved by higher authorities. (2) Administrative punishment does not depend on the fact of profit-making; intermediation in illegal exchange of foreign currency, even without receiving income, incurs liability. (3) Termination of a case due to insufficient evidence for criminal prosecution does not prevent the imposition of administrative punishment independently on the basis of available materials; in cases of illegal purchase and sale of foreign currency by a legal person, the fine is usually imposed directly on the legal person itself. In 2025, the Supreme People’s Procuratorate and SAFE jointly published 6 typical cases of bidirectional linkage in the foreign exchange sector, which has significant implications for enforcement practice in this area [6].
1.3.3 Evidentiary and Procedural Issues in Case Referrals
Criminal proceedings require “reliability and sufficiency” of evidence, including the mandatory confirmation of the suspect’s intent for profit and that his actions seriously disturbed market order. The standard of proof for administrative punishment is lower: it is sufficient merely to confirm the fact of the illegal foreign exchange transaction. Even if the person did not make a profit or if his actions are not subject to criminal prosecution, objective evidence such as chat logs or bank statements can serve as the basis for administrative sanctions. With regard to procedures, to address the issue of jurisdictional mismatch between the place of the violation and the place of proceedings, mechanisms for coordination at the level of higher authorities and inter-agency commissions are gradually being formed; procedures for the transfer of evidence are constantly being standardized, and the procuratorate simultaneously provides all materials (criminal case file, interrogation records, etc.) to ensure smooth proceedings.
II. Typical Models of Foreign Exchange Violations and Analysis of Judicial Practice
Based on real cases, contemporary foreign exchange violations can be divided into three main categories: illegal purchase and sale of foreign exchange, fraudulent acquisition of foreign exchange, and evasion of repatriation of foreign exchange proceeds. The methods of committing them are constantly being updated and becoming more concealed.
2.1 Illegal Purchase and Sale of Foreign Exchange: “Underground Exchange Houses” and New Schemes
At present, the main object of inspection is offset clearing (“offset”) carried out by underground exchange houses. This scheme involves interaction between domestic and foreign links and settlements in the respective currencies without actual movement of funds across the border, thereby circumventing the interbank cross-border transfer system.
This type of violation (clearing) is characterized by three features:
· An enormous number of controlled accounts and large transaction volumes. Offenders often control numerous bank accounts, accounts on third-party payment platforms, or use accounts of third parties. Law enforcement agencies need to establish the actual control relationships and reconstruct the complete flow of funds.
· Increasing sophistication and high degree of concealment in methods of commission. In addition to traditional offset exchange between domestic and foreign accounts, methods using virtual currencies have emerged, as well as schemes with illegally converted POS terminals that are secretly transported abroad for transactions.
· Close connection with crimes committed in the upstream links of the criminal chain. Many criminal schemes for capital outflow cannot do without underground currency exchange; therefore, illegal purchase and sale of foreign currency becomes the financial channel in the chain of other crimes [7].
2.1.1 Brokerage Offset Clearing (Exchange Without Fund Movement)
In the case of Zhang S.H. and Zhang S.N. for illegal business operations, father and daughter, acting as “brokers” of an underground network, matched local clients with underground exchange houses from other provinces. Clients transferred RMB to accounts controlled by Zhang, who then transferred them to the underground exchange house; the latter, in turn, transferred the equivalent amount in foreign currency to the client’s designated overseas account, thus completing the cross-border exchange. The brokers received a commission of RMB 300 for every USD 10,000. The total volume of illegal conversions exceeded RMB 200 million.
Although the Zhangs were merely “intermediaries,” the procuratorate recognized their actions as constituting an independent offense, since they independently attracted clients, received RMB funds, and set the commission rate. The case was qualified as illegal business operations (without being charged as accomplices to the main underground exchange house). In addition, materials on clients who used Zhang S.H.’s services were transferred to the Wuxi SAFE office. After administrative review, 12 clients were subject to administrative penalties totaling RMB 16.83 million [8]. This case vividly demonstrated the criminal liability of “intermediaries” in the underground exchange house chain and allowed for the prosecution of the “seller,” the “intermediary,” and the “buyer” within the framework of bidirectional administrative-criminal enforcement.
2.1.2 Cross-Border Clearing Using Virtual Currencies
In the case of Zhao and others for illegal business operations, the criminal group led by Zhao provided services for exchanging UAE dirhams into Chinese RMB and for settlements using these currencies in the UAE and mainland China. The group accepted cash dirhams in Dubai and simultaneously transferred the equivalent amount in RMB to the client’s designated accounts in China. Subsequently, the received dirhams were used to purchase Tether (USDT) in the UAE. The USDT was then sold through accomplices in China, converted back into RMB, allowing them to circumvent foreign exchange control and profit from exchange rate differences. Ultimately, Zhao was convicted of illegal business operations [9].
In essence, in such cases, the criminal activity consists of using the special properties of virtual currencies to circumvent foreign exchange regulation. The chain “foreign currency — virtual currency — RMB” represents a disguised purchase and sale of foreign currency, which is qualified under the article on illegal business operations. Persons who, having prior collusion with the offenders, facilitate the conversion of virtual currency into RMB within this scheme are deemed accomplices to the crime.
2.1.3 Virtual Currency Platforms
Although professional trading in virtual currencies as an illegal payment activity is disputed, in scenarios of cross-border exchange using cryptocurrencies, when a person, knowing of the illegal currency exchange, effectively facilitates it by exchanging virtual assets, such actions are qualified as complicity in illegal business operations. If the person has only a general understanding of the criminal nature of the activities but does not know the specifics of the illegal currency exchange, they may be held liable for aiding cybercrimes (Article 287bis of the PRC Criminal Code).
In the case of Guo M. and others for aiding cybercrimes, Guo and Fang created the web platform “TW711,” which provided illegal currency exchange services using Tether (USDT) as an intermediary. Clients transferred foreign currency to the platform’s designated overseas accounts, after which the platform purchased USDT with that currency; Fang then through illegal channels exchanged USDT for RMB and transferred it to clients’ domestic accounts at an agreed rate, receiving a commission. Zhang and Liang provided Fang with accounts on cryptocurrency exchanges and bank accounts for receiving and transferring funds. Since the available evidence did not confirm that Zhang and Liang were specifically aware of the illegal purchase and sale of foreign currency, but allowed the conclusion that they were aware of the criminal nature of the activity in general, the procuratorate charged them under the article on aiding cybercrimes [10].
2.2 Fraudulent Acquisition of Foreign Exchange: Misappropriation of Currency Using Forged Documents
The main methods of fraudulent acquisition of foreign currency include the use of forged or altered customs declarations, import certificates, SAFE permits, and other forms and documents, or the repeated use of the same documents [11]. Unlike illegal purchase and sale, fraudulent acquisition occurs exclusively within the state-established foreign exchange platforms, where the counterparties are banks and other financial institutions.
2.2.1 Acquisition of Currency Through Fictitious Transactions via Cross-Border Payment Licenses
In the case of Zheng M. and others for fraudulent acquisition of foreign exchange, the company “Chongqing Qianmou Technology” held a license for experimental cross-border payment activities in the e-commerce sector. During the period 2014–2016, the company’s managers, for profit, using the company’s license, fabricated fictitious transactions for companies and individuals who had no real foreign trade activities, forged international mail tracking numbers, and submitted them to banks for currency purchase. In this way, approximately USD 477 million was illegally acquired. Zheng M. and others were convicted of fraudulent acquisition of foreign exchange and sentenced to imprisonment ranging from five to six years and a fine. SAFE suspended the cross-border payment license for the company “Qianmou” [12].
Investigations in such cases focus on three aspects: verification of the reality of trade operations, identification of the circle of persons involved in the crime, and analysis of the flow of funds. The authenticity of documents is checked, the degree of awareness of participants is ascertained, and the flows of goods and money are compared. For companies involved in such schemes, not only are responsible persons subject to criminal liability, but their licensed activity license is suspended or revoked [13].
2.2.2 Fraudulent Acquisition via Fictitious Orders on Third-Party Payment Platforms
In the case of Jiang M.C. and Tian M.C. for fraudulent acquisition of foreign exchange, the violators used legitimate cross-border payment platforms, providing the platforms with forged e-commerce orders to pass verification. After passing verification, the platform sent instructions to partner banks to purchase currency, and ultimately the funds were transferred to overseas accounts. Even with an intermediate verification layer, this activity possesses the same degree of harmfulness as direct application to a bank, and is qualified as fraudulent acquisition of foreign exchange [14].
2.2.3 Fraudulent Acquisition Using Authentic but Misappropriated Documents
In the case of Shanghai International Trading Company Limited and Wang M. for fraudulent acquisition of foreign exchange, the subjects obtained import documents from third parties that did not require currency payment, falsified themselves as buyers for customs clearance, and then, on the basis of false declarations in their name, purchased currency from banks. Although the trade transaction itself was real, the declarant subject and the grounds for purchasing currency were false. This falls within the definition of “other methods of fraudulent acquisition of foreign exchange” established by law, and entails criminal punishment for both the legal person and its directly responsible managers [15].
2.2.4 Concurrence of Fraudulent Acquisition and Evasion of Repatriation of Foreign Exchange Proceeds
In practice, combined schemes are often encountered: “first fraudulent acquisition of foreign exchange, then illegal export of foreign currency abroad.” In theory, various viewpoints are expressed: from qualification for a combination of offenses to imputation of a single offense. The prevailing position considers these actions as means and end: fraudulent acquisition serves as the means, and illegal export as the ultimate goal; at the same time, both acts infringe on different objects of criminal law protection, therefore under the rules of concurrence of offenses, the more serious article is applied — fraudulent acquisition of foreign exchange. For example, in the first Shanghai case of such a crime, the defendants, using the context of a trading company with transit trade, submitted forged bills of lading to banks to purchase currency, then under the guise of trade operations transferred it abroad, reconverted it into RMB and returned it to China, profiting from exchange rate differences. SAFE qualified the actions as fraudulent acquisition of foreign exchange and evasion of repatriation of foreign exchange proceeds; the Pudong District Procuratorate indicted precisely under the article on fraudulent acquisition of foreign exchange [16].
2.3 Evasion of Repatriation of Foreign Exchange Proceeds / Illegal Capital Outflow: Multiple Forms
Criminal liability for evasion of repatriation of foreign exchange proceeds under the PRC Criminal Code arises only for legal persons. Natural persons, including for splitting transfer limits, bear only administrative liability. Pursuant to the PRC Regulations on Overseas Investment (State Council Decree No. 837), as well as internal PRC regulatory acts, overseas investment requires obtaining approvals or completing registration with the National Development and Reform Commission (NDRC) and the Ministry of Commerce. Failure to comply with these requirements and direct transfer of capital abroad for investment is qualified as evasion of repatriation of foreign exchange proceeds; when reaching a large amount, it constitutes a criminal offense [17].
2.3.1 Capital Outflow Using Fictitious Trade Operations
Enterprises, seeking to benefit from exchange rate and interest rate differentials, conclude fictitious purchase and sale contracts, forge bills of lading, and simulate transit trade. In the absence of actual movement of goods, they illegally transfer large amounts of foreign exchange funds abroad. At large amounts of such operations, the company and its actual manager are subject to criminal liability for evasion of repatriation of foreign exchange proceeds. In parallel, SAFE imposes heavy administrative fines on the company and records the information in the credit history, negatively affecting reputation. There are also cases of transferring money under the guise of “advance payment” or “payments for technical services” under fictitious contracts without actual provision of services, which is also recognized as evasion of repatriation of foreign exchange proceeds.
In the case of Shanghai Industrial and Trade Development Company (LLC) and others for evasion of repatriation of foreign exchange proceeds, the defendant legal person and its actual manager, Zhu M.G., with the aim of profiting from exchange rate and interest rate differentials on RMB and USD loans, fabricated fictitious transit trade transactions, used controlled affiliated companies in China and abroad to conclude fictitious contracts, and through resale of bills of lading illegally transferred foreign exchange funds abroad amounting to over RMB 129 million. The People’s Court of Pudong District found the company and Zhu M.G. guilty of evasion of repatriation of foreign exchange proceeds. The court’s decision stated that the transfer of capital abroad using fictitious transit trade operations without actual movement of goods and with the aim of speculative profit, when of large amounts, is subject to qualification under Article 190 of the PRC Criminal Code [18].
In addition to criminal liability, severe administrative sanctions apply to such actions. In the case of Guangzhou “Yangfan Trade” Company for evasion of repatriation of foreign exchange proceeds, the company used forged bills of lading and fictitious trade activities to make payments abroad amounting to USD 92.858 million. By falsifying key transport documents and creating the appearance of imports, under the guise of “transit trade” it transferred huge funds abroad. SAFE imposed a fine of RMB 37.34 million on the company and recorded the information in the credit system of the People’s Bank of China, severely damaging the company’s credit rating and reputation [19].
In the case of Xuzhou “Hongdian Electronics Technology” Company for evasion of repatriation of foreign exchange proceeds, the company under the guise of “advance payment” and “technical services” submitted forged contracts and invoices to banks for purchase and transfer of currency abroad amounting to USD 27.349 million, while there was no actual import of goods or provision of services. The SAFE fine amounted to RMB 9.602 million [20].
2.3.2 Capital Outflow in Violation of Registration Rules for Overseas Investment and Foreign Exchange Control
The following actions fall under the category of “transfer of capital abroad by fraudulent means,” qualified by SAFE as evasion of repatriation of foreign exchange proceeds:
· Undertaking overseas investment without completing registration with the NDRC, the Ministry of Commerce, and SAFE.
· Changing the data on actual controlling persons or shareholding structure without timely updating the registration data for foreign exchange control, with subsequent transfer of overseas profits on invalid grounds.
· Concealing information about overseas ultimate beneficiaries when registering round-trip investment, with subsequent transfer of profits abroad.
The case of “Xiangcunji” Investment Company (Chongqing) is the first instance where SAFE qualified a violation as evasion of repatriation of foreign exchange proceeds due to failure to comply with registration rules by actual controlling persons. In 2007, the spouses Li registered an SPV (special purpose vehicle) in the Cayman Islands. In 2010, this SPV was listed on the New York Stock Exchange and through a Hong Kong company owned 100% of the shares of “Xiangcunji” (Chongqing). In 2012, the spouses moved to Singapore, but did not fulfill the obligation to update the registration data for foreign exchange control. During the period from November 2016 to March 2017, the company illegally transferred overseas the parent company’s profits of USD 8.8599 million. SAFE recognized this as evasion of repatriation of foreign exchange proceeds and imposed a fine of RMB 3.02 million [21]. This case indicates that after the emigration of the actual owners, the nature of the company changed, but without updating the registration data, further transfer of profits constitutes fraudulent actions falling under Article 39 of the Regulations on Foreign Exchange Control.
Violation of the requirements for disclosure of actual control in round-trip investments also entails liability. In the cases of “Jinshi Packaging” (Jiaxing) and “Bocailin Electronics” (Shenzhen), the companies failed to disclose the true ultimate beneficiaries and illegally transferred profits abroad, and were fined RMB 950,000 and RMB 1,047,000 respectively [22]. The essence of the cases is that when registering round-trip investments, it is necessary to provide complete and accurate information about the real ultimate owners of the overseas SPV. Inaccurate information prevents SAFE from tracking real capital flows and control structures.
2.3.3 Fragmented Capital Outflow (Splitting Individual Quotas)
Fragmented capital outflow is essentially the use of individual quotas for currency purchase to circumvent registration of corporate overseas investment. Such actions are qualified as transfer of capital by fraudulent or fragmented means. In the case of fragmented capital outflow by citizen Sun from Guangdong Province, he used the quotas of 34 natural persons in the PRC, purchasing foreign currency in their names and transferring it to overseas accounts, thereby illegally transferring USD 2.4462 million for overseas investment. Sun was fined RMB 830,000 and placed on a special control list [23]. Such actions simultaneously violate Article 7 of the Rules on Administration of Individual Foreign Exchange Transactions and constitute evasion of repatriation of foreign exchange proceeds [24]. However, since under the PRC Criminal Code the subjects of this crime are only legal persons, personal illegal transfer of funds abroad generally does not entail criminal prosecution for this offense.
III. Conclusion
At present, foreign exchange control in China continues to be tightened, and special operational measures cover all links of the chain, with ever-increasing amounts of fines. This article has systematized the criteria for qualification and rules of liability for illegal purchase and sale of foreign exchange, illegal foreign exchange transactions, and evasion of repatriation of foreign exchange proceeds, and has set out the corresponding criminal offenses and penalties. The mechanism of bidirectional linkage between administrative and criminal enforcement is described, emphasizing that exemption from criminal liability does not mean exemption from administrative punishment. Based on a large number of practical cases, three high-frequency violation models have been analyzed in detail: (1) illegal purchase and sale of foreign exchange through underground exchange houses and using cryptocurrencies; (2) fraudulent acquisition of foreign exchange through document forgery, fictitious transactions, and unlawful use of credentials; (3) evasion of repatriation of foreign exchange proceeds through fictitious trade operations and in violation of foreign exchange registration rules. Amidst tightening control, judicial and administrative practice is continuously clarifying legal positions and qualification rules in the field of foreign exchange violations.
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11. Yujun Yang, Juping Wu & Zhiquan Tang, Research on New Issues in the Field of Foreign Exchange Crimes, 8 Shanghai Legal Studies 138 (2019).
12. Supreme People’s Procuratorate & State Administration of Foreign Exchange, Notice on Publishing Typical Cases on Punishment for Crimes Involving Violation of Foreign Exchange Legislation (Dec. 11, 2023), https://www.spp.gov.cn/xwfbh/dxal/202312/t20231227_638260.shtml.
13. Xiaojin Zhang, Jinxin Bei & Tuo Wang, Strengthening the Linkage Between Administrative and Criminal Enforcement for Joint Punishment of Crimes Involving Violation of Foreign Exchange Legislation—Interpretation of Typical Cases on Punishment for Foreign Exchange Crimes Published by the Supreme People’s Procuratorate and the State Administration of Foreign Exchange, 4 People’s Procuratorate 45 (2024).
14. Jiang Mocai and Tian Mocai (Fraudulent Acquisition of Foreign Exchange), Judicial Database of the PRC, Case Registration No. 2024-03-1-131-001 (2024).
15. Shanghai International Trading Company Limited and Wang Mo (Fraudulent Acquisition of Foreign Exchange), Judicial Database of the PRC, Case Registration No. 2024-03-1-131-002 (2024).
16. Procuratorial Daily, First Case of Fraudulent Acquisition of Foreign Exchange Heard in Court in Shanghai (Jan. 19, 2017), https://www.spp.gov.cn/dfjcdt/201701/t20170119_179088.shtml.
17. Yujun Yang, Juping Wu & Zhiquan Tang, Research on New Issues in the Field of Foreign Exchange Crimes, 8 Shanghai Legal Studies 136 (2019).
18. Shanghai Industrial and Trade Development Company (LLC) (Evasion of Repatriation of Foreign Exchange Proceeds), Judicial Database of the PRC, Case Registration No. 2025-04-1-132-001 (2025).
19. State Administration of Foreign Exchange, Notice on Typical Cases of Violation of Foreign Exchange Legislation (May 20, 2019).
20. State Administration of Foreign Exchange, Notice on Typical Cases of Violation of Foreign Exchange Legislation (Oct. 11, 2022).
21. State Administration of Foreign Exchange, Notice on Typical Cases of Violation of Foreign Exchange Legislation (May 20, 2019) [additional analytical commentary: WeChat Platform, Landmark Precedent! After the Emigration of the Actual Controlling Person, His Overseas SPV Company Was Fined by SAFE RMB 3.02 Million (May 21, 2019), https://mp.weixin.qq.com/s/cyDmZBATDu5Ics4tqxp3VQ].
22. State Administration of Foreign Exchange, Notice on Typical Cases of Violation of Foreign Exchange Legislation (Oct. 22, 2018).
23. State Administration of Foreign Exchange, Notice on Typical Cases of Violation of Foreign Exchange Legislation (May 20, 2019).
24. Rules on Administration of Individual Foreign Exchange Transactions, art. 7 (Promulgated by Order of the People’s Bank of China No. 3, Dec. 25, 2006).
Original by Armstrong Chen and Joseph Yang, with contributions from Leonard Chen, Dacheng Shanghai Office, June 24, 2026