Ordinary people using U cards, as long as the source of U is clean, there shouldn't be much of a problem.

Written by: Xiao Za Team

As the use of crypto assets becomes more widespread, we can see that the traditional financial system is undergoing deep integration with crypto assets, giving rise to a series of products such as Bitcoin, Ethereum spot ETFs, and U cards.

So, under the current validity of the 9.24 notice, do U card service providers and related business service providers, as well as ordinary people using U cards for daily transactions, currency exchanges, and fund withdrawals, face legal risks?

The Xiao Za team will discuss the above issues in detail today.

What is a U card?

In simple terms, a U card is a bank card that supports the recharge, consumption, and withdrawal of USDT.

Using a U card is also very simple and quite similar to using a traditional bank card: users can recharge U from their wallet address into the U card address and then use the U card like a regular bank card, directly for purchases on platforms like Taobao, for buying groceries and meat, or withdrawing cash (in legal currency) from offline ATMs, essentially functioning like a normal bank card.

In fact, the U card does not directly use the U that users recharge for payment settlement. In practice, when users recharge, the U card service provider will convert the U into a certain amount of a country's legal currency at a specific exchange rate. When users consume with the U card, the U card service provider will settle the legal currency with banks or other entities.

Therefore, when you use a U card for consumption, you are still effectively using legal currency, and the cash withdrawn from ATMs is also legal currency. Currently, common U cards on the market include Mastercard U cards, UnionPay U cards, and so on.

Friends, doesn't what a U card can do sound similar to what crypto exchanges do? Yes, in a way, you can view U card service providers as "licensed" crypto exchanges.

Are U card service providers and related business service providers compliant?

Conclusion first: Non-compliant, dangerous!

As we all know, in 2021, China's central bank and ten ministries issued the "Notice on Rectifying Virtual Currency 'Mining' Activities" (referred to as the 9.24 notice), which clearly defines activities such as "conducting legal currency and virtual currency exchange services, exchanges between virtual currencies, acting as a central counterparty for buying and selling virtual currencies, and providing information intermediary and pricing services for virtual currency transactions" as "illegal financial activities," which are strictly prohibited and must be resolutely banned by law. Moreover, if these illegal financial activities involve illegal issuance of token vouchers, unauthorized public issuance of securities, illegal operation of futures business, illegal fundraising, and other illegal financial activities that constitute crimes, criminal responsibility will be pursued according to law.

Additionally, the 9.24 notice also clarifies: "Overseas virtual currency exchanges providing services to residents in China via the internet also constitute illegal financial activities. Relevant domestic staff of overseas virtual currency exchanges, as well as legal entities, non-legal entities, and individuals who knowingly or should know they are engaged in virtual currency-related businesses and still provide marketing, payment settlement, technical support, and other services for them, will be held legally accountable."

Therefore, based on the relevant provisions of the 9.24 notice, the nature of U card service providers offering exchange, trading, and settlement services between U and legal currency to users in China is very clear, and it indeed violates the provisions of the 9.24 notice.

Activities related to promoting U card services, providing network technical support, and operational maintenance also fall under violations of the 9.24 notice.

As of now, no administrative approval mechanism related to crypto assets has been introduced in the financial regulatory field in mainland China, and naturally, there are no administrative licenses applicable to U card-related businesses.

Thus, the Xiao Za team believes that even if one holds a financial license from an overseas country, any entity providing U card services and related business services to citizens in China should still exercise caution in their operations.

Do ordinary users using U cards face legal risks?

Conclusion first: As long as the source of U is clean, there shouldn't be much of a problem.

Our judgment that domestic residents holding and occasionally trading some crypto assets does not violate laws and regulations and does not constitute a crime has not changed. Under this premise, directly trading crypto assets with others and using a U card for consumption are not significantly different.

Will using a U card result in receiving dirty money?

Moreover, the Xiao Za team has not seen any cases where using a U card has led to administrative penalties or criminal risks while handling various crypto-related cases. In contrast, cases of receiving dirty money leading to frozen cards are more common when dealing with crypto exchanges or trading on exchanges.

As mentioned earlier, since the funds of U card service providers are compliant funds circulating within the traditional financial system and have undergone relatively strict scrutiny, the compliance of the source of funds on the legal currency side is quite good, so the probability of U card users receiving dirty money is actually very low.

Therefore, if you have U on hand, as long as you don't find the card issuance fee or transaction fees too high, using U cards issued by major banks like UnionPay for personal and family daily expenses or normal outbound travel is actually a convenient choice.

Note: The above views do not constitute any investment advice. Involvement with crypto carries risks, and investment should be cautious. Please make your independent judgment based on comprehensive information.

Is it feasible to use a U card for asset outflow?

From practice, most of the crypto circle partners in mainland China who have had their cards frozen are due to receiving dirty money (gambling fraud funds) during the process of cashing out U, while exchanging RMB or USD for U is generally safer.

So, since the risk for individuals using U cards is low, can U cards be used for convenient asset outflow? Is it feasible?

First, China has strict foreign exchange management. Friends with study abroad experience or overseas experience are certainly familiar with the "50,000 yuan rule." According to Article 2 of the "Implementation Rules for Personal Foreign Exchange Management," "Annual total amount management is implemented for personal foreign exchange settlement and domestic personal foreign exchange purchases. The annual total amount is equivalent to 50,000 US dollars per person per year. The State Administration of Foreign Exchange may adjust the annual total amount based on the balance of payments situation."

In simple terms, unless for special purposes and with relevant procedures at the bank, an individual can only exchange/receive a total of 50,000 US dollars in foreign currency within a year. Therefore, the "50,000 yuan rule" is also known as the "facilitation quota."

Now, if U cards do not set a personal limit for depositing and withdrawing U (currently U cards generally do not support transferring U), can I convert an amount far exceeding 50,000 US dollars into U and deposit it into the card, then go to places like the US or Dubai to withdraw cash?

The Xiao Za team believes that even if it is feasible in practice, this behavior also constitutes a violation of China's "Implementation Rules for Personal Foreign Exchange Management" and other foreign exchange regulatory laws and regulations. If discovered by foreign exchange management authorities, administrative fines will be imposed.

Additionally, if this method is used to evade taxes, illegally transfer involved assets, hide personal assets to resist court enforcement, or conduct related businesses for profit using exchange channels, it may constitute a crime, and specific circumstances need to be analyzed individually.

In conclusion

In fact, the Xiao Za team has certain concerns about the U card as a new entity. As mentioned earlier, the U card serves as a bridge between traditional finance and the crypto world, which can help users more conveniently spend and transfer U. However, could it become a new channel for money laundering or hiding and transferring funds?

Moreover, based on the Xiao Za team's current observations, the KYC and AML processes of U card service providers are still "somewhat rough." Coupled with the previous analysis, the related businesses of U card service providers operating in China are quite gray, leading to significant legal risks. Therefore, the Xiao Za team advises U card service providers to strive for compliance to effectively counter unknown risks.

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