Lending Foreign Exchange Accounts Brings Administrative Penalties Wenzhou, Zhejiang: Criminal-Administrative Reverse Connection Eliminates "Gray Areas" in Foreign Exchange Supervision
"Underground money houses" - this gray term in the financial sector is often closely associated with illegal transactions, capital outflows, and other unlawful activities. Recently, the Wenzhou Branch of the State Administration of Foreign Exchange imposed administrative penalties of RMB 20,000 and RMB 25,000 on Chen Mouhong and Wu Mourong respectively. This case achieved seamless connection between "criminal non-prosecution and administrative accountability" for individuals who merely lent foreign exchange accounts in illegal business operations, providing a practical example for the implementation of criminal-administrative reverse connection work in the foreign exchange sector.
**Account Setup: Providing "Transit Stations" for Illegal Currency Exchange**
"Please verify the cardholder's identity and bank transaction records for this bank account..." In early 2023, the Public Security Bureau of Wencheng County, Zhejiang Province, launched an investigation into case leads from higher-level authorities, ultimately identifying four criminal suspects led by Chen Mou who engaged in illegal foreign exchange trading. In February 2024, the case was transferred to the Wencheng County Procuratorate for review and prosecution.
Chen Mou appeared to be an ordinary individual business operator on the surface, but was actually an experienced "foreign exchange scalper." Since 2022, without actually conducting import-export foreign trade business, Chen Mou utilized individual industrial and commercial households under her own name, her husband Wu Moulin's name, and relatives Chen Mouhong and Wu Mourong's names to open multiple personal foreign exchange settlement accounts at banks. "These accounts served as 'transit stations' for illegal funds, helping underground money houses achieve illegal capital transfers," the prosecutor explained.
Chen Mou's operation method was not complex but highly concealed. She utilized market procurement trade methods to provide "low threshold, fast customs clearance, and flexible settlement" compliant pathways for small commodity exports, fabricating export trades and providing personal foreign exchange settlement accounts to underground money house groups. After foreign exchange entered her accounts, Chen Mou processed currency settlement through banks and transferred the resulting RMB to designated domestic accounts. By the time of discovery, Chen Mou and others were involved in currency settlement amounts exceeding RMB 560 million.
"From spouses to relatives, in this family-style criminal case, each person played different roles. Handling the involved personnel must ensure consistency between crime, responsibility, and punishment, requiring comprehensive analysis and differentiated treatment of their objective behaviors and subjective knowledge," the prosecutor said after review. "Chen Mou and her husband Wu Moulin directly participated in illegal currency settlement activities with particularly large amounts involved, warranting severe punishment." In June and September 2024, Chen Mou and Wu Moulin were respectively prosecuted by Wencheng County Procuratorate for suspected illegal business operations and ultimately sentenced by the court.
Meanwhile, the prosecutor stated, "In this case, Chen Mouhong and Wu Mourong lent their foreign exchange settlement accounts based on family relationships. Although they also became part of the illegal foreign exchange trading chain, they did not profit from it, had minor criminal circumstances, and had mitigating factors such as being accomplices, confessing, and voluntarily admitting guilt and accepting punishment. Their treatment should maintain appropriate leniency and strictness in judicial proceedings." On September 5, 2024, Wencheng County Procuratorate lawfully decided not to prosecute Chen Mouhong and Wu Mourong.
**Merely Lending Accounts: No Criminal Charges Doesn't Equal No Penalties**
"The criminal procedure has ended, but more importantly, Chen Mouhong and Wu Mourong must recognize they need to bear responsibility for their illegal actions," the prosecutor believed. Although the two did not need to bear criminal responsibility, they should still accept administrative penalties.
According to relevant regulations, China implements annual facilitation quotas for genuine and legal personal current account foreign exchange transactions. Individual currency settlement and domestic individual foreign currency purchases are limited to the equivalent of USD 50,000 per person per year. For businesses not occupying annual facilitation quotas, individuals can handle transactions with genuine and legal transaction materials without amount restrictions. This both ensures normal foreign exchange needs and builds defenses against cross-border capital flow risks. According to the prosecutor, in this case, Chen Mouhong and Wu Mourong's personal foreign exchange settlement accounts processed Euro settlements equivalent to over RMB 85 million and RMB 175 million respectively, far exceeding reasonable ranges. What seemed like "helping out" actually violated foreign exchange account management principles.
"Without timely correction and punishment, this might send the wrong signal of 'low violation costs,'" the prosecutor explained. Wencheng County is a hometown of overseas Chinese with strong demand for private foreign exchange capital flows. If large numbers of personal foreign exchange settlement accounts are illegally lent or misused, this would not only provide opportunities for illegal financial activities like underground money houses but also disrupt normal foreign exchange market order.
However, problems emerged after the case entered the criminal-administrative reverse connection procedure. Wencheng County Procuratorate discovered during review that although Chen Mouhong and Wu Mourong provided foreign exchange settlement accounts knowing Chen Mou was settling for others, there was insufficient evidence to prove they directly engaged in illegal foreign exchange trading. According to Article 45 of the Foreign Exchange Management Regulations of the People's Republic of China, the basis for imposing administrative penalties on the two for privately trading foreign exchange was insufficient.
"This is like discovering structural problems in a house but being unable to find repair tools," Wencheng County Procuratorate Deputy Chief Prosecutor Chen Weiyin made this vivid analogy. "We must prove that lending foreign exchange settlement accounts itself is a 'termite hole' that damages foreign exchange market order."
After thorough research, the prosecutor discovered that the Domestic Foreign Exchange Account Management Regulations have strict provisions for personal foreign exchange settlement account usage. Chen Mouhong and Wu Mourong's behavior clearly violated Article 44, Item 2 regarding "lending, misusing, or transferring foreign exchange accounts," warranting administrative penalties under Article 48, Item 4 of the Foreign Exchange Management Regulations of the People's Republic of China. This discovery provided a new breakthrough for case handling.
Given the case's complexity and institutional reforms resulting in Wenzhou Branch of the State Administration of Foreign Exchange overseeing all county-level foreign exchange issues in Zhejiang Province, Wencheng County Procuratorate promptly reported to Wenzhou Municipal Procuratorate to jointly advance criminal-administrative reverse connection work.
**"No Precedent": How to Ensure Penalties Are Well-Founded and Accurate?**
To accurately determine Chen Mouhong and Wu Mourong's administrative violation responsibilities, Wenzhou Municipal Procuratorate, Wencheng County Procuratorate, and Wenzhou Branch of the State Administration of Foreign Exchange held multiple discussions, focusing mainly on penalty basis determination. Upon inquiry, current State Administration of Foreign Exchange public administrative penalty information shows no precedent for penalizing "individuals who merely provided foreign exchange settlement accounts as assistance."
"No precedent doesn't mean no penalties are possible, but penalty legal basis must be accurate," said Wenzhou Branch officials, who repeatedly compared regulations like the Domestic Foreign Exchange Account Management Regulations and Foreign Exchange Management Regulations with evidence provided by procuratorial authorities. They ultimately agreed that although Chen Mouhong and Wu Mourong did not directly engage in private foreign exchange trading, they violated foreign exchange account management regulations, with Article 48, Item 4 of the Foreign Exchange Management Regulations providing clear penalty basis.
Regarding "necessity of penalties," the Wenzhou Branch and municipal procuratorial authorities maintained consistent views: "Foreign exchange settlement accounts are essential tools for foreign exchange trading crimes. We should not allow 'account lending' behavior to further endanger national financial security." Administrative penalties are not only corrections of their illegal behavior but also protection of foreign exchange market order, making penalties unquestionably necessary.
This criminal-administrative reverse connection involved municipal and county levels, making it relatively inconvenient for foreign exchange management departments to investigate evidence and serve documents across jurisdictions. During discussions, both parties agreed that after procuratorial authorities issued prosecutorial opinions to Wenzhou Branch of the State Administration of Foreign Exchange, Wencheng County Procuratorate would assist with convenient cross-jurisdictional evidence investigation and service of notices. These details, like precisely meshing gears, ensured smooth operation of every criminal-administrative reverse connection link.
In November 2024, procuratorial authorities sent prosecutorial opinions to Wenzhou Branch of the State Administration of Foreign Exchange, recommending administrative penalties for Chen Mouhong and Wu Mourong according to relevant regulations. After the recommendations were adopted, considering Chen Mouhong and Wu Mourong's proactive cooperation with administrative inspections, the bureau imposed warnings and fines of RMB 20,000 and RMB 25,000 respectively, with penalties currently implemented.
**Cross-Department Coordination: Strengthening Foreign Exchange Supervision Network**
"Gray areas" in foreign exchange supervision must be eliminated to prevent normal foreign exchange market order from losing control. Focusing on foreign exchange sector risk prevention and control, Wenzhou Municipal Procuratorate and Wencheng County Procuratorate convened symposiums involving case-related banks and foreign exchange management departments to explore further improvements to foreign exchange transaction risk control systems.
"In this illegal business case, personal foreign exchange settlement accounts held by Chen Mou and others had frequent transactions with high single settlement amounts, commonly using methods like large inflows and scattered outflows to evade bank supervision. Therefore, source-level risk warning and control must be strengthened," prosecutors explained.
In March this year, Wencheng County Procuratorate issued prosecutorial recommendations to case-related banks, suggesting strict implementation of relevant regulations like the Bank Foreign Exchange Business Management Measures (Trial), improving settlement process monitoring, strengthening employee compliance training, conducting proper customer due diligence and foreign exchange business reviews, and building solid security defenses at the front end of false foreign capital inflows. After rectification, case-related banks cumulatively froze and closed 162 accounts through account verification and enhanced transaction monitoring.
"Using successful handling of this reverse connection case as an opportunity, we promptly summarized experiences and jointly developed Implementation Opinions on Strengthening Criminal-Administrative Connection Work in Foreign Exchange Sector with Wenzhou Branch of the State Administration of Foreign Exchange, detailing operational standards for material transfer, fact determination, objection handling, and other full-process procedures. This essentially installed a 'navigation system' for criminal-administrative connection in foreign exchange sector, providing guidelines for cross-department collaboration," Wenzhou Municipal Procuratorate Party Group Member and Deputy Chief Prosecutor Zhang Hong explained. "The Implementation Opinions also clarify leveraging respective advantages for joint publicity to expand the influence of crackdown actions. Currently, procuratorial and foreign exchange authorities are working together with overseas Chinese associations to enhance legal awareness among overseas Chinese and their families through case-based legal education."
Going forward, Wenzhou municipal procuratorial authorities will continue monitoring relevant case developments nationwide and persistently implement the Implementation Opinions, transforming new problems encountered in practice into new momentum for institutional improvement, truly achieving regulatory goals of "punishing violations, preventing risks, and serving development" in foreign exchange markets.
"In recent years, as financial markets continue developing and foreign exchange transactions become increasingly active, illegal foreign exchange trading activities have also increased, seriously threatening foreign exchange market stability and order. Criminal-administrative reverse connection work plays an irreplaceable role in maintaining foreign exchange market order," said Chen Mingheng, head of Wenzhou Branch of the State Administration of Foreign Exchange. "Through close cooperation with procuratorial authorities, we can effectively regulate behaviors that are on the edge of criminal punishment but indeed violate foreign exchange management regulations, creating strong deterrence against potential violators. Through subsequent governance work, we can standardize foreign exchange market transaction behaviors from the source, firmly maintain the bottom line of preventing systemic financial risks, and provide solid guarantees for orderly economic and social operation."
**Providing Demonstration and Guidance for Advancing Criminal-Administrative Reverse Connection Work in Foreign Exchange Sector**
Recently, to further deepen criminal-administrative reverse connection work in foreign exchange sector and achieve precise crackdowns on foreign exchange-related violations and crimes, the Supreme People's Procuratorate and State Administration of Foreign Exchange jointly released six typical cases of criminal-administrative reverse connection in foreign exchange sector. Among these typical cases, this case has certain representativeness.
First, it demonstrates the special nature of criminal-administrative reverse connection cases in foreign exchange sector. The institutional setup of state foreign exchange management departments differs from procuratorial authorities in terms of levels and regions, creating common jurisdictional issues in foreign exchange criminal-administrative reverse connection cases. In this case handled by Wencheng County Procuratorate, the administrative penalty authority was Wenzhou Branch of the State Administration of Foreign Exchange, with reverse connection involving two levels of procuratorial authorities in Wenzhou Municipality and Wencheng County. After multiple discussions between two-level procuratorial authorities and foreign exchange management departments, consensus was reached: after Wenzhou Municipal Procuratorate issued prosecutorial opinions to Wenzhou Branch of the State Administration of Foreign Exchange, Wencheng County Procuratorate would provide convenience for cross-jurisdictional evidence investigation and service of notices. This case established "unified thinking" for solving jurisdictional difficulties in foreign exchange criminal-administrative reverse connection, providing demonstration and guidance for smooth development of foreign exchange criminal-administrative reverse connection work through "integrated" duty performance.
Second, it demonstrates accurate grasp of "punishability" principles. Chen Mouhong and Wu Mourong lent their foreign exchange settlement accounts based on family relationships without directly participating in illegal business activities. Currently, administrative penalties for "individuals merely providing foreign exchange settlement account assistance" have few precedents. Regarding whether administrative penalties should be imposed, procuratorial authorities and foreign exchange management departments repeatedly analyzed legal basis and penalty necessity. Chen Mouhong and Wu Mourong knowingly provided foreign exchange settlement accounts for others' currency settlement, violating Domestic Foreign Exchange Account Management Regulations. Foreign exchange settlement accounts are essential tools for foreign exchange trading crimes. If large numbers of personal foreign exchange settlement accounts are illegally lent or misused, this would provide opportunities for illegal financial activities like underground money houses and disrupt normal foreign exchange market order, warranting lawful administrative penalties. This case provides guidance for lending foreign exchange accounts to assist others' illegal foreign exchange trading violations by comprehensively judging social harmfulness, administrative illegality, and penalty necessity, finding accurate legal basis for administrative penalties, and eliminating accountability blind spots.
Third, it demonstrates positive effects of case-based governance and advancing regular and long-term reverse connection. Wenzhou municipal procuratorial authorities jointly deepened foreign exchange criminal-administrative reverse connection work with foreign exchange management departments. Based on individual case handling, they focused on risk issues reflected in local foreign exchange settlement and sales businesses, jointly researching improvements to foreign exchange transaction risk control systems, strengthening internal supervision, and enhancing policy publicity. They jointly developed Implementation Opinions on Strengthening Criminal-Administrative Connection Work in Foreign Exchange Sector to standardize local financial markets and effectively maintain healthy foreign exchange market development order. This case also reflects efforts made by procuratorial authorities and foreign exchange management departments in cooperation to precisely crack down on foreign exchange-related violations and crimes and firmly maintain the bottom line of preventing systemic financial risks.