Why is the U Card / VCC Virtual Card Platform Suspected of Illegal Business Operations?

Analyzing five criminal risk points from the business chain.

Written by: Shao Shiwei

Cryptocurrency payments have rapidly gained traction in the past two years. Within the industry, we can see that virtual currency exchanges, wallet companies, card issuing infrastructure platforms, cryptocurrency payment companies, and even DeFi protocol projects are all launching their own crypto cards (U Card / VCC virtual credit cards).

However, the judicial authorities' attention to U Card / VCC virtual credit card projects did not start recently. As early as four or five years ago, Shao's legal team began to engage with and represent card issuing projects suspected of illegal business operations, and recently the team has also represented two criminal cases involving VCC card project operators.

As a lawyer who has long focused on criminal risks in the cryptocurrency field, I am more concerned about why card issuing project operators are repeatedly accused by judicial authorities in mainland China of illegal business operations, rather than how hot the cryptocurrency payment sector is. Where exactly is the boundary between crime and non-crime?

Why Are More and More Entrepreneurs Entering the U Card / VCC Virtual Card Sector?

Why are so many institutions flocking to the business of cryptocurrency U Card / VCC virtual credit cards?

Because there is a real demand. There are a large number of people holding virtual currencies in mainland China who face two common pain points: first, they want to convert USDT into RMB for spending, but selling it to strangers through over-the-counter (OTC) transactions can easily lead to their bank cards being frozen due to involvement in illegal funds ("frozen cards"); second, they want to subscribe to overseas services like ChatGPT and Netflix, but domestic bank cards often fail to make payments. These two demands have created a stable market.

The business model of such platforms is very profitable: card issuance fees range from $10 to $249, recharge fees are 0.8% to 1.35%, withdrawal fees are 2% + $5, and cross-border fees are charged separately. Based on a platform's claim of over 300,000 cards, the income from card issuance fees alone amounts to millions of dollars, not to mention the transaction fees, resulting in considerable profits.

With real demand and substantial profits, it is no wonder that exchanges, wallet companies, and entrepreneurial teams are all rushing into this sector. However, Shao has discovered in handling cases that many practitioners have a blind spot regarding the legal risks of this business. Here are some real confusions from individuals involved in criminal cases related to illegal business operations:

• Our platform is registered in Hong Kong and Singapore, not in mainland China. Why would we violate domestic laws?
• Our platform places great importance on compliance and only collaborates with licensed institutions.
• We are just a technology service provider.
• Our clients are all overseas enterprises. The clients we connect with are legitimate businesses, and the funds on our platform are all legal.

Many entrepreneurs in the payment industry enter the market with these blind spots. Next, we will specifically analyze which aspects of operating a U Card / VCC virtual credit card platform may trigger the risk of illegal business operations, and which factors may influence the judgment of judicial authorities.

Five Risk Points of U Card / VCC Virtual Card Platforms Suspected of Illegal Business Operations

(1) The platform accepts USDT deposits ------ Legal risks of virtual currency exchange and source of funds

In 2021, ten ministries in China jointly issued the "Notice on Further Preventing and Handling Risks of Virtual Currency Trading and Speculation," and on February 6, 2026, the People's Bank of China and eight other departments issued the "Notice on Further Preventing and Handling Risks Related to Virtual Currencies" (Yin Fa [2026] No. 42), which defines "virtual currency-related business activities" as "illegal financial activities." However, "illegal financial activities" is a classification at the administrative regulatory level and does not directly equate to "illegal business operations."

If the card issuing project only holds USDT for users (similar to wallet custody), this is closer to the administrative level of "illegal financial activities"; if it exchanges USDT for fiat currency, manages balances, and conducts payment settlements, then the business chain of "accepting USDT" becomes the starting point for legal risks of illegal business operations.

If the platform supports Chinese users using domestic phone numbers and identity information, then regardless of whether the platform is registered in the United States, Hong Kong, or Singapore, it triggers the jurisdiction of Chinese law, as the outcome of the behavior (the handling of Chinese users' funds) occurs within China.

Factors influencing judicial authorities' judgment:

Whether the deposit is USDT or verifiable legal foreign currency (such as e-commerce payments or labor remuneration paid by enterprises) determines whether the starting point of the fund chain can be verified by the traditional financial system. The legal evaluation is completely different for "helping users issue cards" when the deposit is payment from Amazon versus when it is USDT of unknown origin.

Moreover, even if the deposit is USDT, whether the platform's users have a real trading background (for example, if they indeed have overseas labor income settled in cryptocurrency) will also affect the judicial authorities' determination of the nature of the funds.

(2) The platform manages user balances ------ Whether actual operations require a licensed payment business

In simple terms, as long as users hand over money (or valuable items) to you for safekeeping, and you record a balance in your system, allowing users to use this balance for consumption or withdrawal later, you are operating a stored value account. Operating a stored value account is a core licensed business as stipulated by the "Regulations on the Supervision and Administration of Non-Bank Payment Institutions."

Therefore, even if the card issuing project cooperates with banks from around the world to convert users' U deposits into dollars and deposit them in banks, if users need to consume or withdraw, they must initiate instructions through the platform's app, and the platform's system decides whether to execute or reject them. Thus, regardless of where the users' money is stored, the card issuing project is operating a stored value account. This is also a point that many entrepreneurs overlook, as the law does not focus on where the money physically is, but rather on who controls the flow of that money.

Factors influencing judicial authorities' judgment:

If the platform only does technical bookkeeping, and the money is directly in the users' accounts at licensed institutions (users complete KYC themselves, and licensed institutions directly manage users' funds), and the platform only provides an interface to view balances and initiate instructions ------ this is closer to "technical services" rather than "stored value account operations." However, this model is almost non-existent in the U Card industry, as the special nature of USDT deposits requires that funds must first enter the platform's wallet, and then be exchanged and allocated by the platform.

(3) The platform serves users in mainland China ------ Overseas payment licenses cannot replace domestic business access requirements

U Card project operators often claim to hold financial licenses from overseas jurisdictions or assert partnerships with licensed banks/card organizations as a form of "compliance" endorsement. However, these claimed "qualifications" are unrelated to the regulatory requirements in mainland China, and conducting related business within China remains an illegal financial activity. This has clear legal basis, as the second paragraph of Article 2 of the "Regulations on the Supervision and Administration of Non-Bank Payment Institutions" explicitly states: "Overseas non-bank institutions intending to provide cross-border payment services to domestic users must establish non-bank payment institutions in China in accordance with these regulations."

A common situation in the industry is that they do not promote or advertise within the country. However, they do not impose regional restrictions, allowing Chinese users to register and use freely. This ambiguous attitude is legally dangerous because if the user base reaches a certain scale, judicial authorities can still argue that the platform knowingly or should have known that it was providing services to a large number of Chinese users.

Factors influencing judicial authorities' judgment:

The platform's attitude towards Chinese users ------ proactive marketing (promotional language explicitly stating "most suitable for users in mainland China"), no restrictions (supporting registration with Chinese phone numbers, having a Chinese interface but not actively promoting), and actively restricting (IP blocking, not accepting Chinese ID cards, no Chinese interface) ------ correspond to decreasing levels of risk.

(4) The platform supports binding WeChat and Alipay for consumption ------ Licensed institutions completing settlement do not mean the platform itself has no criminal risks

Some VCC platforms allow users to recharge USDT and then bind virtual cards to WeChat and Alipay for daily consumption. This model meets the needs of some domestic virtual currency users to convert USDT into daily spending power and reduces the risk of traditional OTC transactions leading to frozen cards.

From the perspective of fund flow, users' USDT is converted into foreign currency card balances, which are then used for domestic RMB consumption through overseas bank card networks, ultimately achieving the value conversion of virtual currency into RMB purchasing power.

The criminal legal risks of this model need to be assessed in conjunction with the actual fund flow path. If the platform only provides virtual card technical services, and actual card issuance, cross-border settlement, and foreign exchange are completed by qualified institutions, Shao believes that the platform should not be deemed to be illegally buying and selling foreign exchange solely based on users ultimately consuming in RMB.

Factors influencing judicial authorities' judgment:

Some VCC platforms may believe that since the final cross-border payment and settlement are completed through licensed issuing institutions, card clearing institutions, and banks, the platform itself does not bear illegal business risks.

However, from the perspective of judicial authorities' review, the involvement of licensed institutions in transactions does not mean that the business activities conducted by the platform prior are necessarily legal.

If the platform is actually responsible for collecting user funds, converting virtual currencies, determining exchange rates, and collecting fees, and completes subsequent payments and settlements through licensed institutions, then judicial authorities may further investigate whether the platform has used licensed institutions' channels to operate unlicensed fund payment settlements or illegal foreign exchange transactions.

Especially when the transaction background and source of funds reported by the platform to cooperating institutions do not match the actual situation, it may also be considered as behavior to evade financial regulation through licensed channels.

Therefore, determining whether the platform is suspected of illegal business operations cannot solely rely on whether the final funds have passed through licensed institutions, but should penetrate the entire transaction chain to examine which business links the platform actually controls and whether it has implemented illegal fund payment settlements or disguised foreign exchange transactions through relevant transaction arrangements.

(5) The platform independently decides exchange rates and earns the spread ------ Whether it is actually operating unlicensed exchange businesses

This point is related to but not entirely the same as point 4. Point 4 discusses the specific function of "supporting binding WeChat or Alipay for daily consumption," while point 5 discusses the platform's role as a currency exchange operator in the business chain ------ holding its own pool of USDT and dollars, deciding the exchange rate, and earning the spread in the exchange.

If the platform's system has an "exchange rate quotation" function, and this exchange rate is not directly from a licensed exchange or bank's real-time price, but rather set by the platform itself (even if it is just a point spread based on market price), the platform is operating an exchange business. Conducting this in mainland China requires foreign exchange business qualifications, and without such qualifications, it is considered "illegal buying and selling of foreign exchange."

Factors influencing judicial authorities' judgment:

First, the objects of exchange matter. If the platform only involves the exchange between USDT and foreign currencies like dollars, versus the actual organization of exchanges between RMB and foreign exchange, there is a legal distinction in evaluation.

Second, the platform's actual role matters. If the exchange is independently completed by a third-party institution, and the platform only provides technical interfaces, displays quotations, or charges technical service fees, this is different from the situation where the platform sets prices, controls funds, and assumes exchange obligations.

Finally, the scale of transactions and operating profits matter. If the relevant behavior constitutes illegal buying and selling of foreign exchange, it is necessary to consider factors such as the amount of illegal operations and illegal gains to determine whether it meets the criminal prosecution standards for illegal business operations.

Conclusion

The U Card / VCC virtual card business has real market demand, and the relevant technology and business models are continuously evolving. However, for practitioners and entrepreneurs in the payment industry, the criminal legal risks involved cannot be ignored.

Being registered overseas, holding overseas financial licenses, or cooperating with licensed institutions does not automatically eliminate the risk of illegal business operations. However, regulatory violations do not equate to criminal offenses.

Even for the same U Card / VCC virtual card platform, different platforms may have significant differences in their business models, fund flow paths, and actual business functions. Therefore, in specific cases, it is still necessary to analyze whether the relevant behaviors meet the elements of illegal business operations based on the platform's actual operating model and case evidence, and to explore the defense space within this framework.

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