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I need to legally and quickly transfer $300,000 from China to my US bank account. All of the funds that I need to transfer were obtained through legal means (with proof documents), however China has strict foreign exchange restrictions and in almost all banks one can only wire $50,000 a year. Moreover, behaviors like having too many people wiring to the same foreign person/account in a short period of time would trigger alerts in the government’s monitoring agencies.

However, I was advised that if I execute the transfers in the following steps, it shouldn't be a problem in China:

  1. Sign agreements with 6 friends in China and a friend in the US;
  2. I transfer Chinese yuan (local currency) to each of the 6 Chinese friends;
  3. Chinese friends 1, 2, and 3 each transfers USD 50,000 to my US account;
  4. Chinese friends 4, 5, and 6 each transfers USD 50,000 to my US friend;
  5. My US friend transfers USD 150,000 to my US account.

However, I am concerned about US tax consequences for my US friend. What are the tax consequences for them, and what tax documents do they need to file next year?

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    It seems to me that trying to skirt a rule like this can end badly. In the US, there are reporting requirements for $10K cash transactions. Moving $9K at a time is called 'structuring' and can be prosecuted as such. Your proposal looks like trouble. In my opinion. To answer the tax question. No issue, the US wouldn't have an issue bringing in money. The China government would not like people maneuvering around a known rule. – JTP - Apologise to Monica Aug 15 '15 at 19:22
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    @JoeTaxpayer Would the US friend owe gift tax when transferring to the OP in the US? – Eric Aug 15 '15 at 21:17
  • Right, once within the US, the transfers would likely be considered gifts, and some paperwork would be in order. No tax due, just paperwork. – JTP - Apologise to Monica Aug 16 '15 at 1:05
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    "I need to legally and quickly transfer ..." ".. however China has strict foreign exchange restrictions..". So what ever you are asking is to circumvent a law. Quite a few Asian countries have capital controls – Dheer Aug 16 '15 at 4:03
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In China, people are using Litecoin and Bitcoin to circumvent capital controls. OKCoin, Huobi are the biggest exchanges of smart money.

Disclaimer: This is not advice, this is the answer. On a question and answer site. The exchange rate of smart money is very volatile. You will experience very brief exposure to those networks.

Although Litecoin is popular for speculation in China, Bitcoin gives you and your trading partners the most flexibility, as the United States does not have robust and liquid exchanges for Litecoin, only Bitcoin.

You buy smart money on one of the exchanges in China, you send all of it to an exchange in the United States, you sell all of it on that exchange for USD. If it isn't clear, smart money's flexibility comes the fact that it doesn't use banks to work/exist and can be transferred to valid "addresses" over the internet.

Current regulated, liquid and FDIC insured US exchanges are Coinbase and Circle. Other exchanges use private insurance, such as Bitstamp and Coinsetter.

So in the course of 30 minutes you should have converted all of your funds from Yuan back to stable US dollars in a regulated and insured US banking account. To make it usuable for goods and services you need to transfer it out of the exchange to a US bank account. This has very little exposure to the bitcoin or litecoin network.

You don't need any friends or mules for this. The Chinese government has issued many many circulars on smart money such as Litecoin and Bitcoin, so it is hard to keep up, because they have made half hearted efforts to prevent banks from directly servicing those networks, while retaining the legality of their operations within China (Party members have been waiting for ways to get their wealth out of the country too without risk of blowback!). So you will need to see what hoops you need to jump through to move your funds to one of those exchanges to begin with.

This is faster and only uses one transaction instead of broken up ones and there are no tax consequences for sending money to yourself.

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    There's a risk, however, of the FinCEN investigation ($300K is large enough amount to be noticed). The bitcoin transaction may be a weak link here since it is by nature anonymous, and if the money actually moves from one wallet to another, you'll have to be able to properly prove ownership of both. Can't comment on the Chinese side, but clearly this transaction comes to circumvent a legal requirement and as there are anti-structuring laws in the US and other countries, I wouldn't be surprised if there are also in China. – littleadv Aug 16 '15 at 4:13
  • @littleadv there is nothing to hide, the $300,000 was from legal means as already stated. There is nothing anonymous about the transaction. This doesn't structure transactions at all. Bitcoin is 6 years old and has been addressed by the government in the United States and the government in China, we're past the anonymous boogeyman phase now. So it doesn't matter if FinCEN investigates or if the US banking institutions file a SAR, just routine business. OP's biggest problem is moving one balance out of china. The legacy banking system in China is subject to capital controls. – CQM Aug 16 '15 at 5:21
  • I'm not disagreeing re FinCEN, I'm just stating that that may be a weak link. This is most definitely structuring since the transaction is explicitly designed to circumvent a legal requirement - that's the definition of structuring. That on its own may cause problems since you cannot claim that the funds were legally obtained if you obtained them by circumventing the law. So again - there may be some point of contention there. Granted, since it is not otherwise tainted money, most likely there won't be an issue, but something to keep in mind nonetheless. – littleadv Aug 16 '15 at 6:17
  • @littleadv Chinese capital controls prevent BANKS from wiring funds out, and it prevents citizens from carrying bags of cash out. Smart money enables liquid transfer of value between addresses on a global register and the protocol has no consideration about the locations of the address holders, and there is also no way to prove that - at the protocol level (private keys). It isn't designed to circumvent capital controls, it simply doesn't consider them. Such capabilities didn't exist when the capital controls were made, the Chinese government ultimately allows the exchanges to keep operating. – CQM Aug 16 '15 at 14:14
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    again, I'm not familiar with Chinese laws so I'm not going to argue about that. From what the OP described this is structuring, I don't know how the Chinese define the legality of this. As you said, they need some way for their own corrupt bureaucrats to transfer money around. – littleadv Aug 16 '15 at 22:42

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