On August 24, 2018, the Banking Insurance Regulatory Commission, the Central Network Information Office, the Ministry of Public Security, the People’s Bank of China, and the General Administration of Market Supervision jointly issued the “Protection Tips on Preventing Illegal Fund Raising in the Name of “Virtual Currency” and “Blockchain”, among which It is pointed out that some lawless elements speculate on the concept of blockchain, and use “financial innovation” and “blockchain” as the gimmicks to absorb funds through the issuance of “virtual currency”, “virtual assets” and “digital assets”. Fund-raising, pyramid schemes, fraud and other illegal and criminal acts violate the legitimate rights and interests of the public.
On August 30, 2018, the Beijing Internet Finance Industry Association issued the “Risk Tips on Preventing Illegal Fund Raising in the Name of “Virtual Currency”, “Block Chain” and “ICO” and Its Variants, to remind the public to raise their awareness of risks and prevent Related illegal and criminal acts.
In recent years, on the Internet finance express, the speculations on various virtual currencies such as Bitcoin and Ethereum in the financial market have seriously disrupted the financial supervision order and even suspected crime. It must be seen that the growth and development of “virtual currency” takes the lead, while criminal legal risks are already high.
I. The Connotation and Legal Nature of “Virtual Currency”
According to the “China Blockchain Technology and Application Development White Paper 2016” released by the Ministry of Industry and Information Technology on October 18, 2016, Blockchain is a kind of integration of distributed data storage, point-to-point transmission, consensus mechanism, encryption algorithm and other technologies. application. Bitcoin and other “virtual currencies” are P2P-type encrypted electronic money systems with blockchain as the underlying technology. They have four main features: no centralized issuers, limited total amount, no geographical restrictions, and anonymity.
There are currently three normative documents on the definition of such “virtual currency”:
First, the People’s Bank of China, the Ministry of Industry and Information Technology, the China Banking Regulatory Commission, the China Securities Regulatory Commission, and the China Insurance Regulatory Commission on December 3, 2013, “Notice on Preventing Bitcoin Risks” (Silver Hair [ 2013] No. 289) , which clearly states that Bitcoin should be a specific virtual commodity, does not have the legal status equivalent to currency, and cannot and should not be used as currency in the market.
Second, the People’s Bank of China September 4, 2017 implementation of the Central Information Office network, the Ministry of Industry and Information Technology, Business Administration, Banking Regulatory Commission, Securities Regulatory Commission, China Insurance Regulatory Commission , “Notice on guard token issuance of financing risk” , points out tokens issued Financing is essentially an unauthorized illegal public financing. It is suspected of illegally selling tokens, illegally issuing securities, and illegal criminal activities such as illegal fund-raising, financial fraud, and pyramid schemes.
The third is the risk warning on the prevention of illegal fundraising in the name of “virtual currency” and “blockchain” jointly issued by the Banking Regulatory Commission, the Central Network Information Office, the Ministry of Public Security, the People’s Bank of China and the General Administration of Market Supervision on August 24, 2018 . It is pointed out that some lawless elements use the banner of “financial innovation” and “blockchain” to absorb funds through the issuance of so-called “virtual currency”, “virtual assets” and “digital assets”, and illegally raise funds, pyramid schemes and fraud.
The above three normative documents clearly reflect the development track of “virtual currency” such as Bitcoin in China’s economic and financial markets. In summary, illegal fundraising, pyramid schemes, and fraudulent activities under the guise of blockchains and various “virtual currencies” are naturally suspected of related crimes; but even for bits generated based on true blockchain technology. In China, the relevant regulations in China only define it as a specific virtual commodity and do not give it the legal status of the currency. At the same time, it prohibits the exchange between Bitcoin and legal tender and other virtual currency.
Second, the risk of high risk: the crime of illegal crime in the name of “virtual currency”
As mentioned above, in the risk warnings issued by the Banking Regulatory Commission and other departments on August 24, the main target is the banner of “financial innovation” on the market, with “virtual currency” as the gimmick, engaging in illegal fund-raising, pyramid schemes, fraud, etc. The act of illegal criminal activities. The above risks have gradually emerged in judicial practice. If they are not regulated, they will inevitably spread and spread.
(1) The crime of illegally absorbing public deposits
In the crime of “virtual currency”, the first crime is the crime of illegally absorbing public deposits as stipulated in Article 176 of the Criminal Law. According to Article 1 of the 2011 Interpretation of the Supreme People’s Court on Several Issues Concerning the Specific Application of Law in the Trial of Criminal Cases of Illegal Fund Raising (Law  No. 18), it is determined that illegal absorption of public deposits must be illegal, open, and attractive. And social four characteristics. Regardless of how “hidden” the name of the crime is covered, as long as the above provisions are met, it is suspected of illegally absorbing public deposits.
Take the case of Li’s illegal absorption of public deposits by the Intermediate People’s Court of Shantou City, Guangdong Province ((2017) Guangdong 05 Punishment No. 160) as an example: the perpetrator purchased the “Free International” online financial game under the recruitment of the same person. Platform wealth management products. Subsequently, with the aim of absorbing the lower line to obtain the “cultivation bonus”, through the interpersonal promotion, WeChat information and photo promotion, the publicity of the “Free International” network wealth management game platform wealth management products was publicly announced to the public, with an investment amount of RMB 1,300 per share. , returning 52 cash coins per day (1 cash coin can be realized through the online wealth management game platform to realize RMB 1 yuan), and a total of RMB 686,800 is raised. In this case, the perpetrator used the name of investing in network wealth management products, and without publicly obtaining the permission of the banking financial supervision and management department, publicized the publicity and promised that the transaction would reach a certain period of time to fully recover the investment and earn high profits. The absorption of funds from socially unspecified objects is consistent with the characteristics of the crime of illegally absorbing public deposits. Among them, the game platform involved does not have actual business projects, and its main profit method is to absorb money from other people’s money. Although such scams are draped in the Internet finance and “virtual currency”, as long as they are strictly in accordance with the law, they can pierce the veil and make a certain certainty.
(2) Organizing and leading the crime of pyramid schemes
Tencent’s 2017 MLM Situational White Paper pointed out that various overseas funds, virtual currency, and ICO projects have become one of the main modes of new network marketing. According to one of the 224th articles of China’s Criminal Law, the core of the crime of organizing and leading MLM activities is to defraud property, disrupt economic and social order, and have three characteristics: entry fee, group level, and person pay. In reality, a large number of virtual token issuing projects such as ICO, IFO, IEO, IMO, etc. are not really based on blockchain technology, and do not have actual research and development content, but only use it as a virtual token, claiming “static gain”. (profit-making profit appreciation) and “dynamic income” (development of offline profit) can be combined to obtain high profits, manipulate the so-called virtual currency price trend behind the scenes to create the bubble value of tokens, attract the public to participate in investment and develop The line staff eventually formed a pyramid scheme.
For example, the Zhuzhou Intermediate People’s Court of Hunan Province made a second-instance judgment, such as Duan Moumou and other organizations and leading pyramid schemes ((2017) Xiang 02 Punishment No. 277), the Weijiaco MLM organization of Zhuzhou City, Hunan Province involved in the case claimed the dimension. The card currency is the second generation of encrypted electronic money after Bitcoin. In order to purchase and hold the card, the name of the card can be appreciated, and the participant is tempted to activate the account by purchasing the activation code to obtain the qualification. At the same time, it is claimed that the static value-added time period is long and the value-added space is small; the dynamic value-added is through the recommendation of others to join, that is, the development of the people to the lower line, each level of personnel from one to two, two to four, and so on. To form a pyramid structure, to develop the number of heads to obtain different proportions of direct push awards, algebra awards, and touch prizes, to induce participants to continue to develop others to participate, to defraud property, and to disrupt social and economic order. In fact, the nature of this new type of network marketing is no different from traditional pyramid schemes, but it only captures the public’s speculative psychology of blockchain and various virtual currency.
All kinds of criminal acts with the blockchain and “virtual currency” as their names are inherently deceptive and may be suspected of fraud in Article 266 of the Criminal Law. As a typical property crime, fraud crimes, in addition to triangular fraud, the general criminal logic is that the actor’s deceptive behavior makes the victim misunderstand, and the victim disciplinary damage and damage based on a misunderstanding. Since Internet finance has become a hot spot for investment in recent years, relevant scams use the concept of hotspots to make hype and to fabricate a wide-ranging “high-up” theory, which is extremely deceptive and tempting, and it is easy for the public to misunderstand.
For example, in the Zhou Yong fraud case of the Yuecheng District People’s Court of the People’s Court of Shaoxing City ((2017) Zhe 0602, the beginning of the 633-2), the actor falsely claimed that it was more than Bitcoin by publishing false information on the Internet and WeChat groups. BBT) is a virtual currency that can appreciate, exchange cash, pay for the electronic consumption of the network, etc., fictionalizes the cooperation with JP Morgan Chase and Bitcoin, and defrauds the trust of the victim, causing the victim to spend more than 30,000 yuan to purchase BBT. This type of scam is the use of the public’s speculative psychology of emerging technologies and Internet financial products, essentially the same as ordinary fraud.
3. Potential risks: What is the real “virtual currency” risk?
In addition to the above-mentioned criminal legal risks of illegal crimes in the name of “virtual currency”, even “virtual currencies” based on real blockchain technology may be suspected of committing crimes in transactions and related businesses. At the same time, however, whether some of the crimes discussed in the real world are indeed a threat to “virtual currency” transactions and related businesses, there are still some discussions.
(1) stolen crime
Since “virtual currency” such as Bitcoin is supported by the blockchain as the underlying technology, it has the characteristics of decentralization and is easy to avoid the supervision of the national currency system. At the same time, the user will only leave the wallet address when trading, and will not be associated with the user’s true identity, and it is difficult to trace the reality. Therefore, “virtual currency” such as Bitcoin is extremely easy to be a tool to cover up and conceal the proceeds of crime and its benefits. The US Federal Ministry of Justice has called Bitcoin “the ideal money laundering tool” in the law enforcement evaluation report.
The crime of money laundering is stipulated in Article 191 of the Criminal Law of China. The crimes of the crime include drug crimes, organized crimes of the underworld, terrorist crimes, smuggling crimes, corruption and bribery crimes, financial management order crimes and financial fraud crimes. If the perpetrator converts the proceeds of the upstream crime and the proceeds it generates into “virtual currency” such as Bitcoin, or remits it to the local legal currency to cover up and conceal its source and nature, it is suspected of money laundering. . In addition to the crime of money laundering, similar acts are also suspected of concealing, concealing the proceeds of crime and the proceeds of crime as provided for in Article 312 of the Criminal Law. For example, in the case of Liu Moumou, who made the first-instance judgment of the People’s Court of Beilin District of Suihua City, the case of concealing and concealing the crime ((2017) Black 1202, Criminal No. 20), the perpetrator used fraudulent proceeds to purchase bitcoin, and then went to Macau. Through the underground money house to convert bitcoin into Hong Kong dollars, and then convert into RMB into the mainland, this kind of behavior was finally pursued criminal responsibility for concealing and concealing the proceeds of crime.
(2) The crime of illegal business
Some people believe that in the current ban on all kinds of “virtual currency” trading platforms and ICO platforms in China, if they are engaged in related businesses, if they continue to engage in “virtual currency” related business in China, such as some “virtual currency” trading platforms, ICO In order to evade supervision, the platform will continue to provide relevant services to the domestic market after re-registration overseas, which may constitute an illegal business operation. However, we believe that there is no such criminal risk under the current law.
According to Article 225 of China’s Criminal Law, one of the objective elements of the crime of illegal business is a violation of state regulations. Article 96 of the Criminal Law stipulates that violation of state regulations refers to “violation of laws and decisions formulated by the National People’s Congress and its Standing Committee, administrative regulations formulated by the State Council, administrative measures prescribed, decisions issued and orders.” Meanwhile, 2011 Article 2 of the Notice of the Supreme People’s Court on the Relevant Issues Concerning the Accurate Understanding and Application of the “National Regulations” in the Criminal Law stipulates that acts that violate departmental rules shall not be deemed to be “violation of state regulations.” China’s current prohibition on “virtual currency” such as Bitcoin includes the 2013 Notice on the Prevention of Bitcoin Risks, the Announcement on Preventing the Risk of Subsidy Issuance in 2017, and the Prevention of Virtual Currency in 2018. “The risk of illegal fundraising in the name of “blockchain”” The normative documents issued by the three State Council departments are not part of the “national regulations” in the Criminal Law. Therefore, the “virtual currency” transaction and related business do not meet the premise of the crime of illegal business, so there is no criminal risk of the crime.
(3) The crime of issuing stocks, companies, and corporate bonds without authorization
Another view is that ICO and IPO have similarities in the model. If the token issued by ICO belongs to “security token”, it can bring debts, profit dividends, shareholder voting rights, A series of financial interests, such as repurchase rights, can be extended to be interpreted as stocks or bonds, and its issuance financing is suspected of unauthorized issuance of unauthorized issuance of stocks, companies, and corporate bonds. However, we believe that if the tokens are interpreted as stocks and bonds, it may exceed the limit of expanding the interpretation.
A stock is a kind of securities issued by a joint stock company to raise funds for each shareholder as a shareholding certificate and to obtain dividends and dividends. The bonds are debts raised by the government, enterprises, banks, etc., and are issued according to legal procedures and issued to creditors. A security that promises to repay the principal and interest on a specified date. China’s company law, securities law and other legal provisions have strict requirements on the issuer, issuance method, trading venue, and trading procedures of stocks and creditors. Although “securities-based tokens” represent certain financial interests such as equity and creditor rights, Stocks, bonds and other securities with specific legal significance and subject to specific laws are essentially different. Interpreting “tokens” as “stocks” and “bonds” may break the semantic range of stocks and bonds. In addition, in the absence of relevant pre-emptive legal provisions, the act of issuing virtual tokens as a crime of issuing stocks, companies, and corporate bonds without authorization may exceed the public’s prediction possibility and violate the principle of legality of crimes.
Compared with the active application prospects of blockchain technology in China, various “virtual currencies” such as Bitcoin and Ethereum have been bleak. “The legal person, the end of the rule is also”, because the current relevant market and field laws and regulations are not yet mature, coupled with various “virtual currency” projects, the social speculation is prevalent, it is easy to form a huge economic bubble, and repeat the current P2P triggers the failure of systemic financial risks. Therefore, while internet finance is innovating and developing, it is necessary to do a good job in criminal compliance, guard against all kinds of criminal risks, and never touch the red line of criminal offenses.
[su_quote]This article is writing on 04 September 2018 based on information available online & news portal. If you feel it’s outdated or incorrect, please write here to update it. Mail us: [email protected] Or Whatsapp Us- +13098896258[/su_quote]
The Information Presented Here Does Not Constitute Investment Advice Or An Offer To Invest. The Statements, Views, And Opinions Expressed In This Article Are Solely Those Of The Author/company And Do Not Represent Those Of Coinworldstory. We Strongly Advise Our Readers To Do Your Own Research (DYOR) Before Investing In Any Cryptocurrency, Blockchain Project, Or Ico, Particularly Those That Guarantee Profits. Furthermore, Coinworldstory Does Not Guarantee Or Imply That The Cryptocurrencies Or Projects Published Are Legal In Any Specific Reader’s Location. It Is The Reader’s Responsibility To Know The Laws Regarding Cryptocurrencies And Icos In His Or Her Country. Please Respect Your Country Law & Take Advice From Your Advisor .