High-frequency criminal legal issues involving virtual currency are all here

Source: Lawyer Liu Honglin

In our daily work, we often receive the following inquiries: Is it illegal for individuals to hold and trade virtual currencies? What are the OTC merchants? Risks...

Different transaction methods and transaction purposes involve different criminal risks and countermeasures. In view of this, the 52nd Mankiw Afternoon Tea event takes "What are the criminal risks involving virtual currencies?" as the sharing theme. This article is based on the wonderful sharing of the guest speaker Qian Wei after the author participated in the event. The content, combined with our past judicial practice experience, is compiled as follows. Special thanks to Attorney Qian for sharing.

01 Is it illegal for individuals to buy and sell virtual currencies?

2021 After the 924 Announcement in 2016, my country gradually increased its control and crackdown on individuals holding and trading virtual currencies. Although it is not illegal for individuals to hold and trade virtual currencies, problems are inevitable due to the mixed nature of this industry. The biggest risk in on-site trading is card freezing, and the biggest risk in over-the-counter trading is being cheated.

I often walk by the river without getting my shoes wet. Risk cannot be eliminated, only reduced.

The risk of individual players trading virtual currencies is mainly determined by thetransaction method, transaction price, and counterparty.

Trading method: Since exchanges generally require users to undergo identity authentication and pay a certain deposit, the review of users is relatively strict. In OTC over-the-counter transactions, offline transactions, and the use of overseas encrypted communication software, there are fewer or even no review and risk control measures for counterparties, and transaction risks are greatly increased.

Transaction price: If the transaction price deviates too much from the market, the risk is high;

Counterparty: Chain of counterparties The longer it is, the more complex the transaction background and the higher the risk. Before trading, you should try your best to confirm the terminal counterparty, verify your identity, and choose a counterparty with multiple transactions and good reputation.

By controlling the transaction method, transaction price, and counterparty, individual players can greatly reduce the transaction risk of virtual currency. Nonetheless, if an abnormal situation unfortunately occurs after a transaction, such as the most common frozen card, it is recommended to save relevant transaction records in a timely manner, contact the freezing authority, explain the situation truthfully, and actively apply for unfreezing.

02 Is it illegal to be a virtual currency OTC merchant?

First of all, it needs to be pointed out that there is no clear definition of OTC merchants in Chinese law. In practice, it generally refers to the behavior of earning price differences through high-frequency buying and selling of virtual currencies.

(1) Under what circumstances will it be recognized as an OTC merchant?

Purpose of transaction: Personal holding, with the purpose of making profits based on the development prospects and market value behind the virtual currency, or to earn the price difference through frequent buying and selling. profit purpose.

Transaction price: Whether it deviates too much from the market price. The price difference earned by OTC merchants is generally between one thousandth and three thousandths.

Transaction frequency: Generally, OTC merchants need frequent and large amounts of transactions to increase their profits.

(2) Different trading methods bring different risks

The OTC business whose trading purpose is to earn price differences seems to be a sure profit without loss. In fact, during the transaction process, a large amount of virtual currency and legal currency are circulated in the hands of the merchants, and problems are prone to occur in multiple links:

1. Criminal risks associated with trusting and concealing: < /strong>The main reason is that there are problems with the source of funds, and black money related to gambling and fraud was received. In such a situation, Whether you provide help while knowing it is a criminal act is crucial to the characterization of the case. The following is a brief analysis based on the transaction method:

(1) Exchange transactions:Since transactions have certain KYC guarantees, some problematic virtual currency wallet addresses will be identified and blocked. The risk of receiving stolen money and blackmail is low, and the subjective intention of the crime is the weakest. , there is some room for interpretation.

(2) WeChat group trading: Because exchange transactions are not real-time transactions, and the transaction spread is small, the handling fee is high. Some merchants will choose the more convenient WeChat group transaction method. Merchants verify the identity and funds of users entering WeChat group transactions to control transaction risks. However, this method is a private identity verification, and its protection and recognition by judicial authorities are relatively weak.

(3) Overseas encrypted chat software transactions:Using overseas encrypted chat software transactions will generally be considered abnormal behavior and subjective knowledge. This type of trading software generally blocks mainland Chinese IPs and is not a commonly used social software in China. Some platform transaction records can be deleted in one direction, and the transaction method is obviously abnormal. Even if transaction records can be provided, there is a high probability that they will not be recognized by the judicial authorities.

(4) Cash transactions:Cash transactions seem to avoid the risk of card freezing, but in fact, there are many ways to audit and track cash in our country. Offline transactions not only face the problem of receiving stolen money, but also the failure to accurately verify the identity of the transaction personnel, resulting in being defrauded.

2. Criminal risks of opening a casino: Mainly problems with virtual currency. For example: USDT from the online gambling wallet address flows into the OTC merchant wallet. Through the tracking of addresses on the chain, individual OTC merchants can be directly located. This situation is easily recognized as a channel for the casino to provide fund settlement. For OTC merchants, they need to control the source of coins.

3. Criminal risks of illegal business operations: Even if the virtual currency and legal currency received during the transaction are clean, there may be illegal currency exchange, disrupting the market economic order, etc. The reason was a violation of Article 225 of the Criminal Law and was determined by the judicial authorities to be an illegal business crime.

Summary: Virtual currency OTC is a high-risk business, so you need to be cautious when entering the industry.

03 Virtual currency exchange business

After 2021 , my country has cleaned up domestic exchanges on a large scale, but it does not rule out that some exchanges are still operating privately within the country. When engaging in exchange business, high-frequency criminal risks include:

Pyramid schemes committed by organizational leaders: During the promotion process, virtual currency exchanges are easily suspected of pyramid schemes due to their promotion model. Organizations stipulated in my country's criminal law , leading pyramid selling activities in the third level, thirty people are easily satisfied in the exchange promotion business.

Here is an example. At the end of 2018, the defendants Liang, Wang, Chen and others formed an entrepreneurial team and developed a public transaction chain using blockchain technology as the underlying foundation. In 2019 On June 18, in order to demonstrate the performance of the public chain and attract users to understand and use the public chain, Liang's team built the HUBDEX exchange on the public chain. The defendants Liang, Wang, Chen and others set up customers to determine the upper and lower line levels according to the invitation system, and each line can develop unlimited levels. HUBDEX exchange is set up. After offline customers pledge HUB coins (HUBDEX exchange tokens), the exchange will give rebates to online customers based on dynamic income and other reward methods, directly or indirectly based on the number of developers and the purchase amount as the basis for rebates. As of the incident, there were more than 50,000 registered accounts on the platform, with more than 100 levels, and the total amount involved was worth more than RMB 239 million.

Illegal business crime:It is easy to be considered as an illegal financial establishment and constitute a crime. A real case is: Luo, Pei and others first established the VPAYAPP software platform in China, issued VPAY coins, and encouraged users to use the platform and purchase VPAY coins through various methods. The latter two discussed cooperating to open the Australian Exchange (hereinafter referred to as the ASX). Pei would be responsible for technology, development, operation services, etc., while Luo would provide funds and mobilize VPAY's user base to trade on the ASX. In October 2018, Pei led his employees to Phnom Penh, Cambodia to run the ASX. Around October 22, ASX issued a stable token VRT coin and opened up the channel with the VPAY platform. Luo first transferred the VRT coins to Pei, who then transferred them to Wang and his team members to sell on the ASX at a price of 1 yuan per unit and a 1% handling fee. Later, Luo and Pei were accused of violating national regulations by operating a token financing trading platform, issuing tokens to absorb funds, conducting illegal network platform business activities, disrupting market order, and the circumstances were serious, constituting the crime of illegal business operations. [(2020) Hunan 0502 Xingchu No. 75]

Fundraising fraud crimes:Exchange business is often accompanied by ICO, which can easily lead to user rights protection when currency prices change drastically. Involving fund-raising fraud crimes. In December 2018, Wang developed and operated the "TS Token Community" WeChat applet to provide customers with ordering services such as air tickets and train tickets, and presented customers with "TS" virtual currency, using currency holding dividends as bait to attract customers to invest in purchases. TS coin. Since March 2019, Wang has entrusted others to develop the "TS public chain" and "TS wallet", rented a network virtual server, established a TSC100 virtual currency exchange, launched the TSC virtual currency and exchanged the TS originally held by the customer at a 1:1 ratio. Virtual currencies, without the approval of relevant state departments, launch "TSC Perpetual Motion", "TSC100 Super Partner", "CSNS Warrants", PH, GWT, MTF, MT, GNDT, etc. in the virtual currency exchange established by it A series of virtual currency investment projects, and the investment value is hyped by writing project "white papers" and other methods, using the Internet, WeChat chat tools, etc. for public promotion, publicizing that high returns or dividends can be obtained by holding currency locks, and promising to repurchase at maturity. Illegally raising funds from unspecified members of society.

04 Involving virtual currency funds

Nothing under the sun What’s new is that some traditional fund fraud projects have been put into the shell of virtual currency, trying to use new concepts and concepts to conduct money fraud. These projects generally have the following characteristics:

• Covered under the cloak of blockchain technology, the technology and real The principles of blockchain are very different;

• It does not aim to solve, optimize or change a certain business pain point in traditional industries;

• Tokens are not issued through smart contracts, and most of them are traded through the platform built by the project team;

• Promise to only rise but not fall;

• Buy people to get commissions.

There are many tricks for capital disks. They usually say that the deposit interest is very high and you are guaranteed a rate of return. In November 2020, China launched PlusToken, the “largest fund market in the currency circle” that swept 170 countries and affected 2.7 million people. PlusToen uses blockchain celebrities to package its brand. It calls itself the "Yu'E Bao" in the currency circle. It only accepts digital currencies worth more than 500 US dollars. It claims that members can get 10% to 15% of the income every month. It also recommends users to develop offline. Additional income can be obtained; and the income ultimately returned to users is settled with the plus coins issued by the platform itself. The withdrawal of plus coins has also been designed with layers of traps, and later a virtual mining machine was developed to collect money.

When encountering similar projects, most participants may have two tragic results: the project is shut down and they are arrested as a suspect's accomplice, or they suffer heavy losses and their investment is irreparable. Therefore, when encountering similar projects, there are only two words of advice: run quickly.