Why do the public security often order pyramid schemes in criminal cases involving virtual currency?

Author: Liu Zhengyao, senior lawyer of Shanghai Mankiw Law Firm

In recent years, criminal cases related to virtual currency have occurred frequently. One of the rules is that numerous currency-related cases are often filed by the public security organs for the crime of organizing and leading pyramid schemes. As the saying goes, when something goes wrong, there must be a monster. In the end, it is currency. Do circle practitioners like to play pyramid schemes or do they have other secrets? In this article, Lawyer Liu will take you to talk about this topic.

According to our team’s many years of practical experience, criminal cases involving virtual currencies are generally classified as pyramid schemes because of the following two reasons:

01 Currency-related criminal cases are a bit difficult to handle

The difference between currency-related criminal cases and traditional criminal cases is reflected in its simple and complex attributes:

Simple refers to the 9.24 Notice (Notice on Further Preventing and Handling the Risks of Speculation in Virtual Currency Transactions). In the past, regulators did not have strong supervision over the currency circle. There were serious entrepreneurs, and even speculators pursuing hot money. Coin traders, the bustling currency circle is full of high-rise buildings. At this time, currency-related cases, especially criminal cases, have not yet exploded. Even if there are cases that constitute crimes, they are cases with particularly obvious criminal components (such as theft, fraud, etc.). Generally speaking, the prosecution, defense and trial parties still follow the traditional The criminal case thinking model is used to handle the case.

Complex means that after the 9.24 Notice, the country launched a comprehensive attack from the market/finance/insurance/foreign exchange supervision, network security, judicial policy and other levels, just like the singer threw a two-way foil or two-way foil into the currency circle. Snow wave paper, after the hustle and bustle of the currency circle calmed down immediately, civil disputes and criminal crackdowns broke out everywhere. At this time, the behavioral structure and business model in cases involving virtual currency have also evolved and iterated over several years, and complex transaction models have emerged, making it difficult to give a direct and clear characterization in criminal law (such as NFT, DAO, etc.).

Civil lawsuits involving currency-related disputes are relatively easy to resolve; however, for currency-related criminal cases, the application of current criminal laws and regulations is more controversial. The main disputes lie in the following aspects:

First, the value of criminal-related virtual currency is difficult to determine. Because the conviction and sentencing of many criminal cases requires the determination of the specific amount involved, yet virtual currencies are deemed by our country’s regulators to have no monetary attributes and only have the attributes of virtual commodities. The value of the virtual commodity is related to the major difference between crime and non-crime, this crime and that crime. In traditional criminal cases, judicial authorities can fix the evidence on file and the amount involved through price determination, judicial audit, forensic appraisal, etc. by the competent authorities. However, in criminal cases involving virtual currency, any of the above-mentioned solutions cannot be used. In current practice, the judiciary allows the suspect/defendant to entrust a third-party disposal company (the third-party disposal company is generally recommended by the judiciary) There are also huge legal risks in the disposal of virtual currency, which at least shows that the judiciary allows or even participates in the behavior of criminal suspects/defendants using third-party disposal companies to conduct batch transactions of virtual currency that are explicitly prohibited by the ten ministries and commissions of the country.

Second, the circumstances of currency-related criminal cases are relatively complex. Most virtual currency criminal cases involve many people, especially cases where the project party is involved in criminal punishment for issuing currency. From the perspective of judicial authorities, criminal cases involving currency issuance, as long as they are accompanied by a promise of income, publicity, public issuance and With the characteristics of hierarchical organization and rebates, it is very easy to be characterized as a crime of organizing and leading pyramid schemes.

The above is the reason why it is easy for the public security organs to define it as a pyramid scheme crime from the perspective of its own characteristics in currency-related criminal cases.

02 There are no victims in pyramid schemes, and the property involved belongs to the state

Analyzing from the criminal composition of the crime of organizing and leading pyramid schemes, there are two main reasons why this crime is widely used by case-handling agencies in currency-related cases:

First, the composition of this crime is highly consistent with the model of currency-related criminal cases, and there are more connections with pyramid schemes in cases involving virtual currencies. For example, as long as the currency is issued, it will inevitably involve publicity and promotion, and basically it will also involve the method of profit or remuneration. At the same time, it is easy to form a hierarchical relationship in the process. Based on the path dependence in thinking, the case-handling agency first considers the crime of pyramid schemes. Even Lawyer Liu has encountered in practice that the police first file a case for organizing and leading pyramid schemes, and then the procuratorate approves the arrest or the police transfers it to the procuratorate. Changed to other crimes, especially the crime of organizing and leading pyramid schemes is favored by the public security organs.

Second, there are no victims in the crime of organizing and leading pyramid schemes, so there is no procedure for returning the property involved in the case. In principle, the property involved in the case is confiscated and returned to the state treasury. Although the criminal law uses the expression defrauding property in the legal expression of the crime of organizing and leading pyramid selling activities, in the view of legislators, the participants of pyramid selling activities who are defrauded of property are not victims in criminal law, and those who participate in pyramid selling organizations People have a certain profit-seeking mentality, so there is no argument for returning property in MLM cases. On the other hand, this also proves why case-handling agencies have the motivation to investigate pyramid schemes, especially rich pyramid schemes.

In fact, in the past two years, the profit-seeking law enforcement in currency-related criminal cases, especially in currency-related MLM cases, has been the main reason why the parties, defense lawyers, currency circle practitioners, and even some ordinary people do not trust the case-handling agencies. . For example, in the past two years, the “contribution” of currency-related criminal cases to the fiscal forfeiture revenue of some cities in Jiangsu Province has been more than 50% higher than in previous years.

03 Mankiws lawyer suggested

In the face of domestic virtual currency regulatory policies that are increasingly tightened (even to the ceiling), Attorney Liu proposes the following suggestions to entrepreneurs based on his experience in various criminal cases:

First, when your project can issue coins or not, be cautious about issuing coins. If you issue coins, you can temporarily choose to conduct compliance development overseas, but do not conduct business and publicity for citizens in China;

Second, if the currency is issued and publicized and promoted for users in China, it is recommended to isolate it according to the type of business (business in China must comply with the requirements of current laws and regulations, departmental regulations, regulatory policy documents, etc.). Do not solicit people for commissions, spread fission, or other operations that can easily be identified as pyramid schemes in the process of business development;

Third, once you are involved in criminal charges, filing a criminal case, etc., you should consult a professional lawyer as soon as possible to avoid the passive situation of blindly pursuing new business models while ignoring the strict supervision of the temple. Remember not to be superstitious about finding so-called acquaintances and capable people to settle criminal cases, which will affect the timing of lawyers intervention in the investigation stage, making it difficult to advance follow-up cases according to law.

The world of Web3.0 is actually very big, and there are many things that can be done. However, the risks of issuing virtual currencies within the country must be recognized. Only in this way can we sail steadily in the world of Web3.0.

Special statement:

The content of this article only represents the authors views, which are summarized from his legal and practical experience, and does not serve as a guarantee of universal applicability to every case/project. The intellectual property rights of this article belong to the author. Except for forwarding the full text without modification through the WeChat forwarding function, other reprints must be approved by the author. This article is not allowed to be republished in whole or in part on any platform account through copying, editing, etc.

This article is an original article of Shanghai Mankiw Law Firm, which only represents the authors personal opinion and does not constitute legal consultation or legal opinion on specific matters. If you need to reprint the article, please contact Mankun Law Firm staff: MankunLawFirm