The Crime of Illegally Utilizing Information Networks: The 'Catch-All' Charge for Criminal Legal Risks in the Crypto Circle
Special Disclaimer: This article is an original work by Lawyer Shao Shiwei. It represents only the personal views of the author and does not constitute legal consultation or legal advice on specific matters. For article reposting, legal consultation, or business exchanges, please add: sswls66
Following the issuance of the September 4 Announcement in 2017, domestic virtual currency exchanges announced their expansion overseas one after another. Subsequently, after the issuance of the September 24 Notice in 2021, domestic exchanges also successively stated that they would cease services to users in mainland China and liquidate existing user accounts.
However, to this day, many virtual currency trading platforms claiming to have expanded overseas have merely relocated their company registration and servers abroad, with some management personnel physically moving overseas, while relevant staff remain in China.
According to insiders in the industry, as of now, there are at least thousands of virtual currency exchanges still being operated by Chinese nationals.
Against the backdrop where virtual currency-related businesses are characterized as illegal financial activities, virtual currency exchanges face primary criminal risks. Based on publicly available judgments, the more frequently occurring criminal risks for exchanges include operating casinos, illegal business operations, illegally absorbing public deposits, and pyramid scheme crimes, while the Crime of Illegally Utilizing Information Networks is relatively rare.
So why does this article single out the involvement of virtual currency exchanges in the Crime of Illegally Utilizing Information Networks for discussion? Because it is acatch-all charge.
For virtual currency exchanges established by Chinese nationals, unless they have truly achieved full relocation overseas and the platform does not involve domestic users,otherwise, regardless of the extent of criminal compliance achieved, it is difficult to defend against accusations under this catch-all charge.However, Lawyer Shao believes that the application of this charge itself is highly controversial. Why is this so? This article will share four cases for discussion.
Author | Lawyer Shao Shiwei
For Part I of this article, please click ➡️:
Case Discussion | Does Operating a Virtual Currency Exchange Constitute the Crime of Illegally Utilizing Information Networks? (Part I)
Part I of this article shared two cases; today we continue the discussion.
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[Case C]
Dai constructed a website for a virtual currency trading platform and performed debugging and daily maintenance on the site. One day, a third party falsely claimed to the victim that they had substantial funds on the platform requiring withdrawal, inducing the victim to provide assistance with the promise of high remuneration. Through WeChat chats and forged transfer vouchers, among other methods, the third party defrauded the victim of RMB 15,000. Consequently, the court determined that Dai had established a website used to carry out fraud and other illegal criminal activities, convicting him of the Crime of Illegally Utilizing Information Networks and sentencing him to nine months of fixed-term imprisonment.
[Lawyer Shao's Analysis]
Why did this article initially state that Chinese nationals operating virtual currency exchanges, regardless of the extent of criminal compliance achieved, find it difficult to defend against accusations under this catch-all charge? This is a typical example.
The logic of this case is as follows: Party A opened a virtual currency exchange, and Party B used this exchange platform as a tool to defraud others of their money. In the absence of collusion between Party A and Party B, the exchange was deemed a fraudulent website, and thus Party A was convicted of the Crime of Illegally Utilizing Information Networks.
Why is it certain that there was no collusion between Party A and Party B?Because even if the judgment's description of the facts is concise, statements reflecting the defendant's subjective criminal intent would never be omitted. Furthermore, if Parties A and B had indeed colluded, the charge would not have been the Crime of Illegally Utilizing Information Networks.
Regarding this judgment, the author believes it is incorrect; thisis clearly flawed logic.If this logic were universally applied to all cases where victims were defrauded, let alone crypto circle platforms, any platform could potentially serve as a link in the playbook for criminals to commit illegal acts, and all social and public software we use daily would cease to exist.
Moreover, from a jurisprudential perspective, the conviction in this case should not have occurred. One circumstance of the Crime of Illegally Utilizing Information Networks is 'establishing websites or communication groups used to carry out fraud, impart criminal methods, produce or sell contraband or controlled items, and other illegal criminal activities.' Therefore, if the perpetrator's purpose in establishing the website was to carry out illegal criminal activities, or if the initial purpose was legitimate but the website was subsequently evolved into an information platform for committing crimes, convicting under this charge would be unproblematic.
However, if the perpetrator established the website for normal business purposes, even though notices such as the September 24 Notice characterize virtual currency transactions as illegal financial activities, if their operational conduct does not involve types of illegal criminal acts stipulated in the Specific Provisions of the Criminal Law, it does not constitute this crime.
If, after establishing the website, the perpetrator later became aware that others were using their site for illegal criminal activities and provided technical support to the criminals, there is a possibility of constituting the Crime of Aiding Information Network Criminal Activities. However, although the judgment mentioned that Dai 'performed debugging and daily maintenance on the website,' it did not determine that he constituted the Crime of Aiding Information Network Criminal Activities, further confirming that Dai and the third-party criminal had no mutual intent to collude in defrauding the victim of money.
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[Case D]
This case involved two parallel backgrounds of criminal activity: a subplot and a main plot.
Subplot: After obtaining a large number of mobile phone numbers through online channels, Dong and others handed them to recruited employees, instructing them to call the owners and pull those interested in joining stock trading groups into pre-prepared WeChat groups. These WeChat groups were then sold to overseas fraud syndicates for profit. Victim Li received a call from personnel of this company, joined the WeChat group, and was subsequently guided by assistants within the group to install an APP and make investments, resulting in fraud.
Main Plot: Zhou and others impersonated stock instructors, investors, assistants, and other identities in WeChat groups. Victim Liu was induced by instructor Zhou to recharge funds on the aforementioned virtual currency trading platform. Meanwhile, Xiao controlled the rise and fall of virtual currencies in the backend of the virtual currency trading platform he had built, causing Liu to incur losses.
Ultimately, the court sentenced Dong forthe Crime of Illegally Utilizing Information Networks, and Zhou forthe Crime of Fraud。
[Lawyer Shao's Analysis]
Although the main plot and subplot appear unrelated, why were they handled in a single case? Because Dong's syndicate had previously paid money to the company where Dong was employed. Dong and others were responsible for identifying victims with investment intentions and forming WeChat groups, which were then packaged and sold to Xiao and Zhou's syndicate, enabling Zhou to carry out precise fraud against the victims.
Since both involved victims reporting fraud due to investment losses, why were the final charges different?Where lies the boundary between the Crime of Illegally Utilizing Information Networks and the Crime of Fraud?This case provides a good answer to this question.
The modus operandi of the subplot was establishing groups, with the purpose of establishing these groups being to carry out fraudulent activities. The profit method of the subplot was selling WeChat groups, not defrauding others of their money. So why was the subplot not treated as joint crime of fraud alongside the main plot? The answer remains the same: the profit method of the subplot was selling WeChat groups. As for what the buyers did with the groups, they might have known or should have known, but they did not care. Dong and others may have naively believed that as long as they did not participate in the fraud, they would face no legal risk.
From a global perspective of the case, the conduct of the subplot constitutes preparation for the Crime of Fraud. The purpose of the Crime of Illegally Utilizing Information Networks is to elevate preparatory acts to executed acts, making preparatory behavior an independent crime.
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Concluding Remarks
This article, through case analysis, deeply explores circumstances under which virtual currency exchanges may involve the Crime of Illegally Utilizing Information Networks within China's current legal framework. Regarding Cases B and D, if there are indeed facts of defrauding user funds, our focus should be more on discussing the application of relevant charges and considering defense strategies for lesser offenses or lighter sentences. For Cases A and C, whether the parties should be convicted is, in the author's opinion, open to debate.
We recognize that the purpose of governments and regulatory bodies issuing announcements, notices, and initiatives is to enhance public alertness, guide rational investment, and prevent financial risks. However, in this process, it is crucial to find a balance between encouraging financial innovation and maintaining financial security. This requires more detailed analysis and differentiation of various situations, avoiding one-size-fits-all negations or excessive punishment.
Therefore, as legal professionals, we hope to see the introduction of more comprehensive and clear laws, regulations, and supervisory provisions related to blockchain and virtual assets in the future, rather than the current status quo where this field has remained in a gray area of legal application for many years.
Through such balance, we believe that blockchain technology has the potential to become a key driving force promoting China's economic and social development in the future.
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