As lawyers, our duty is not merely to initiate proceedings, but also to assess risks for our clients and identify pathways that genuinely hold promise for recovering losses.
Introduction
The larger the forest, the more diverse its birds—and the world of crypto assets is no exception. In the early days, when Bitcoin had little monetary value and stablecoins had yet to emerge, this circle was largely a small-scale, self-contained community. However, everything changed as Bitcoin’s price soared from “two pizzas for 10,000 BTC” to “10,000 pizzas for one BTC.” The advent of stablecoins, in particular, has made them increasingly favored by illicit and gray-market actors as tools for money laundering due to their inherent characteristics.
Having practiced criminal defense for many years, I have handled numerous crypto asset-related cases. One striking impression is that there seem to be an unusually high number of “unfortunate” individuals in this field:Some are clearly not guilty yet are convicted, while others are clearly suspected of criminal conduct yet face difficulties in having their cases formally investigated.
Perhaps perspective influences judgment; some cases that appear problematic to me may be viewed by public security organs, procuratorates, or courts as“not significantly problematic”or even“properly handled”。
Two cases I am currently handling are closely related to this theme and are quite representative. Through this article, I wish to discuss the current state and challenges of criminal cases involving crypto assets, drawing on my practical experience.
Reconstruction of Facts in Real Cases
- Case One
A company incorporated in Country H planned to list its tokens on an exchange whose servers are located in Country S, and liaised with a Chinese-national sales representative of the exchange. The parties successfully agreed on matters such as service fees and the listing timeline, stipulating that upon payment of 800,000 USDT as a service fee by the Company in Country H, the exchange would initiate the listing process.
After the agreement was reached, theChinese-national sales representative provided the Company in Country H with a wallet address and requested the transfer of 800,000 USDT thereto.After the Company in Country H complied, the sales representative immediately exited all relevant group chats and became completely unreachable. Upon detecting the anomaly, the Company in Country H promptly contacted the exchange in Country S, which replied that the employee had resigned the day after the transfer and that the exchange had not received the service fee. Accordingly,the Company in Country H confirmed that it had been defrauded.
- Case 2
A womanmet online an individual who claimed to be able to guide her in making investments.The individual stated thatthe investment platform did not accept renminbi (RMB) and only supported transactions in USDT.As the woman did not hold any USDT, the individual recommended a USDT dealer to assist with the conversion.
Subsequently, she contacted the USDT dealer via WeChat and, as instructed, made cumulative transfers totaling more than RMB 3 million to multiple bank accounts.However, after the transfer was completed, she did not receive the corresponding USDT, and no funds were credited to her investment platform account.When she attempted to contact the online acquaintance who had initially recommended the investment,the individual could no longer be reached.It was only then that she realized she had fallen victim to fraud.
Legal Perspective: Approaches to Safeguarding Client Rights and Interests
- Case 1: Obstacles to Cross-Border Reporting and Negotiations on Legal Grounds
In Case 1, the client (a company incorporated in Country H) initially went in person tothe local police station in the place of household registration of the Chinese-national sales representative to file a report. However, the police neither issued an acknowledgment of receipt nor provided a notice of non-acceptance, thereby preventing the client from initiating subsequent remedial procedures.
After being retained, our lawyers began preparing legal documents and evidentiary materials that met the requirements for domestic reporting. Given the cross-border elements of the case,the preparation of materials took approximately two to three months.。
Subsequently, we formally filed a report at the police station in the suspect’s place of household registration. The auxiliary police officer at the service window initially stated that“the victim company is not located within China”as the grounds for refusing to accept the case, we immediately cited the provisions on territorial jurisdiction and personal jurisdiction under the Criminal Procedure Law to rebut this position. The opposing party further claimed that “crypto assets are not protected by law,” to which we further pointed out that, pursuant to the “September 24 Notice,”although exchange-related businesses are prohibited, individual holding of virtual assets is not unlawful, and judicial practice generally recognizes that virtual currencies possess property attributes.
Despite our repeated reasoned arguments, the police still refused to issue a written receipt. At our persistent request, the auxiliary police officer ultimately contacted the duty police officer to come to the scene. After multiple rounds of negotiations and our continuous efforts, the case has currently been accepted by the local police station, but has not yet been formally registered as a criminal case; we continue to push for progress.
- Case Study 2: Difficulties in Recovery After Criminal Case Registration and Attempts at Civil Remedies
In Case Study 2, the client (the defrauded woman) successfully reported the incident, the police promptly registered the criminal case and launched an investigation, and successfully apprehended the USDT dealer who provided currency exchange services.However, because the IP address of the primary fraud suspect was located overseas, the suspect could not be brought to justice.
Through interrogation and investigation, the police confirmed that the USDT dealer was merely engaged in USDT exchange activities as an operational staff member, with no conspiratorial intent or communication with the upstream fraud syndicate, and therefore terminated the investigation against him.
To help the client recover her losses, we attempted to pursue civil litigation, intending to file suit against the USDT dealer on the grounds of“unjust enrichment”to request the return of the corresponding funds.
Case Review: Issues in Civil Rights Protection
In Case One, the matter cannot be resolved through civil litigation.
The primary reason is that when the same set of facts involves both criminal and civil proceedings, the principle of"criminal proceedings take precedence"must be followed. Civil proceedings may only be initiated after the criminal case has been concluded. Furthermore, if the criminal judgment has already addressed the victim's property rights and interests—for example, by stating in the judgment "continue restitution to the victim"—the victim may not file a separate civil lawsuit based on the same facts. Doing so would violate the fundamental civil procedure principle of ne bis in idem (no double jeopardy for the same cause of action).
So, if a party chooses not to report the crime due to the prolonged duration of criminal proceedings and instead files a civil lawsuit directly with the court, is this feasible?
While filing a lawsuit is theoretically possible, if the court determines upon review that the matter involves suspected criminal activity, it will issue an order transferring the case to the public security organs for handling. As a result, the process will revert to the criminal track, thereby incurring additional delays of several months.
If the suspect is ultimately convicted but lacks the means to make restitution, how should the victim protect their rights?
In such circumstances, the victim's recourse largely depends on whether the suspect is willing to provide compensation in exchange for a potential sentence reduction. Under relevant regulations, offenders who fail to fulfill property-related penalties, such as restitution orders or fines, are generally ineligible for sentence reductions or parole and must serve the full original term of imprisonment.
In Case Two, although we did attempt to file a civil lawsuit against the USDT merchant and conducted extensive research on similar cases, the results showed that only two judgments supported the plaintiffs' claims, while all others resulted in losses for the plaintiffs. Why is this the case?
At the case-filing stage, the judge at the case-filing division explicitly stated that the case could not be accepted, frankly noting that even if the case were reluctantly docketed, our claims would ultimately not be supported.Ultimately, the civil case was not accepted for filing.
Summary
Can effective relief be obtained through civil avenues after crypto assets are stolen or defrauded?
This article was initially planned as a public legal education piece on this topic, but in-depth practical experience revealed that:Once a case involves criminal offenses, the path to civil relief is in fact extremely difficult, and may even be entirely unviable.
Some readers may question why this article concludes that such efforts are“unviable,” given that many articles on the market have detailed how to protect rights through civil litigation, including evidence preparation and filing procedures.
As we personally experienced in Case Study 2, the judge at the case-filing division explicitly stated that even if the case were accepted, the prospects of prevailing in court would be exceedingly slim.
As lawyers, our duty is not only to initiate proceedings, but also to assess risks for clients and select pathways that genuinely offer hope of recovering losses.Therefore, in situations where crypto assets are stolen or defrauded, pursuing recovery through criminal proceedings remains the more realistic option at present.
