Special Disclaimer: This article is an original work by Attorney Shao Shiwei. It reflects only the personal views of the author and does not constitute legal advice or a legal opinion on any specific matter. For reprints, legal consultations, or professional exchanges, please add: sswls66.
On October 27, 2025, Pan Gongsheng, Governor of the People's Bank of China, reaffirmed at the Financial Street Forum that the policies implemented since 2017 to prevent and address risks associated with virtual currency trading and speculation remain in effect. He stated that crackdowns on business activities related to virtual currencies will continue in order to safeguard economic and financial order. This statement draws an impermissible red line for China’s regulatory policy on virtual currencies.
However, on the other side of reality, a stark paradox is unfolding in judicial practice: many overseas Web3 projects and virtual currency exchanges, which are not legally recognized or are even expressly prohibited under Chinese law, frequently seek and obtain the protection of domestic criminal law when internal disputes arise, particularly when alleging “occupational embezzlement” by employees. Certain case-handling authorities have extended the protections of the crime of occupational embezzlement to these very entities—objects that should be subject to stringent regulatory crackdowns—by expansively interpreting the concept of a “unit” and forcibly establishing jurisdictional connections.
This raises a fundamental question that must be confronted directly: Does employing the state’s most severe criminal law instruments to protect internal operational activities within an industry classified as “illegal financial activities” by national financial policy deviate from the purpose of protecting legal interests inherent in criminal law, and create a profound conflict with the central government’s macro-level orientation toward maintaining financial security?
To answer this question, one must start from the source—examining the organizational forms, employment models, and property attributes of the Web3 industry—to scrutinize why they differ inherently from traditional patterns of occupational embezzlement, thereby demonstrating that Web3 enterprises should not fall within the scope of protection afforded by China’s provisions on occupational embezzlement.
I. Author: Attorney Shao Shiwei
1
Organizational Forms in the Web3 Industry
(1) Denial of Subject Qualification
Under sustained high-pressure regulatory policies, the establishment and operation of Web3 project teams and virtual currency exchanges have, from the outset, carried the intent to evade regulation. They commonly incorporate their legal entities in jurisdictions with open policies toward crypto assets, such as the Cayman Islands, Singapore, and Dubai. In the articleCan Overseas Web3 Enterprises Report Employee Occupational Embezzlement in China?—Focusing on the Determination of the “Victim Unit”, Attorney Shao noted that Web3 enterprises generally adopt an offshore-onshore hybrid architecture with “multiple entities and segregated roles,” splitting different risk levels and business functions across different jurisdictions. One consideration behind this structure is to evade regulation in specific legal domains.
The core legal interest protected by the crime of occupational embezzlement under China’s Criminal Law isTrust Relationships and Property Order Within Lawful Economic OrganizationsThe lawfulness of an "entity" constitutes the cornerstone of the protection of legal interests under criminal law. A Web3 project sponsor or exchange registered offshore, whose principal business activities are expressly characterized as "illegal financial activities" within China, lacks the legitimate basis for receiving such special protection under criminal law.
Such entities do not possess the organizational structure, place of registration, or tax obligations required under laws such as the Company Law of the People's Republic of China, and therefore do not constitute an "entity" within the meaning of criminal law. If case-handling authorities forcibly interpret them as "other entities" for the purposes of the crime of occupational embezzlement, this would not only exceed the jurisprudential boundaries of the principle of legally prescribed punishment for a specified crime, but would also amount to granting, at the judicial level, an offshore entity that is neither registered in nor subject to regulatory oversight in China, and whose business model has been policy-characterized as an "illegal financial activity," the same status of criminal law protection as domestically registered lawful enterprises. The effect of such an expansive interpretation is, in substance, to transform criminal law into a "catch-all tool" for evading regulatory structures, thereby seriously deviating from the original legislative intent behind the crime of occupational embezzlement.
(2) Lack of Basis for Jurisdiction
More critically, through their offshore structures, Web3 enterprises have legally manifested their subjective intent not to submit to Chinese judicial jurisdiction. By choosing to establish and operate in jurisdictions that recognize their business models, they voluntarily accept the regulation and protection of the laws of those jurisdictions. When internal governance issues arise, they should first seek remedies under the laws of their place of registration.
Therefore, when such organizations report internal disputes to Chinese public security organs, their conduct itself constitutes a "selective utilization" of regulation—evading Chinese regulatory oversight while conducting business, yet seeking the shelter of Chinese judicial processes to resolve internal conflicts. If judicial authorities were to accept such cases at this juncture, it would not only condone their intent to evade regulation, but would also, in jurisprudential terms, undermine the foundation of their own jurisdiction. The establishment of criminal jurisdiction should be based on close connecting factors prescribed by law, rather than serving as judicial resources that certain globally mobile capital can invoke at will.
Therefore,The offshore organizational form adopted by the Web3 industry, with the initial intent of evading regulation, has from its inception self-negated its qualification as a "victim entity" under China's Criminal Law. Recognizing its legal personality would produce an extremely adverse judicial precedent—namely, indirectly encouraging market entities to enjoy the benefits of criminal law protection without bearing compliance costs by employing “regulatory arbitrage” structures. This would undoubtedly constitute a serious injustice to domestic law-abiding enterprises and the financial regulatory order, and must therefore be rejected.
2
Employment Models Specific to the Web3 Industry
To evade regulation, Web3 enterprises not only establish their legal entities overseas, but also meticulously construct a differentiated employment model for domestic and foreign operations. On one hand, to control costs and leverage talent dividends, they tend to hire personnel within mainland China; on the other hand, to isolate legal risks, they often engage domestic third-party companies to execute formal labor contracts with employees, while simultaneously having the offshore entity enter into consultancy or service agreements with the same employees. This "triangular employment relationship’s complex design not only constitutes an attempt to circumvent regulatory oversight, but also undermines the foundational basis for applying this criminal offense.
(1) In terms of “subject identity,” this model blurs the legal definition of “staff members of a unit.”
The core prerequisite for the crime of occupational embezzlement is that the perpetrator must be a “staff member of the unit.” However, under the aforementioned model, the employee’s legal employer is a domestic third-party company, which pays their salary and social insurance contributions. From the perspective of labor law, there is no direct labor-law relationship between the employee and the overseas Web3 project sponsor.no direct labor-law relationshipThe services he provides are governed by the “consulting agreement” executed with the overseas entity. This means that, legally speaking, he is more akin to anindependent contractor or service provider, rather than a “unit employee” who is subject to internal rules and regulations and exhibits personal subordination. When the prosecution cannot clearly demonstrate that the individual qualifies as “personnel of a company, enterprise, or other unit” as stipulated in Article 271 of the Criminal Law, pursuing charges of occupational embezzlement lacks any legal foundation.
(2) In terms of “property ownership,” this arrangement highlights that the property involved is not typical “property of the unit.”
The employee’s remuneration essentially comprises two parts: statutory currency wages paid by the domestic third-party company, and “consulting fees” paid by the overseas Web3 project in the form of virtual currencies or other instruments. Due to the overseas nature of the payer and the virtual character of the payment subject matter, the legal nature of the latter is inherently contentious. More importantly, this payment method itself reflects thecross-border nature and ambiguityof Web3 project assets. When the source, ownership, and nature of assets operate outside the framework of domestic legal regulation and clear definition, it is legally tenuous to simply equate them with “property of the unit” protected under China’s Criminal Law.
(3) In terms of “advantage of position,” the complex contractual relationships make it difficult to establish “acts performed by virtue of one’s position.”
The crime of occupational embezzlement requires the utilization of "convenience arising from one's position." However, when an employee simultaneously faces a domestic employer (a third-party company) and an overseas service recipient (a Web3 project), it is unclear which actions are authorized under which agreement. Is the handling of virtual assets performed in fulfillment of duties under the domestic labor contract, or as advisory services stipulated in the overseas service agreement? Thisoverlap and commingling of dutiesmakes it difficult for the prosecution to clearly and exclusively prove that the "positional convenience" utilized stemmed purely from the overseas Web3 project entity, which is designated as the "victim unit."
Furthermore, the crime of occupational embezzlement punishes the betrayal of arelationship of trust inherent to one's position. However, in an organization where all personnel participate and the business itself operates in legal gray areas or even illicit domains, on what basis can such a "relationship of trust" be established? When the very foundation of the entire organization contradicts national financial regulatory policies, its internal "positional" acts manifest more as illegal division of labor and collaboration rather than lawful delegation of authority.
Therefore, law enforcement authorities must fully recognize the atypical employment models deliberately designed in the Web3 industry to evade regulation in specific jurisdictions. Disputes over rights and responsibilities arising in this context are essentially internal governance issues concerning contract performance, revenue distribution, and access control management, which are more appropriately clarified and resolved through civil or commercial channels. Initiating criminal proceedings rashly in situations where organizational structure, positional relationships, and property ownership are highly ambiguous not only risks mischaracterizing the nature of the conduct but may also cause criminal law to deviate from its role as a "last resort," thereby incurring unnecessary social costs.
3
Analysis of the Property Attributes of Web3 Enterprises
Having demonstrated that the entity alleged to be the "victim unit" lacks proper standing, even if one were to assume, arguendo, that its status as a unit is recognized, whether the "property" it claims is protected by criminal law remains a highly controversial issue. The "property of the unit" protected by the crime of occupational embezzlement presupposes property rights and interests that are lawful and positively recognized by law. However, the core assets of Web3 projects and exchanges are subject to serious challenges regarding their legality in terms of both source and nature.
(1) Illegality of the Source of Property
According to policies such as the "September 24 Notice" issued by the People's Bank of China and nine other departments, and the "September 4 Announcement," activities related to virtual currencies have been explicitly defined as "illegal financial activities." This means that funds raised by Web3 projects through Initial Coin Offerings (ICOs), as well as revenue obtained by exchanges through providing virtual currency trading services, are regarded as illegal proceeds under the Chinese legal framework.
Criminal law serves as the last resort for maintaining social fairness and justice, not as a "private bodyguard" tasked with maintaining internal order and ensuring equitable distribution of spoils within illegal economic activities. Employing the power of criminal law to protect "property" generated by "illegal financial activities" from misappropriation by insiders is akin to attempting to use criminal law to establish title and guarantee the "fairness" of the distribution of casino chips between the house and dealers. This is absurd in legal theory and would severely undermine the seriousness and justice of criminal law in practice.
(2) Ambiguity and Fictitious Nature of Property Interests
Furthermore, if the "property" that the victim entity alleges was embezzled by an employee consists of tokens issued by the entity itself and lacking support from actual underlying value, then characterizing such objects as "property" under criminal law is highly tenuous.
The legal nature of virtual currencies has not yet reached a unified consensus in China's theoretical discourse and judicial practice, with various viewpoints such as the "data theory" and the "property theory" coexisting. For tokens created ex nihilo by project sponsors for fundraising or incentive purposes, their legal character more closely resembles data or service vouchers. In the absence of a clear value anchor (such as pegging to real-world assets (RWA)), their value depends heavily on market sentiment and speculation, essentially constituting a virtual and uncertain "expected future benefit."
The term "property" in the crime of occupational embezzlement typically refers to movable property, immovable property, or proprietary rights that possess definite economic value and are protected by law. Forcibly interpreting a self-defined token with fluctuating value and an unclear legal status as "property of the entity" within the meaning of criminal law seriously exceeds the possible semantic scope of criminal law terminology and violates the principle of legality, which requires clarity and definiteness.
Therefore, from the jurisprudential perspective of the crime of occupational embezzlement, the "property" interests claimed by Web3 project sponsors and exchanges do not possess the necessity or legitimacy warranting protection under this offense.
4
Conclusion
Applying the crime of occupational embezzlement under China's Criminal Law to domestic Web3 practitioners in order to protect overseas Web3 project sponsors and virtual currency exchanges not only faces controversies regarding legal application concerning constituent elements such as subject qualification and the nature of property, but also creates a significant conflict with China's macro-financial regulatory policies.
From the "September 24 Notice" to recent statements by regulatory authorities, China has explicitly classified business activities related to virtual currencies as "illegal financial activities." Against this policy backdrop, if judicial organs provide criminal law protection to such Web3 enterprises through the crime of occupational embezzlement, it would cause a serious split in value judgments within the legal order—where administrative regulation mandates "clearance and exit," while criminal justice conversely provides a "safety net."
Such a split would not onlyundermine the deterrent effect of regulatory policies, leading to erroneous market expectations and potentially encouraging regulatory arbitrage in disguise. It would also result in precious criminal justice resources being used to resolve internal disputes within illegal businesses, rather than being deployed to combat criminal acts that truly endanger social order and citizens' property.
Therefore, we sincerely urge case-handling personnel, when dealing with such cases, to adopt a broader macroscopic perspective and a higher policy dimension, exercising prudent judgment based on the legislative intent behind criminal offenses.
As a measure of last resort, criminal law should not serve as an instrument to maintain the internal order of illegal financial activities. Adhering tothe principle of restraint in criminal law, and maintaining policy coordination between criminal justice and financial regulation, is essential to preserving the unity of the legal order and safeguarding national financial security. Internal disputes arising from participation in illegal financial activities should properly be resolved through civil channels or administrative regulatory measures, rather than by readily initiating criminal prosecution proceedings. Only in this way can a balance consistent with the rule of law be achieved between encouraging technological innovation and maintaining financial stability.
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