Lawyer Shao Shiwei | Multiple Real Cases: Understanding the Current Judicial Status of Jurisdiction in Web3 Criminal Cases

Common Misconception Among Web3 Practitioners: Going Overseas Can Avoid Domestic Risks

For Web3 entrepreneurs, establishing a Cayman Islands company, setting up a holding structure in Hong Kong, and founding a foundation in Singapore have almost become the industry’s “default configuration.” Setting aside the legality of the business operations themselves, the underlying assumption behind these structures is often that entrepreneurs believe that as long as the corporate entity, servers, and team are not located within China, they can avoid domestic judicial risks.

However, this is an extremely common and highly dangerous misconception.

These structural separations may indeed hold significance in commercial disputes, as the civil field places greater emphasis on party autonomy. However, in criminal cases, the principles of “personal jurisdiction” and “territorial jurisdiction” apply. In other words,

as long as the operators or employees retain Chinese nationality;

they reside continuously within China, or although they work abroad, they occasionally return to China;

if the business operations allow domestic users to access the platform via “VPN” or other methods to bypass restrictions, or even if Chinese users are completely isolated, but the legality of the business operations remains controversial under the Chinese legal system;

then domestic judicial authorities have both the justification and the capability to intervene.

Yet, no matter how much lawyers warn, many people, after reviewing legal provisions and consulting with lawyers, still habitually believe that legal provisions are merely theoretical and that no one they know has actually faced consequences.

In reality, it is not that lawyers are blindly exaggerating risks or creating anxiety. Rather, because we handle criminal cases daily, having seen so many instances, we hope to explain the risks as comprehensively and thoroughly as possible.

Multiple Real Cases Revealing Judicial Practice in Criminal Jurisdiction

1. Can Domestic Judicial Authorities Exercise Jurisdiction Over Overseas Web3 Projects Operated by Chinese Nationals?

According to public information[i], this case initially emerged on February 26, 2021. The Wuxi Public Security Bureau sought case sources online and initiated an investigation into personnel related to the CoinXP trading public chain and the Hubdex community decentralized exchange for the crime of illegally utilizing information networks. Suspects were subsequently arrested on suspicion of organizing and leading pyramid schemes. Later, the public prosecution organ initiated public prosecution for the crimes of illegally absorbing public deposits and organizing and leading pyramid schemes. Ultimately, the public prosecution organ changed the charged offense to organizing and leading pyramid schemes.

In the first instance trial, Liang Liang, co-founder/CEO of CoinXP, was sentenced to ten years of fixed-term imprisonment. He has filed an appeal.

Regarding whether the Wuxi Public Security Bureau had jurisdiction over this case, there is indeed significant controversy based on public information.

Even though this case involves substantial controversy, we can see that it still proceeded to court, and a criminal judgment was rendered against the parties involved. This demonstrates that even if jurisdiction is disputed, it does not necessarily prevent the case from proceeding.

Furthermore, based on Lawyer Shao’s experience in handling related cases, this is not the only criminal case where domestic judicial authorities initiated an investigation due to the overseas issuance of a public chain.

2. The “Mysterious Victim” in Web3 Cases Often Serves as the Basis for Jurisdiction

In criminal cases involving Web3 project founders and virtual currency exchanges, reviewing case files reveals ahighly consistent phenomenon:：

The basis for determining jurisdiction often stems from a report filed by a local “victim.”

This “victim” typically states in the report: “I purchased virtual currencies/participated in transactions through a certain platform,” “subsequently unable to withdraw funds,” and “therefore suffered losses.”

However, who this “victim” actually is, whether they genuinely participated in transactions, and whether losses truly occurred are often unverifiable. During the trial, if the defense counsel requests the victim to appear in court to testify, the court generally will not permit it. In other words, the primary role of this “victim” in the case is not necessarily to prove the losses themselves, but to serve as the basis for jurisdiction.

There are even more bizarre situations:

The victim is not a local resident but claims they were “driving through a certain location (where the handling authority is located)” at the time, “conveniently conducted a virtual currency transaction” on the spot, and subsequently filed a report because they were “unable to withdraw funds.” There is a lack of evidence regarding whether they actually passed through, whether a transaction occurred, or whether there are any deposit records. Nevertheless, the court still held that there was no dispute over jurisdiction.

3. Do Domestic Public Security Organs Still Have Jurisdiction Without a Victim’s Report?

Consider a criminal case involving an overseas payment company. A company collaborated with local institutions abroad to provide payment services to local users. The entire business chain operated overseas and did not involve users in mainland China. The company had been operating stably for over two years with good development momentum.

One day, it was suddenly investigated by a local public security bureau in China. But did the local public security bureau have jurisdiction? The location was neither the company’s place of registration nor its actual place of operation, nor was it the household registration location or residence of any personnel involved in the case. Ultimately, the local authority used the pretext that a certain employee of the company had stayed in the area for a short period as a tenuous basis for jurisdiction. In the end, the court imposed actual prison sentences on the individuals involved.

It may seem tenuous, even somewhat absurd, but this is reality.

4. Do Domestic Public Security Organs Still Have Jurisdiction Without Chinese User Participation?

If the above are cases where jurisdiction is disputed, the following case, legally speaking, presents no controversy. Although it is not a Web3 case, its logic serves as a reference.

A South Korean national established a gambling website specifically targeting South Koreans, set up a studio within China, and hired staff to recruit South Korean nationals for online gambling activities. In 2022, the Weihai Court convicted the staff members of the crime of opening a casino[ii].

Regarding jurisdiction in this case, the court held that although the gambling website’s servers were located overseas and most relevant personnel were foreign nationals, the studio was located within China, and Chinese citizens participated in cross-border gambling activities. Therefore, Chinese courts had jurisdiction over the case.

For Web3-related businesses, even if the platform can completely isolate Chinese users, if the legality of the business operations remains controversial under the Chinese legal system and relevant personnel are working within China, then Chinese judicial authorities have jurisdiction.

Lawyer’s Recommendations | How to Respond to the Domestic Reality?

The above reflects the true judicial practice of jurisdiction in criminal cases. For individual cases, the reasons for initiating an investigation are complex. It can be said that there are elements of profit-driven law enforcement, but not all cases are “long-arm fishing.” After all, if a project is subject to investigation, there are usually some underlying issues.

However, as defense counsel, we must still view the case comprehensively from the perspectives of facts, evidence, procedure, and law, and formulate a defense strategy. Because even if the client has certain issues,whether the procedures during the investigation, prosecution, and trial phases were lawful, and whether the characterization of the crime and sentencing were fair and “proportionate to the crime”must each be reviewed and argued individually.

Therefore, beyond the facts of the case itself, procedural issues such as jurisdiction are indeed areas where lawyers must vigorously contend with judicial authorities. In practice, we have indeed encountered cases where thorough communication on procedural issues such as jurisdiction led to the public security bureau withdrawing the case or the procuratorate recommending that the public security bureau withdraw the case.

However, each case has its peculiarities. Even in a criminal case where jurisdiction is clearly lacking, lawyers, clients, and their families must not naively treat jurisdiction as an “absolute trump card,” thereby neglecting the need to fully argue the case from multiple angles including facts, evidence, procedure, and law to the handling authorities. (Because for cases involving significant economic interests, it is unrealistic to expect the public security bureau to withdraw the case solely based on jurisdictional grounds.) Otherwise, critical timelines in case handling may be missed, forfeiting the best opportunities to seek changes in coercive measures or to argue for lighter or mitigated sentencing for the client.

For Web3 project founders and practitioners, current domestic regulatory policies will not change in the short term. Web3 projects involving financial transactions are easily regarded by domestic judicial authorities as black-and-grey market projects based on policies such as the “924 Notice,” thereby triggering criminal risks related to gambling, pyramid schemes, and money laundering.

Therefore, even if servers and projects are established overseas, business risks must be carefully assessed. Do not rely on luck, and do not treat “the project being overseas” as a reliable safety barrier.In practice, jurisdiction is a concept that can be continuously sought, linked, and established.

[i]https://mp.weixin.qq.com/s/1WNdj7gmEzhsawMzMlJmAw

[ii] (2022) Lu 10 Xing Zhong No. 46