Attorney Shao Shiwei | When an Overseas Web3 Enterprise Suffers Employee Embezzlement, Can It Report the Crime in China?—Focusing on the Determination of the “Victimized Entity”

Starting from a Typical Case Published by the Supreme People's Court

On June 9, 2025, the Supreme People's Court published five typical cases, one of which involved corruption related to virtual currencies within an internet company and is highly representative.

In this case, the defendant, Shi Mouyu, was an employee of a certain network company. Taking advantage of his position, he facilitated cooperation between his company and Company B to carry out virtual currency reward businesses, and illegally accepted property from Company B totaling RMB 6.08 million. Meanwhile, he also exploited his position in the virtual currency business conducted jointly by his company and Company B, converting part of the virtual currencies into cash through multiple accounts of the network company and transferring them into personal bank accounts under his control, thereby illegally appropriating property of the network company totaling RMB 3.66 million.

The Haidian District People's Court of Beijing sentenced Shi Mouyu to twelve years of fixed-term imprisonment for the combined crimes of non-state staff bribery and occupational embezzlement.

Public information on this case is limited; however, based on the description of the facts, the enterprise involved should be an internet company legally established and operating normally within China.

However, since virtual currency-related activities are deemed “illegal financial activities” under domestic policies, it is more common in practice for Web3 project sponsors and exchanges to be established overseas, with their actual controllers having already moved abroad. Nevertheless, due to considerations regarding user structure and labor costs, a significant proportion of the platform’s service recipients remain users from mainland China, while the team’s daily operations heavily rely on recruiting employees from mainland China to work remotely.

Under such a business structure, once domestic employees are suspected of committing occupational crimes, can overseas Web3 project sponsors or exchanges (or more broadly, various overseas enterprises that have not established branches, subsidiaries, or representative offices within China)within the territory of Chinabe recognized as the “victim entity” in the crime of occupational embezzlement, thereby enabling them to file criminal complaints against employees within China and report the case to authorities in accordance with the law to protect their rights?

This issue lacks clear and systematic provisions under current legal norms, and there are few systematic discussions or public cases in judicial practice. Therefore, this article merely attempts to provide a preliminary review and analysis of the relevant issues by combining existing legal provisions, related interpretations, and Attorney Shao’s practical experience, serving only as an initial contribution to further discussion.

Can Web3 Enterprises Be Recognized as the “Victim Entity” in the Crime of Occupational Embezzlement?

The reason for specifically emphasizing above that “the overseas enterprise has not established a branch, subsidiary, or representative office in China” is that if there is a domestic affiliated entity, such entity can directly report the case as the victim unit, and there are no obstacles regarding subject qualification in practical operations.

However, if the overseas enterprise has no affiliated companies within China, whether it can serve as the victim unit in criminal cases must revert to the legal provisions governing the scope of subjects for different charges. For example, for crimes such as fraud, extortion, and illegal control of computer information systems, the subjects of these crimes are general subjects, namely natural persons who have reached the age of 16 and possess criminal responsibility capacity. If an employee’s conduct satisfies the elements of these crimes, the company may still report the case and seek remedies in China, even if it is incorporated overseas.

However, the subject of the crime of occupational embezzlement is a special subject, namely: staff members of companies, enterprises, or other units.

According to the interpretation by the Criminal Law Office of the Legislative Affairs Commission of the Standing Committee of the National People’s Congress (hereinafter referred to as the “Legislative Affairs Commission”) regarding “staff members of companies, enterprises, or other units” under Article 271 of the Criminal Law of the PRC on the crime of occupational embezzlement, there are further detailed provisions:

“Company” refers to limited liability companies and joint stock limited companies established inChina in accordance with the Company Law.Limited liability companies and joint stock limited companies.

“Enterprise” refers to economic entities engaged in business activities through enterprise registration that are not organized in the form of a company, such as factories, mines, stores, hotels, restaurants, and other service-oriented enterprises.

(Note: The scope of “other units” is not explicitly defined in the law, and there is significant controversy in practice.)

It is worth noting that for duty-related crimes such as non-state bribery and misappropriation of funds, the Legislative Affairs Commission did not limit the scope of “company” to those “established within China.” This raises a question of considerable research value: Do limited liability companies or joint stock limited companies established overseas fail to qualify as a “company” for the purposes of the crime of occupational embezzlement because they are not registered within China?

In actual operations, Web3 enterprises commonly adopt an offshore-onshore hybrid structure with “multiple entities and segregated roles,” splitting different risk levels and business functions into different jurisdictions to balance compliance costs, regulatory risks, and tax planning. Common structures include:

As can be seen from the table above, although the various entity forms adopted by Web3 enterprises overseas mostly possess independent legal personality or limited liability structures, they differ significantly in legal nature: they include joint stock companies, hybrid entities such as LLCs, and even non-profit legal persons such as foundations.This structural difference means that whether such an entity falls within the scope of "companies, enterprises, or other units" under Article 271 of the Criminal Law cannot be determined simply by its name or place of registration; instead, a substantive review based on the entity's essential nature is required.

It is precisely for this reason thaton the issue of whether an overseas entity qualifies as a "victim unit," the prosecution and the defense often reach entirely different conclusions.

Divergent Positions of the Prosecution and the Defense

Against the backdrop of current regulatory gaps, the prosecution and the defense often adopt two completely opposite legal positions on the question of "whether overseas Web3 enterprises can qualify as victim units."

Potential Arguments of Web3 Enterprises:

1. The qualification as a victim unit should be subject to "substantive review" rather than "formalistic review."

The determination of whether an entity qualifies as a victim should undergo substantive review. As long as the entity is lawfully established and possesses independent legal person status, it should be regarded as a "company, enterprise, or other unit" within the meaning of the Criminal Law, even if it is not registered within the territory of China. This position is based on the Reply of the Research Office of the Supreme People's Court on Soliciting Opinions on Whether "Three-No" Enterprises That Obtain Business Licenses Through False Capital Verification Can Be the Object of the Crime of Occupational Embezzlement (Fa Yan [2008] No. 79), which explicitly states that even in the case of "three-no" enterprises,as long as the enterprise has legal person status and was not established for the purpose of engaging in illegal or criminal activities,or if, after its establishment, the company, enterprise, or public institution did not primarily engage in criminal activities, it shall be deemed a "unit" under the Criminal Law and can constitute a "company, enterprise, or other unit" as prescribed in Paragraph 1 of Article 271 of the Criminal Law (Crime of Occupational Embezzlement).

2. Since overseas companies can be subjects of unit crimes, they should naturally also be capable of being victim units.

The Reply of the Research Office of the Supreme People's Court on Issues Concerning the Application of Law to Crimes Committed by Foreign Companies, Enterprises, and Public Institutions Within the Territory of China (Fa Yan [2003] No. 153) explicitly provides: (1) Foreign companies, enterprises, and public institutions that meet the conditions for legal person status under Chinese law, if they commit acts endangering society within the territory of China that constitute crimes under Chinese Criminal Law, shall be held criminally liable in accordance with the provisions of Chinese Criminal Law regarding unit crimes.

On this basis, Web3 infers the following:

Since an overseas company can be a "subject of crime," it can naturally also be a "victim subject."

Potential arguments from the employee side:

1. The overseas entity does not meet the requirement of being "established within the territory in accordance with the Company Law of the People's Republic of China."

According to the Legislative Affairs Commission's interpretation of the provisions on the crime of occupational embezzlement, "company" refers only to companies established within the territory in accordance with the Company Law of the People's Republic of China. Entities registered overseas, whether Cayman Islands foundations, Singapore private limited companies (Pte Ltd), or British Virgin Islands international business companies (IBC), do not fall within this scope.

Therefore, the employee is not a "staff member of a unit" and does not meet the subject requirements for constituting this crime.

2. From a policy perspective, virtual currency business is identified as illegal financial activity within China, and its subjects are not eligible for protection under criminal law.

According to the September 24 Notice, if the business scope involves project parties issuing tokens or virtual currency exchanges, such activities should be identified as illegal financial activities. Under domestic policies regarding virtual currencies, the Web3 entities involved in the case belong tocompanies or enterprises established for the purpose of committing illegal or criminal acts,and therefore, the aforementioned provisions (Fa Yan [2008] No. 79) do not apply.

3. Judicial practice emphasizes "strict application" and must not breach the statutory boundaries defining the scope of units.

The spirit of the document cited in Argument 2 raised by the aforementioned Web3 enterprises aims to protect legal interests of the People's Republic of China; thus, an expanded interpretation was applied, which has been clarified by relevant judicial interpretations.

However, it should be noted that when an enterprise is claimed to be the "victim entity" in the crime of occupational embezzlement, the standard of review cannot be simply analogized to the expansive interpretation of the "subject of unit crime." Whether an entity can qualify as a victim entity must still be determined by returning to the provisions of the Criminal Law itself and strictly applying the statutory scope of "units."

For example, in the case of Wang Moumou for occupational embezzlement (Case No. 116 [2018] Xing Chu, Shaan 0116), the court held that Hong's Condiment Factory was an individual industrial and commercial household and did not possess the characteristics of a "unit" under the Criminal Law, resulting in a not-guilty verdict for the defendant. This case also illustrates that whether an entity can become a "victim entity" in the crime of occupational embezzlement requires explicit legal provisions. The case further demonstrates that the qualification of a "victim entity" in the crime of occupational embezzlement must have a clear statutory basis and cannot rely on teleological interpretation or expansive interpretation to extend its scope.

Concluding Remarks

In summary, whether overseas Web3 project parties and virtual currency exchanges can be recognized as "victim entities" under the framework of China's Criminal Law does not lend itself to a simple "yes" or "no" answer. Differences in entity types, differences in legal attributes, whether the entity was established in accordance with the law, and whether its business activities fall within the scope of "illegal financial activities" will all influence the final determination by judicial authorities.

This is why, in similar cases, the prosecution and defense often present markedly different legal arguments.

From the enterprise's perspective, the aim is to seek protection under criminal law to hold employees accountable for embezzlement;
From the defense's perspective, it is essential to strictly examine whether the "unit status" meets the statutory requirements.

These disputes themselves indicate that the issue of interface between overseas entities and China's criminal law system remains in the process of continuous exploration through judicial practice.