Attorney Shao Shiwei | Can Operating Costs Be Deducted from the Amount of Illegal Gains in Cases of Opening a Casino?

The final determination of the amount of illegal gains affects the disgorgement amount ordered in the judgment for defendants in casino-operating cases. Therefore, it is significant for defense counsel to raise relevant defense arguments.

Whether cost expenditures should be deducted from the amount of illegal gains is not expressly provided by law with respect to the offense of operating a casino. In judicial practice, there are mainly three viewpoints:

• Viewpoint 1: “Gross Profit Theory,” which holds that cost expenditures should not be deducted.

• Viewpoint 2: “Net Profit Theory,” which holds that cost expenditures should be deducted.

• Viewpoint 3: Synthesizing the foregoing two viewpoints, this view holds that the costs incurred by the perpetrator in the course of committing the criminal act should be further differentiated into lawful costs and unlawful costs, with lawful costs being deductible.

Attorney Shao believes that the third viewpoint is relatively more fair and objective.

How, then, is this determined in practice?

• Illegal gains should be determined based on actual profits.

Case of Xue and Others for Operating a Casino[(2019) Zhe 0782 Xing Chu No. 101]

Xue and others established a company and developed a mobile Mahjong app. The company promoted the app and expanded its brand awareness by recruiting agents and holding events. The recruited agents generated profits by selling room cards at RMB 1 per card, with agents receiving a 45%–50% commission on room card sales. The prosecution alleged that the company derived total profits of more than RMB 1.7 million from the sale of room cards.

Defense counsel’s position: Turnover is not equivalent to actual profits. Although the procuratorate alleged that the turnover in this case amounted to more than RMB 1.7 million, this case involvesthe complimentary issuance of room cardsas a factual circumstance, and the number of room cards usedsolely for playing Mahjong without gamblingshould also be deducted.

[Analysis] The court found the platform guilty of the crime of opening a casino because, although the platform itself did not directly provide gambling functions, the platform operators adopted a permissive attitude toward agents using the platform to organize players for gambling.

Regarding the defense counsel’s arguments, the court ultimately accepted that “complimentary room cards” (such as those issued by the gaming platform as compensation, provided as compensation for company system upgrades, or gifted to players during promotional activities) should be deducted. However, “room cards used purely for gameplay” were still treated as illegal gains and were not deducted.

• Costs and expenses should be deducted from illegal gains

Case of Yang and Others for Opening a Casino[(2021) Xiang 0626 Criminal First Instance No. 94]

The mahjong app operated by Yang was involved in gambling. According to statistics, Yang received a total of RMB 5.79 million. After deducting the wages paid to technical staff, the remaining amount was RMB 5.09 million. After further deducting office expenses, the amount stood at RMB 4.7 million.

The court ultimately ruled that Yang’s illegal gains of RMB 4.7 million be recovered and turned over to the state treasury.

[Analysis] In this case, the court held that the defendant’s purpose in developing the app was to provide conditions for gamblers. Therefore, all recharge amounts from the commencement of operations until the case was uncovered were deemed illegal gains. Nevertheless, expenditures such as staff wages and office costs were deducted.

• Costs and expenses should not be deducted from illegal gains

Case of Zeng and Others for Opening a Casino[(2019) Yu 0154 Criminal First Instance No. 394]

The court held that criminal costs incurred by the defendants for opening a casino, such as rent and workers’ wages, would inevitably reduce the defendants’ actual illegal gains. However, it was precisely the incurrence of these costs that facilitated the completion of the act of opening a casino in this case. In this sense,The expenditure of costs associated with criminal conduct is itself socially harmful, and unlawful. A circumstance that is socially harmful should not be encouraged or supported by law. In accordance with the legal principle that "criminals shall not be allowed to obtain any benefit from the commission of crimes," the defendant's expenditures for the purpose of operating a casino, includingrent and workers' wages, constitute costs of criminal conductand shall not be deducted from the amount of illegal gains.

[Analysis] This view represents the prevailing position in judicial practice.

The above three cases correspond to the three different views described above.

There are ten provisions in the Criminal Law of the People's Republic of China that refer to "illegal gains."

Pursuant to Article 64 of the Criminal Law, "all property obtained by criminals as illegal gains shall be recovered or ordered to be returned or compensated."

The nine offenses in the Specific Provisions that involve "illegal gains" are: the crime of relending at usurious rates; the crime of insider trading and divulging inside information; the crime of selling commodities bearing counterfeit registered trademarks; the crime of copyright infringement; the crime of selling infringing copies; the crime of illegal business operations; the crime of organizing others to secretly cross national (border) lines; the crime of transporting others to secretly cross national (border) lines; and the crime of bribery.

Summarizing the specific provisions in the aforementioned articles, the references to "illegal gains" in the Criminal Law can be categorized into three functions:

1. Determining the amount of illegal gains (Article 64 of the Criminal Law)

2. The amount of illegal gains serves as a condition for conviction. For example, in the crime of transporting others to illegally cross national (border) boundaries, if the amount of illegal gains is huge, the offender shall be sentenced to fixed-term imprisonment of not less than five years but not more than ten years (Article 321 of the Criminal Law).

3. It provides a calculation standard for fines. For example, in the crime of illegal business operations, a fine of not less than one time but not more than five times the amount of illegal gains shall be imposed concurrently (Article 225 of the Criminal Law).

The Opinions on Several Issues Concerning the Application of Law in Handling Criminal Cases of Online Gambling stipulate circumstances constituting serious offenses for operating online casinos, including: "(4) establishing a gambling website and providing it to others for organizing gambling activities, with illegal gains amounting to RMB 30,000 or more; (5) participating in the profit-sharing of a gambling website, with illegal gains amounting to RMB 30,000 or more..." In the context of the crime of operating a casino, the function of "illegal gains" aligns more closely with the second category mentioned above.

Based on the relevant provisions below, it can be seen that "illegal gains" refer to the profits remaining after deducting reasonable costs and expenses. Therefore, Attorney Shao believes that for other crimes where the law provides detailed regulations on illegal gains, the principle of systematic interpretation of law [1] should be followed, applying the same logic by analogy, meaning that costs should be deducted.

Of course, there are also relevant provisions stating that "illegal gains" refer to "any property generated or obtained directly or indirectly through the commission of a crime." However, upon search, only the following three provisions contain such definitions, and they are all procedural provisions. Regarding this, Attorney Shao believes:

1. If there are no explicit provisions in the substantive law regarding specific crimes, then the provisions in procedural law are like "castles in the air," lacking a basis for implementation;

2. The following provisions apply only to cases handled by state security organs, or to special circumstances where the suspect or defendant has absconded or died, and cannot be generally applied to all crimes.

This article analyzes the issue from both practical case studies and jurisprudential perspectives. Regarding the question of whethernecessary cost expenditures should be deducted from the amount of illegal gains, Attorney Shao tends to believe that, in the absence of explicit provisions, the principle of systematic interpretation should be followed; that is, reasonable expenditures should be considered for deduction when calculating illegal gains.

In cases involving the crime of opening a casino, there are differing views in practice. Therefore,for each individual case, we must conduct a specific analysis of the specific circumstances, striving to argue for the necessity and reasonableness of deducting relevant amounts, so as to safeguard the legitimate rights and interests of the client to the greatest extent possible.

[1] Systematic interpretation of law is an important method in legal hermeneutics. This interpretive approach emphasizes the intrinsic connections and mutual coordination among legal norms to ensure the unity and effectiveness of the law, with the aim of ensuring the applicability and fairness of the law and avoiding contradictions in interpretation.

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