Returning to the essence of legal principles to clarify the boundary between criminal and non-criminal conduct.
With the rapid development of fintech and the internet economy, an increasing number of new “quasi-financial” transaction models have come into public view.
Examples include “binary options,” which already have guiding cases; the recently exposed business of “non-physical gold betting” conducted by three gold and jewelry companies in Shenzhen’s Shuibei area; and the multiple cases handled by our team in recent years in which virtual asset exchanges were accused of the crime of operating a casino due to their “perpetual contract” businesses.
These emerging models often operate in the gray area between financial innovation and the edge of criminal law. Regulatory lag creates significant investment risks for users. However, the key issue is that high risk does not necessarily constitute a crime.
When dealing with such cases, judicial authorities, often lacking a unified understanding, simply equate “innovative financial models” with “online gambling.”
Although Article 303 of the Criminal Law of the People’s Republic of China provides for the crimes of gambling and operating a casino, its provisions are overly simplistic and no longer suffice to provide clear and uniform standards for judging various new types of gambling-related conduct.
In the absence of uniform standards for legal application, it is of paramount importance to return to the essence of legal principles and accurately delineate the boundary between “innovative models” and “gambling activities.”
Accordingly, this article returns to the substantive aspects of criminal law to analyze:
How to accurately determine whether a platform constitutes the crime of operating a casino? What characteristics must the act of operating a casino possess?The aim is to clarify the boundary between criminal and non-criminal conduct from the perspective of legal principles.
I. Author: Attorney Shao Shiwei
01 Aleatory Nature
Before analyzing the crimes of gambling and operating a casino, we need to introduce the concept of “aleatory nature.”
What is an aleatory act? This is a legal term derived from Latin (alea, meaning dice), used to describe a special type of legal relationship whose core characteristic is that the parties’ gains or losses depend on a future uncertain and contingent event. In an aleatory act, whether a party ultimately obtains substantial benefits, minor benefits, no benefits, or suffers losses is entirely indeterminable at the time the act is performed.
“Aleatory nature” itself is a neutral concept. It has both lawful applications and unlawful forms under the law; the key lies in its specific form and social harmfulness.
Common lawfulaleatory actsinclude:
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Commercial insurance: Whether you receive insurance proceeds depends on whether an insured accident stipulated in the insurance contract and occurring by chance (such as fire or car accident) happens in the future.
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Prize-linked sales (within statutory limits): Whether you win a prize and what type of prize you win depend on the contingent results of a lottery draw.
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Financial derivatives (such as options and futures): Their profits and losses are linked to the future uncertain price fluctuations of the underlying assets.
Forms prohibited or restricted by law are reflected in:
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Gambling/betting activities: The outcome depends entirely on contingent factors such as lotteries, card points, or match results.
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Illegal fundraising, Ponzi schemes, and other illegal financial activities: These often exploit people’s speculative desire for “overnight riches” by promising high returns.
Thus, aleatory character is merely the logical starting point for assessing gambling-related conduct, not a sufficient condition for criminal conviction.
Criminal law is concerned not with the mere existence of risk, but with the social harm and profit structure underlying that risk. Therefore, understanding aleatory character is the first step in distinguishing financial innovation from gambling.
02 Gambling Conduct
A prerequisite for determining whether a model constitutes the crime of operating a casino is whether the model itself amounts to gambling. For example, if judicial authorities allege that a virtual asset exchange commits the crime of operating a casino, they must first demonstrate why its contract-trading module constitutes gambling.
Accordingly,how should one determine whether the model at issue constitutes gambling?In prior business research on blockchain-based games and online live-streaming platforms involving gambling, Attorney Shao has repeatedly stated that the hallmarks of gambling-related models are: paid input + random gameplay + cash-out. The following explanation uses games as an example:
1. Paid Input：
Players obtain virtual items, points, or eligibility to participate in the game by placing direct bets, purchasing chips, or buying specific items or tickets. Participants must incur valuable, quantifiable costs; inputs without value (such as free in-game coins) do not constitute paid input for purposes of gambling.
2. Random Gameplay:
The core lies in aleatory character: the process and outcome of the game are determined primarily or entirely by chance factors beyond the participants’ control. Uncertainty of outcome is key to attracting participation. Careful attention should be paid to calibrating the degree of randomness:
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Purely random: The outcome is entirely unpredictable. Examples include the reels of a slot machine, the result of rolling dice, and the moment of drawing cards in a gacha mechanic.
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Mix of skill and randomness: However, randomness occupies a dominant or decisive position. Examples include poker (although skill is required, the quality of the initial hand is random) and mahjong (similarly, luck in drawing tiles is fundamental).
If the outcome of an activity primarily depends on an individual’s skill, knowledge, or physical ability (such as basketball games or chess matches), it should be regarded as a competitive sport rather than gambling, even if there are entry fees and prizes.
For example, perpetual contracts have been deemed by judicial authorities to involve gambling because investigators simplistically and crudely assumed that contracts amount to guessing the rise or fall of virtual currency prices, which involves randomness, and therefore constitute online gambling. However, if users’ profits and losses stem from market fluctuations rather than human-manipulated outcomes, and users have room for independent judgment and trading decisions, we are more inclined to view the contract model as closer to financial trading rather than gambling.
3. Cash-out Mechanism:
This refers to the opportunity for participants to directly or indirectly, and stably, convert their “achievements” in the game into legal tender or property of actual value. This transforms the entire activity from a game into a financial loop. There are three types of cash-out mechanisms:
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Official direct buyback: The platform has a “withdrawal” function that allows players to exchange their chips for cash.
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Third-party “silver merchants”: The platform itself does not directly redeem credits, but there exists a group of “silver merchants” who are tacitly permitted or even cooperate with the platform, providing two-way exchange between in-game currency and cash. In judicial practice, it is widely held that if the platform is aware of the existence of “silver merchants” and fails to stop them, it can be deemed that the platform has provided a channel for cashing out.
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Redemption for physical prizes: Exchanging won points for high-value goods (such as mobile phones or gold jewelry), the value of which far exceeds the cost of participation.
If there are only virtual outputs within the game that cannot be stably converted into real-world wealth, the activity is more likely to be recognized as entertainment rather than gambling.
However,Even if the model involves gambling, do the organizers and operators of the platform necessarily constitute the crime of operating a casino?Attorney Shao opines that, for the crime of operating a casino, the involved scheme must necessarily constitute gambling; however, the fact that the involved scheme constitutes gambling does not automatically amount to the crime of operating a casino. In other words,a gambling-related scheme is a necessary but insufficient condition for constituting the crime of operating a casino.(Precisely for this reason, if the involved scheme does not constitute the crime of operating a casino and, at the same time, does not fall within the scope of conduct targeted by the crime of gambling, namely "those who gather crowds to gamble or make gambling their profession," thenthe actor does not commit a crime.）。
The closed loop of "paid entry + random gameplay + cash payouts" constitutes a requisite behavioral element for a scheme to be considered gambling-related. However, this requisite element does not mean that the platform involved and its relevant operators and organizers constitute the crime of operating a casino. The crime of operating a casino targets conduct that organizes, scales up, and commercializes gambling activities, with its core lying in the actor providing a continuous, stable, and open gambling platform and deriving profit therefrom.
Therefore, if the involved scheme meets the characteristics of the crime of gambling but does not satisfy the constituent elements of the crime of operating a casino, a defense arguing for the lesser offense of gambling may be pursued, depending on the circumstances of the individual case.
03 Crime of Operating a Casino
With respect to the definition of the crime of operating a casino, Article 303 of the Criminal Law does not provide an explicit stipulation. However, the 2010 Opinions on Several Issues Concerning the Application of Law in Handling Criminal Cases of Online Gambling enumerated circumstances constituting the operation of a casino and those deemed serious. Combining criminal law theory and judicial practice, this section summarizes the criteria for determining the crime of operating a casino in judicial practice.
Where gambling videos or data are transmitted via the internet, mobile communication terminals, or other means to organize gambling activities, any of the following circumstances shall be deemed conduct of "operating a casino" as prescribed in Paragraph 2 of Article 303 of the Criminal Law:
(1) Establishing a gambling website and accepting bets;
(2) Establishing a gambling website and providing it to others for organizing gambling;
(3) Acting as an agent for a gambling website and accepting bets;
(4) Participating in the profit-sharing of gambling websites.
Where any of the following circumstances exists in the commission of the acts prescribed in the preceding paragraph, it shall be deemed as "serious circumstances" as stipulated in Paragraph 2 of Article 303 of the Criminal Law:
(1) The cumulative amount of profits taken from the house rake reaches RMB 30,000 or more;
(2) The cumulative amount of gambling funds reaches RMB 300,000 or more;
(3) The cumulative number of gamblers reaches 120 or more;
(4) After establishing a gambling website, 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 gambling websites, with illegal gains amounting to RMB 30,000 or more;
(6) Recruiting sub-agents for gambling websites, where such sub-agents accept bets;
(7) Soliciting minors to participate in online gambling;
(8) Other circumstances constituting serious violations.
To determine whether a platform may be deemed as "opening a casino," the primary step is to assess whether the activity involves aleatory elements and satisfies the three constituent elements of gambling. On this basis, two key factors must be further examined: whether the platform meets the subjective intent and objective conduct required for the crime of opening a casino.
1. Subjective Intent: Profitability.
The so-called "for the purpose of profit" refers to organizers obtaining economic benefits, directly or indirectly, through their own business operations in various ways. The most typical method is taking a cut from the stakes (commonly known as "rake"). In traditional gambling, organizers usually extract fees from the total amount wagered in each round or from the winnings of the winners, based on a fixed proportion or amount.
For example, collecting a 5% "table fee" from winners in mahjong or poker games; in online gambling, platforms automatically deduct a certain percentage as a "service fee" from the prizes of winners in each round. However, it must be emphasized that taking a cut from the stakes is not the only way to generate profit. Even if there is no direct extraction from gambling funds, as long as the organizer profits from the gambling activity itself or related links, it can still be regarded as having a profit-making purpose. Such profit-making methods are often more diversified in new types of gambling-related models: for example, betting against players as the "house," or indirectly profiting through recharge channels, rebate mechanisms, advertising promotions, or fund circulation links.
For lawyers, it is precisely these diversified profit paths that constitute the key points requiring in-depth study in defense strategies. The crux of the defense lies in demonstrating whether such profits originate from legitimate business operations or from the gambling activities themselves.
For instance, in a case involving the operation of a casino by a virtual asset exchange that I handled, judicial authorities classified various handling fees and funding rates collected within the contract module of the virtual asset exchange as income from operating a casino. However, handling fees are normal operational income for the platform. As long as the platform genuinely facilitates transactions, with clear sources and transparent structures for these fees, they should not be classified as illegal income. Funding rates are periodically paid between long and short positions, with the platform acting merely as a settlement intermediary. Therefore, judicial authorities classifying such income as "rake from gambling funds" clearly reflects a misunderstanding by the investigating organs of the operational mechanism of perpetual contracts.
2. Objective Conduct: Public Nature and Indeterminacy of the Organization.
From an objective perspective, the crime of operating a casino requires the perpetrator to provide gambling conditions that enable gambling activities to be conducted on a continuous, stable, and large-scale basis. This includes providing venues, funds, technical support, account systems, settlement tools, or opening channels for participation to an unspecified majority of people through online platforms.
However, in practice, judicial organs often exhibit a "preconceived" mental judgment. For example, during interrogations, they directly define the involved platform as a "gambling platform" and broadly classify the platform's operating revenue as gambling funds. This presumptive classification overlooks the true structure behind the transaction model.
For example, in the recent investigation of gold and jewelry companies in the Shuibei area, these companies were accused of conducting "non-physical gold betting" businesses through online platforms under the guise of trading gold. From the perspective of case handling, it is still necessary to first prove whether this type of financial transaction model constitutes gambling. Only on this basis can it be argued whether such conduct constitutes the crime of operating a casino. Lawyer Shao believes that the pre-priced gold transactions in the Shuibei market determine users' profits and losses based on market fluctuations of gold on the maturity date, rather than being artificially set. Therefore, this model is closer to a price risk hedging mechanism and should not be simply categorized as gambling behavior.
Summary: The Relationship Among Aleatory Nature, Gambling, and the Crime of Operating a Casino
In summary, there is a progressive intrinsic relationship among aleatory nature, gambling, and the crime of operating a casino.
If the outcome of an activity depends primarily on the participants' skill, experience, or judgment rather than on chance, it should be regarded as a competitive or trading activity, not gambling, even if there are monetary inputs and prize outputs. Only when an activity exhibits significant aleatory characteristics—meaning the outcome relies mainly on luck, chance, or other uncertain factors—does it possess the essential features of gambling. In other words, aleatory nature is the logical starting point for defining gambling and the basis for legal analysis.
However, the presence of aleatory nature in an activity does not necessarily mean it has crossed the boundary of criminal law. The object regulated by criminal law is not all behaviors involving chance, but those that socialize and sustain aleatory activities through organization, operation, and profit-making. Only when aleatory behavior is organized and operated for the purpose of profit does it evolve into "gambling" in the sense of criminal law, and may further constitute "operating a casino."
Therefore, aleatory nature reveals the logic of risk, gambling reflects behavioral characteristics, and operating a casino marks the elevation of such conduct to the level of social harm.
Understanding the relationship among these three concepts helps clarify legal boundaries when dealing with new types of gambling-related cases:
Not every transaction involving aleatory elements constitutes gambling, nor does every gambling-related act amount to operating a casino. Criminal risk is truly triggered only when aleatory nature is combined with profit-seeking intent and organizational structure.
04 Concluding Remarks:
Against the backdrop of the new economy, various innovative gameplay mechanics and transaction models continue to emerge, prompting ongoing reflection on where exactly the boundaries of law and regulation lie.
Attorney Shao believes that legal assessment should delve into the substance of business models, rather than remaining at a superficial understanding of their outward appearances.
Thus, when handling cases involving suspected operation of casinos in novel business models, lawyers must both deeply engage with the industry and demonstrate the rationality of the platform’s commercial logic, while also returning to first principles by closely adhering to the essence of legal doctrine and integrating business analysis with legal judgment. Only in this way can defense arguments be truly understood and accepted by case-handling authorities.
