Attorney Shao Shiwei | Can Offshoring a Project Evade Chinese Jurisdiction? Compliance Misconceptions Web3 Entrepreneurs Cannot Ignore →

Why Do Most Web3 Projects Choose to Go Global? The Survival Logic Under Regulatory Background

For most entrepreneurs, the core demand in the early stage is simply "to survive first." While compliance appears important, it is often deprioritized during the early stages characterized by tight resources and urgent timelines.

However, entrepreneurs with long-term plans will focus on regulatory policies earlier, understand legal boundaries, determine what can and cannot be done, and thereby decide how the project should be structured and where it should be located.

Otherwise, the consequences of stepping on landmines can be severe. We have encountered a Web3 project that lasted only 13 days from inception to closure, serving as a typical negative case study under a high-pressure regulatory environment.

So, what are the key regulatory documents regarding Web3 in China that project technical leads must prioritize? Although there are numerous relevant policies, if viewed solely from the perspective of criminal risk prevention, focusing on the following two is sufficient:

• The "Announcement on Preventing Risks Associated with Token Issuance and Financing" issued in 2017 (the "September 4 Announcement")

• The "Notice on Further Preventing and Disposing of Risks Related to Virtual Currency Trading and Speculation" issued in 2021 (the "September 24 Notice")

The core spirit of these two policy documents is to prohibit Initial Coin Offerings (ICOs) and explicitly classify virtual currency-related businesses as illegal financial activities.

In particular, the September 24 Notice is directly referred to by the industry as the "strictest regulatory document." It not only explicitly states that virtual currency trading activities are illegal but also clearly stipulates that "overseas virtual currency trading platforms engaged in related businesses shall not provide services to residents within mainland China."

It is precisely for this reason that most Web3 projects choose to "go global" to evade risks.

But the question arises: If a project truly goes global, is it really safe?

Can Going Global Evade Chinese Law? Analysis of Common Misconceptions Among Technical Leads

Many project teams actively consult lawyers at the startup stage: In which country should the company be registered? Should one choose the Cayman Islands, the British Virgin Islands (BVI), or Singapore? Should one establish a foundation or a parent-subsidiary structure? These questions appear to be corporate strategy issues, but they often hide a core assumption behind them—the belief that "registering overseas allows one to evade Chinese law."

However, based on our team’s experience in handling multiple criminal cases, we must clearly point out: While offshore structures indeed play a role in isolating commercial risks, optimizing taxes, and facilitating capital operations, they cannot constitute a shield exempting one from Chinese law in terms of criminal liability.

In other words, the function of an offshore structure is "commercial isolation," not "criminal protection." Its main utilities are reflected in:

• Avoiding securities law constraints from regulatory authorities in places such as the United States;

• Avoiding double taxation and optimizing global tax arrangements;

• Facilitating capital-level conveniences such as stock option incentives and financing structure design;

• Separating accounts and liabilities from entities within mainland China.

However, if the project itself involves acts expressly prohibited by Chinese law, such as illegal business operations, operating casinos, money laundering, or pyramid schemes, Chinese judicial authorities still have the right to pursue accountability under the principles of "territorial jurisdiction" or "personal jurisdiction" in China's Criminal Law, even if the corporate entity is overseas.

Whether accountability will actually be pursued constitutes a "probabilistic risk."

Therefore, when our team’s attorneys provide structural design consultations to project teams, we often return to the project itself, thoroughly understanding its business model, fund flows, and user base, rather than discussing registration locations or structural setups at the outset. Only by understanding the essence of the project can we determine whether it has a compliance foundation and provide the most practical solutions to problems.

What Does "Penetrative Enforcement" Mean? Key Dimensions Web3 Project Teams Must Focus On

In our daily work, we frequently encounter similar questions:

• If I set up the project in the Cayman Islands or Singapore, is that acceptable?

• If the project servers are abroad and not open to Chinese users, is there no issue?

• I am only a technical consultant or outsourced developer, not involved in operations nor handling funds; is there still risk?

• I found a foreign friend to serve as the nominal team founder while I operate behind the scenes; is this safer?

• If I state in the whitepaper that "services are not provided to Chinese users," am I exempt from liability?

Behind these questions lies a core misconception—a lack of understanding of the "penetrative enforcement" model adopted by Chinese judicial authorities.

The so-called "penetrative enforcement" can be understood through two basic principles: the territorial principle and the personal principle.

▶ Territorial Principle: Even if the project is registered overseas, if the following circumstances exist, it may be deemed that the "act occurred within the territory," triggering Chinese law:

• The project’s users are primarily from China (e.g., establishing Chinese-language communities, promoting the project to Chinese nationals, etc.);

• Core project members or the technical team are located within mainland China;

• There are activities such as domestic promotion, business cooperation, or settlement (even if completed through outsourcing or agency companies).

▶ Personal Principle: According to Article 7 of China's Criminal Law, Chinese citizens who commit acts abroad that "should bear criminal responsibility under Chinese law" can also be held accountable.

For example, if Chinese developers participate in building on-chain gambling platforms, virtual currency fundraising platforms, or OTC redemption channels in Dubai, they may still be investigated and prosecuted by Chinese judicial authorities if they violate relevant provisions of China's Criminal Law.

For instance, in a typical case jointly released by the Supreme People's Procuratorate and the State Administration of Foreign Exchange in 2023,Guo Mouzhao, who built an illegal currency exchange website (facilitating transactions between RMB and foreign currencies via virtual currencies), was sentenced to five years in prison for the crime of illegal business operations by the Baoshan District Court in Shanghai.。

Therefore, common manifestations of "penetrative enforcement" in the Web3 field include:

• Piercing the place of registration: Even if the company is in the Cayman Islands, BVI, or Singapore, if users and operations are in China, it may still be determined as "committing a crime within the territory";

• Piercing technical identity: Even if the technical lead holds only the status of a consultant or developer externally, as long as there are behaviors such as code submission, contract permission management, profit sharing from the project, or control of private keys, they may still be identified as the "actual controller";

• Piercing on-chain data: Regulators can confirm whether a project "serves Chinese users" or involves illegal risks such as gambling, fraud, or money laundering through on-chain tracing, Know Your Transaction (KYT) audits, user profiling, and other methods.

For technical leads, understanding the basic logic of "penetrative enforcement" is the first step in effective project risk control.

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Many people believe that simply "going global" with a project allows them to permanently escape Chinese legal regulation. However, the fact is that if a project has never undergone a legal risk assessment, it can hardly be considered safe even if located overseas.

We hope this article serves as a reminder to entrepreneurs and technical leads in the Web3 field: Whether a project has a compliance foundation depends not on where it is registered, but on whether the project itself crosses the red lines drawn by Chinese law.

Only by making risk identification a fundamental mindset in the early stages can a project go further and survive longer.