Lawyer Shao Shiwei | A Criminal Charge That Crypto Entrepreneurs Must Pay Particular Attention To — Illegal Use of Information Networks (Part II)

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When it comes to the crime of aiding information network criminal activities (hereinafter referred to as the "crime of aiding information network criminal activities"), many people may be familiar with it. Since the Supreme People's Court and the Supreme People's Procuratorate issued a judicial interpretation in 2019 clarifying the filing standards for the crime of aiding information network criminal activities, and since the "card-breaking" campaign was widely carried out across the country in 2020, the large-scale application of the crime of aiding information network criminal activities has been promoted, and it has thus become well known to most people.

However, Article 287 of the Criminal Law actually provides for two crimes: one is the crime of aiding information network criminal activities, and the other is the crime of illegally using information networks (hereinafter referred to as the "crime of illegally using information networks"). As for the crime of illegally using information networks, it is a relatively unfamiliar crime to the vast majority of people, and even to many lawyers.

Many Web3 entrepreneurs may be aware of common-sense legal rules such as that exchanges cannot be operated, tokens cannot be issued, and mining cannot be conducted in China,but they generally do not consider the publication and promotion of information related to the crypto industryto involve legal risk.

However, based on my experience in handling criminal cases in the crypto industry involving this crime, Web3 entrepreneurs must pay particular attention to such a "niche" crime.

Author | Attorney Shao Shiwei

For the first part of this article, please see ➡️:

A crime that crypto industry entrepreneurs must pay particular attention to — the crime of illegally using information networks (Part I)

Continuing from the previous article.

01 What is the crime of illegally using information networks?

2. Identifying which crypto-industry business models may be suspected of the crime of refusing to fulfill information network security management obligations, based on the 24 September Notice

Article 3:

Strengthen the management of internet information content and access relating to virtual currencies. Internet enterprises must not provide online business premises, commercial display, marketing and promotional services, paid traffic diversion, or other such services for virtual-currency-related business activities; where they discover leads on violations of laws or regulations, they shall promptly report them to the relevant authorities and provide technical support and assistance for the relevant investigations and investigative work. The cyberspace and telecommunications authorities shall, based on leads referred to them by the financial management authorities, promptly shut down, in accordance with law, websites, mobile applications, mini-programs, and other internet applications that carry out virtual-currency-related business activities.

This provision regulates the business conduct of internet enterprises. Compared with the two provisions above, the content of this provision is more closely aligned with the conduct patterns prescribed by the crime of refusing to fulfill information network security management obligations, becausethe most distinctive feature that distinguishes the crime of refusing to fulfill information network security management obligations from other offenses is the use of information networks, and the dissemination of information is carried out solely through online network means.

Although Lawyer Shao has previously handled cases in which Web platforms/project parties were arrested by police on the charge of refusing to fulfill information network security management obligations for engaging in the relevant business described in this provision,I still believe that if the conduct stipulated in this provision were criminalized, it would violate the modesty and restraint that criminal law ought to possess, and its scope of impact would be very broad and alarming.

Providing online business premises:

The "online business premises" of a Web3 platform or project usually refers to a virtual venue provided through the internet for the sale of goods or services, such as websites, mobile applications, mini-programs, and other online platforms. "Providing online business premises" refers to providing the necessary online platform or space for network-related commercial activities. This may include different types of services and environments, depending on the nature of the business.

Commercial display:For example, where an internet enterprise charges advertising fees or other cooperation fees from a Web3 platform or project party and publishes information on virtual currency exchanges, DeFi, NFTs, digital wallets, blockchain games (GameFi), coin types and coin prices, etc., to display the Web3 project or platform.

Marketing and promotion:For example, internet companies may enhance the visibility of Web3 projects or platforms through advertising, content marketing, social media promotion, and email marketing, and stimulate potential users' investment interest.

Paid traffic diversion:For example, creating dedicated advertising or promotional placements for Web3 projects or platforms and leveraging the platform's traffic advantages to attract potential customers; using the platform's algorithmic recommendation system to recommend product or service information of Web3 projects or platforms to target user groups; and providing display opportunities for Web3 projects or platforms in various events held by the platform.

02 Reflections of a Web3 criminal lawyer

Since the earliest Notice on Preventing Bitcoin Risks issued in 2013 by the People's Bank of China and other five ministries and commissions, China has maintained a strict regulatory stance on virtual currencies and related business activities. Subsequent regulatory authorities have continued to issue new rules, such as the 2017 Announcement on Preventing Risks from Token Issuance and Financing (Announcement No. 94), the 2021 Notice on Rectifying Virtual Currency "Mining" Activities, and the 2022 Initiative on Preventing NFT-Related Financial Risks.

It should be noted, however, that Announcement No. 94, the 924 Notice, and similar documents are normative documents at the level of legal effect, rather than [laws or administrative regulations]. The circumstance constituting the crime of refusing to perform information network security management obligations is that the established website or group carried out illegal or criminal activities, or published information related to illegal or criminal activities. The "illegal or criminal activities" in that offense, according to the following judicial interpretation of the Supreme People's Court and the Supreme People's Procuratorate, is limited to criminal acts and illegal acts that fall within the types of conduct prescribed by the Specific Provisions of the Criminal Law but have not yet constituted a crime.

Therefore,from the perspective of legal doctrine and the level of legal effect, Announcement No. 94, the 924 Notice, and similar documents are insufficient as a basis for determining that an actor is suspected of a crime.

Interpretation of the Supreme People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Application of Law in the Handling of Criminal Cases Involving Illegal Use of Information Networks and Assisting Information Network Criminal Activities

Article 7: "Illegal or criminal" as provided in Article 287-1 of the Criminal Law includes criminal acts and illegal acts that fall within the types of conduct prescribed by the Specific Provisions of the Criminal Law but have not yet constituted a crime.

In addition, although various policies emphasize that virtual currency-related business constitutes illegal financial activity, even if a project in the cryptocurrency space is characterized as "illegal financial activity," the project itself cannot be equated with illegal or criminal activity under the Criminal Law; rather, it must still be analyzed based on its own business model.

If a project is a legitimate crypto industry project and is issued overseas, such as a blockchain gaming platform, and users invest substantial funds through VPN circumvention and ultimately suffer losses, then under the 924 Notice and similar rules, the resulting risks should be borne by the users themselves, and the platform's business operations are not illegal or criminal activities; accordingly, this offense should not apply to relevant entities that provide marketing, promotional, commercial display and similar services for the platform.

If a project is a fraudulent platform that raises funds and then absconds, and victims have indeed suffered financial losses as a result of being defrauded, or if a project is a pyramid scheme platform or gambling platform targeting domestic users, this offense may apply to relevant entities that provide marketing, promotional, commercial display and similar services for the platform.

03 Lawyer Shao notes:

The crime of illegally using information networks is, for Web3 entrepreneurs, actually aseemingly distant yet very closeoffense.

Some friends in the crypto industry may see this article as a criminal lawyer's "intimidation," but that is really not the case. Some people can only see that this article is an interpretation of legal provisions, but others can understand that what I am actually discussing are the real cases behind it.

In short, whether you are a KOL in the crypto industry, a community owner providing paid knowledge services, an intermediary matching virtual currency transactions, or a crypto news platform, a third-party entity engaging in commercial cooperation with Web3 project parties and providing traffic diversion and marketing services, and so on, in the course of your own operations you must, on the basis of a deep understanding of domestic policies, carry out business activities in compliance and guard against legal risks.

That is all for now.