Attorney Shao Shiwei | A Criminal Charge That Crypto Entrepreneurs Must Pay Special Attention To—The Crime of Illegally Using Information Networks (Part I)

 

The crime of aiding information network criminal activities (hereinafter referred to as the “Aiding Crime”) is likely familiar to many. Since the Supreme People’s Court and the Supreme People’s Procuratorate issued judicial interpretations in 2019 clarifying the thresholds for initiating investigations into the Aiding Crime, and given the nationwide “Card-Breaking” campaigns extensively carried out across China starting in 2020, the large-scale application of the Aiding Crime has made it widely known.

However, Article 287 of the Criminal Law actually prescribes two distinct offenses: one is the Aiding Crime, and the other is the crime of illegally using information networks (hereinafter referred to as the “Illegal Use Crime”). For the vast majority of people, and even for many lawyers, the Illegal Use Crime remains a relatively unfamiliar offense.

Many Web3 entrepreneurs may be aware of basic legal prohibitions in China, such as the bans on operating cryptocurrency exchanges, issuing tokens, and mining. However, they generally do not perceive legal risks associated with publishing and promoting crypto-related news and information.

Nevertheless, based on my prior experience handling criminal cases in the crypto sector involving this offense, Web3 entrepreneurs must pay particular attention to this seemingly “niche” charge.

 

Author | Attorney Shao Shiwei

 

 

01

What Is the Illegal Use Crime?

1. Provisions on the “Illegal Use Crime” in the Criminal Law

Article 287-1 of the Criminal Law contains three paragraphs regarding the Illegal Use Crime. The first paragraph sets out three scenarios constituting the Illegal Use Crime, which can be briefly summarized into two categories of conduct: one involves establishing websites or communication groups, and the other involves publishing information. The second paragraph provides for corporate liability for this offense. The third paragraph stipulates that where multiple offenses are implicated, the heavier penalty shall apply.

Criminal Law Article 287-1: Crime of Illegally Using Information Networks

Whoever uses an information network to commit any of the following acts, if the circumstances are serious, shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention, and shall also be fined or separately fined:

(1) Establishing websites or communication groups for the purpose of carrying out fraud, imparting criminal methods, producing or selling contraband or controlled items, or other illegal or criminal activities;

(2) Publishing information concerning the production or sale of contraband or controlled items, such as drugs, firearms, or obscene materials, or other information related to illegal or criminal activities;

(3) Publishing information for the purpose of carrying out illegal or criminal activities such as fraud. Where an entity commits the offense specified in the preceding paragraph, the entity shall be fined, and the persons directly in charge and other directly responsible personnel shall be punished in accordance with the provisions of the first paragraph. Where the acts described in the preceding two paragraphs also constitute other crimes, conviction and punishment shall be imposed in accordance with the provisions prescribing the heavier penalty.

 

However, for Web3 entrepreneurs, merely reviewing the aforementioned provisions of the Criminal Law may provide no clear understanding of the crime of illegally providing information services for criminal activities (hereinafter “Non-Information Crime”). They may even feel that this regulation is irrelevant to them because their projects do not involve illegal or criminal activities, nor do they engage in fraud. This perception arises because relevant policies in China characterize virtual currency–related businesses as “illegal financial activities.” Consequently, individuals in the virtual currency industry and judicial authorities may have fundamentally different interpretations of the legality of virtual currency projects.

By reference to the relevant provisions of the Notice on Further Preventing and Disposing of the Risks of Virtual Currency Trading and Speculation (the “924 Notice”) issued by ten ministries and commissions in 2021, one can gain a deeper understanding of why Web3 entrepreneurs must pay particular attention to this offense.

2. Identifying Virtual Currency Business Models Suspected of Constituting the Non-Information Crime in Light of the 924 Notice

Clause 1:

Virtual currency–related business activities constitute illegal financial activities. Engaging in exchange services between fiat currencies and virtual currencies, exchange services among virtual currencies, acting as a central counterparty for buying and selling virtual currencies, providing information intermediary and pricing services for virtual currency transactions, token issuance and financing, and trading in virtual currency derivatives, among other virtual currency–related business activities, are suspected of constituting illegal financial activities such as the illegal sale of token vouchers, unauthorized public offering of securities, illegal operation of futures business, and illegal fundraising. Such activities are strictly prohibited and shall be resolutely banned in accordance with the law. Where conducting such illegal financial activities constitutes a crime, criminal liability shall be pursued in accordance with the law.

 

[Interpretation by Attorney Shao]

Virtual currency “related business activities” constitute illegal financial activities—what does “related business” refer to?The ambiguity and breadth of the policy provisions afford judicial authorities considerable discretion in interpreting the legality of related business models.

For example, the “information intermediary and pricing services” mentioned in the Notice typically refer to situations where certainplatforms or service providers offer services to both parties to a transaction, such as publishing and transmitting transaction information and determining prices.Such services may include, but are not limited to,displaying information such as market prices, trading volumes, and market trends of virtual currencies,as well as potentialtrade-matching services.

If interpretednarrowly, this provision should be understood as prohibiting domestic on-exchange trading activities involving virtual currencies and prohibiting central counterparties from buying or selling virtual currencies. Apart from virtual currency trading platforms, for example, administrators of certain WeChat groups or Telegram groups who act as "credit guarantors" for bilateral transactions and charge service fees would also be deemed to be acting as a "central counterparty facilitating trades".

If interpretedbroadly, even if a project or platform does not engage in the aforementioned direct trade-matching activities, but provides parties with information such as market prices, trading volumes, and market trends of virtual currencies, thereby playing an indirect role in facilitating and matching transactions between parties, such conduct may also be construed by judicial authorities as the project or platform providing information intermediary and pricing services for virtual currency transactions.

In practice, judicial authorities will assess the specific conduct of the parties involved and, in light of the circumstances constituting the crime of illegally utilizing information networks under the Criminal Law, bring charges alleging suspicion of this offense on the grounds that the party "published information concerning illegal or criminal activities" or "published information to facilitate illegal or criminal activities such as fraud."

Clause 2:

Overseas virtual currency exchanges that provide services to residents within the territory of China via the Internet likewise constitute illegal financial activities. For domestic personnel of such overseas virtual currency exchanges, as well as legal persons, unincorporated organizations, and natural persons who, knowing or should have known that they were engaged in virtual currency-related business, still provided them with services such as marketing and publicity, payment and settlement, and technical support, relevant liabilities shall be pursued in accordance with the law.

 

[Interpretation by Attorney Shao]

The subjects regulated by this provision fall into the following three categories:

Domestic personnel of overseas exchanges;

Domestic service providers for overseas exchanges (such as third-party technical outsourcing, media and public relations, and bank settlement);

Those who, knowing or should have known that a certain entity was engaged in virtual currency-related business (excluding exchange business), still provided it with services such as marketing and publicity, payment and settlement, and technical support.

The first half of this provision enumerates the acts conducted by domestic and foreign entities serving exchanges. The second half is, in substance, an open-ended and vague catch-all provision that prohibits the provision ofmarketing and publicity, payment and settlement, technical supportand other services to entities involved invirtual currency-related business.

 If one engages in the conduct described in this provision, from the perspective of judicial authorities, consideration will be given to whether it is more appropriate to apply the crime of aiding information network criminal activities or the crime of illegally providing intrusion or control programs and tools. However, from the perspective of the parties involved, there is little difference regardless of which charge is applied, as the maximum sentence for both offenses is three years. From the perspective of defense counsel, if the public security organs initially initiate investigation under a more serious charge (such as fraud), and after intervening and understanding the facts of the case, it is found that there is no room for a not-guilty defense, counsel may consider proposing that the case be characterized as the crime of aiding information network criminal activities or the crime of illegally providing intrusion or control programs and tools,so as to strive for a more favorable defense outcome.

That concludes today’s draft; I will continue writing tomorrow.

                                                                                                                                                                                       (This article was drafted while on a business trip in Inner Mongolia.)

 

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