Introduction
Recently, I encountered two consultations regarding practitioners in the crypto industry who may be suspected of embezzlement crimes, so it is necessary to write a brief article addressing this issue for analysis, aiming to provide reference for ordinary employees or executives in the crypto industry, clarify legal red lines, and build web3 positively together.
I. Dissecting the Criminal Composition of Embezzlement
From the perspective of our laws (Criminal Law), the crime of embezzlement is not actually complicated—staff of a company, enterprise, or other unit (subject identity) use their position to illegally possess the property of their unit, with a relatively large amount (objective behavior). There are three levels of prison terms for embezzlement: for general circumstances, a fixed-term imprisonment of not more than three years; for particularly large amounts, a fixed-term imprisonment of more than three years but less than ten years; and for especially large amounts, a fixed-term imprisonment of more than ten years or life imprisonment (behavioral consequences).
According to relevant judicial interpretations, the filing standard for embezzlement crimes is 30,000 yuan, which is still a low threshold.
II. The Specificity of the Crypto Industry
Since the '9.4 Announcement' (Announcement on Preventing Risks of Token Issuance and Financing) in 2017, all projects for issuing virtual currencies for financing (currency financing) in the mainland have been suspended, and some virtual currency exchanges operating in the mainland have moved out of China; after the '9.24 Notice' (Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation) in 2021, all business activities related to virtual currencies in the mainland have been classified as 'illegal financial activities', and virtual currency exchanges have completely lost the legal basis for compliant operations in mainland China and have all moved overseas.
Other business activities related to virtual currencies, such as exchanges between virtual currencies and fiat currencies, exchanges between virtual currencies, buying and selling virtual currencies as a central counterparty, providing pricing and information intermediary services for virtual currency transactions, etc., are also prohibited in the mainland.
Currently, relatively safe crypto ventures in the mainland generally involve blockchain projects (not involving token issuance), virtual currency wallet companies, etc.
Although the '9.24 Notice' prohibits overseas virtual currency exchanges from providing services to residents in the mainland via the internet, the number of mainland users in virtual currency exchanges established by individuals of Chinese descent still accounts for more than half; cities in the mainland like Shenzhen, Hangzhou, and Shanghai still have some technical teams and customer service teams from overseas virtual currency exchanges.
Such a scenario is rare in other industries—where national policy declares a certain business illegal, but in reality, this business still 'stably' exists in the mainland, and even now, judicial authorities sometimes engage in some form of judicial 'cooperation' with these companies engaged in illegal financial activities overseas. For example, domestic judicial authorities may apply for evidence verification from overseas virtual currency exchanges and use the relevant evidence as proof of the criminal suspect's alleged crime.
III. Can Employees in the Crypto Circle Constitute the Subject of Embezzlement?
As mentioned above, the subject of the crime of embezzlement must be 'staff of a company, enterprise, or other unit.' If it is an overseas company (such as a virtual currency exchange) engaged in 'illegal financial activities,' or its domestic branches or controlled companies, can they be considered 'companies, enterprises, or other units' in terms of the crime of embezzlement?
This brings us to the viewpoint expressed in the article titled '(Is it permissible to “obtain” virtual currency through job convenience? Court: Criminal!)' by the official account of the Beijing High Court: In response to the defense lawyer's argument that the project of the victim (the company) involves virtual currency, and that they should bear the risk, thus not protected by legal benefits, the court held that the risk of virtual currency trading and the nature of the company (the victim)'s project do not affect the legal evaluation of the defendant's (suspected criminal) behavior based on the established facts and corresponding legal provisions.
In simple terms, in the business scenarios of virtual currency exchanges, if employees of the exchange engage in criminal behaviors such as embezzlement, they will not be exempt from evaluation based on whether the exchange's own business is legal or illegal in the mainland.
Another question is, how to prove that Zhang San or Li Si is an employee of a certain virtual currency exchange or other crypto industry company? On the surface, it can be judged based on whether a labor contract has been signed, whether social insurance and housing fund contributions have been made, etc.; more importantly, it depends on whether the company has management and control functions over the employee's labor compensation.
For virtual currency exchanges or other companies in the crypto industry, in practical operations, they generally do not directly hire employees in the mainland under their own name, but may use labor companies or other controlled companies (which do not operate currency-related businesses in the mainland) as the employment subject; of course, there are also more 'free' web3 employment models—without signing any labor contracts, directly paying salaries in USDT or other tokens. At this point, how to determine the identity of the victim in an embezzlement case is highly controversial in practice. Both the prosecution and the defense can 'show their skills' to protect their legal rights.
The final question is, if the funds or properties involved in the case are virtual currencies, do they constitute corresponding crimes? Taking the crime of embezzlement as an example, if someone uses their position to embezzle USDT, ETH, BTC, and other virtual currencies belonging to the company, there may be little debate in practice, as these mainstream virtual currencies possessing property attributes have become a consensus in judicial theory and practice; however, what if the embezzled tokens are issued by the company itself? Or does embezzling some anticipated future benefits (such as tokens that have yet to be unlocked or listed) constitute the crime of embezzlement? These are highly contentious areas and present significant opportunities for professional web3 lawyers (whether defending or prosecuting).
IV. Application of the Crime of Bribery of Non-Government Personnel in the Crypto Industry
For some crypto practitioners, there may exist a legal scenario that simultaneously involves the crime of embezzlement and the bribery of non-government personnel. For instance, in the document released by the Supreme Court titled '(Typical Criminal Cases Promoting the Development of the Private Economy)', the case of 'Shi Mouyu's bribery of non-government personnel and embezzlement' is mentioned.
Case summary: Shi Mouyu took advantage of his position to illegally accept property worth a total of 6.08 million yuan from other companies during the introduction of cooperation (virtual currency rewards) between other companies and his own company; at the same time, by using his position, he converted virtual currencies from multiple accounts of his company during the aforementioned cooperation with the two companies, and transferred them to his personal bank account under his control, illegally possessing property worth a total of 3.66 million yuan from his company.
Ultimately, Shi Mouyu was sentenced by the Haidian District Court of Beijing to 12 years of fixed-term imprisonment for both crimes of bribery of non-government personnel and embezzlement, with concurrent punishments.
Conclusion
Last December, there were reports that some virtual currency exchanges, represented by Binance, began a strict investigation into internal corruption issues. The mouse warehouse incident involving Binance employees that broke out in March this year is actually just a 'drop in the ocean' in the crypto industry; due to the lack of strict regulation on centralized institutions in the virtual currency industry, insider trading, collusion with market makers and project parties, and other incidents indeed occur frequently. However, the illegal costs of these events are very low, and the difficulty of investigation is relatively large (unless committing some low-level errors); from the perspective of a defense lawyer, there is relatively ample space for defense in embezzlement or non-public bribery crimes involving virtual currencies.
However, judging from the actions of some large exchanges like Binance and Okex, the future crackdown on internal corruption will only become more intense. Coupled with the increasingly stringent compliance regulations for the web3 industry in countries and regions like Singapore and Hong Kong, Lawyer Liu believes that the internal compliance development of virtual currency exchanges or other companies in the crypto industry will increasingly converge with and even evolve alongside traditional internet companies.
