Written by: Qian Wei, Mankun Law Firm.
In recent years, with the rapid development of blockchain technology and the growing prosperity of the digital currency market, virtual currencies have gradually become a new type of investment and payment tool. However, the anonymity and decentralization characteristics of virtual currencies have also become favorable tools for criminals, leading to frequent occurrences of virtual currency crime cases.
Given the current insufficiency of investigation methods, and to effectively combat such criminal activities, public security organs often rely on the support of blockchain technology companies during investigations. As a result, an increasing number of cryptocurrency practitioners are transforming to establish relevant blockchain technology companies to assist judicial authorities in combating virtual currency crimes, while local public security organs take a positive attitude towards such cooperation due to factors such as technological capability, case scale, and financial needs.
However, blockchain technology companies also face many legal issues during their assistance to public security organs in combating virtual currency crimes. This article will explore in-depth the legal issues faced by blockchain technology companies participating in the combat against virtual currency crimes from five major aspects: legality, data privacy and protection, leakage, wrongful punishment, and virtual currency disposal.
Maintain operational compliance.
When blockchain technology companies assist public security organs in combating virtual currency crimes, they must ensure the legality of their actions. In other words, the legality of the auxiliary investigation status, the legality of methods, and the legality of contracts signed with public security organs must be ensured.
Generally, only public security organs can file investigations into crimes related to virtual currencies, but they often need technical assistance from blockchain technology companies. Blockchain technology companies must ensure the legality of technical means and that their cooperation with public security complies with all legal requirements. Currently, neither the Criminal Procedure Law nor the regulations on how public security organs handle criminal cases provide clear instructions regarding the involvement of third-party companies in the investigative activities of public security organs, nor do they propose a review of the legality of their status. This leads to confusion among participants in practice, a lack of unified standards, and certain compliance issues. At the same time, the technology provided by companies must be compliant and carries an obligation for review during its use.
Activities related to virtual currencies are considered illegal financial activities in China. When providing technical support, blockchain technology companies must comply with relevant laws and regulations. If blockchain technology companies fail to fulfill corresponding review obligations, leading to providing technical support or assistance to criminals, they may also bear corresponding legal responsibilities. For example, a certain blockchain technology company, without conducting strict identity checks on clients, provided virtual currency tracking services to a client who was later found to be part of a money laundering criminal organization. Ultimately, this blockchain technology company was penalized for violating anti-money laundering laws and regulations.
Furthermore, if blockchain technology companies take technical means or methods that violate legal regulations during the assistance process to public security organs, such as exceeding the technical investigation scope defined in Article 148 of the Criminal Procedure Law, it may also constitute illegal actions. Therefore, blockchain technology companies need to pay attention to the legality of the subject signing contracts with public security organs, the legality of the application of technology, and the legality of the service content.
Ensure data security.
In assisting public security organs in investigating virtual currency crime cases, blockchain technology companies need to collect and process a large amount of user data. This data may include users' personal information, transaction records, communication content, and other sensitive information. If blockchain technology companies fail to adequately protect the data, leading to client information leakage, it not only infringes on users' privacy rights but may also lead to criminal liability for suspected violations of personal information laws. For example, a certain blockchain technology company, while assisting in the investigation of a virtual currency fraud case, collected related citizens' personal information through technical means without obtaining legal evidence collection authorization, causing significant negative impact and ultimately being found guilty of infringing on public rights.
In addition to data leakage, blockchain technology companies may also face issues of data being illegally obtained. Some criminals may use hacking attacks, internal leaks, and other means to obtain the data of blockchain technology companies and use it to commit other crimes. This not only brings economic losses and reputational damage to blockchain technology companies but may also lead to more serious legal consequences.
Therefore, blockchain technology companies must strictly adhere to relevant laws and regulations when collecting, storing, and using user data, enhancing data security management and technical protection measures to ensure the safety and confidentiality of user data.
Be cautious of leaking investigation secrets.
In public security organs investigating virtual currency crime cases, all collected information is considered state secrets. Investigation secrets are essential for ensuring the smooth resolution of cases and maintaining social stability. Therefore, blockchain technology companies may come into contact with a large amount of investigation secrets during their assistance to public security organs. If blockchain technology companies fail to properly safeguard these secrets or accidentally leak them to the outside, it may cause significant consequences for the case. The main issues of leaking investigation secrets are as follows:
Firstly, the investigation may be hindered. Once investigation secrets are leaked, suspects may take various measures to evade punishment or destroy evidence, making it more difficult to solve the case.
Secondly, the relevant backend data involved in the case is crucial for determining the conviction and sentencing; once leaked, it may lead to significant flaws in the evidence of the case.
Thirdly, in virtual currency crimes, the main issue is to grasp the wallet address and private key of the criminals. If leaked, it can be easily transferred, causing significant financial loss.
To prevent leaking investigation secrets, blockchain technology companies should take the following measures:
Strengthen information security management and technical protection. Establish a comprehensive information security management system and technical protection framework to ensure data safety and confidentiality.
Clarify confidentiality responsibilities and sign confidentiality agreements. Clearly define your confidentiality responsibilities and sign confidentiality agreements during cooperation with public security organs.
Enhance employee training and improve legal awareness. Strengthen training on information security and confidentiality knowledge for employees, and raise their awareness and skill levels regarding safety.
Prevent wrongful harm to the innocent.
In assisting public security organs in investigating virtual currency crimes, blockchain technology companies may also face issues of wrongful punishment. Due to technical limitations, information misjudgments, or other reasons, blockchain technology companies might mistakenly target non-involved individuals or legitimate enterprises as targets and take action against them. In this case, the company needs to ensure it does not incorrectly freeze or process the virtual assets of innocent clients, as this could harm the clients and also lead to legal troubles for the company.
Specific manifestations of wrongful punishment include:
Firstly, non-involved accounts are frozen, sealed, or seized, leading to misjudgment of legitimate transactions.
Secondly, non-involved individuals are listed as criminal suspects and subjected to criminal coercive measures.
In practice, such phenomena are also quite common. In some profit-driven law enforcement cases, relevant personnel focus on targets with large virtual assets, thus using judicial means for investigation and punishment. Ultimately, even in the absence of substantial evidence, it is common to seize and refund accounts associated with upstream criminal transactions. From a legal perspective, the issue of wrongful punishment is extremely serious, and its consequences are burdensome for blockchain technology companies.
Therefore, blockchain technology companies involved in the handling of virtual currency cases by public security organs still need to strictly adhere to legal procedures and substance, strengthen the verification of information during investigations to avoid affecting innocent clients due to inaccurate information, while ensuring strict execution of multi-level verification in data checks to reduce the risk of misjudgment and prevent a lose-lose situation.
Compliant disposal of virtual currencies.
Blockchain technology companies assist public security organs in combating virtual currency crimes, one of the key aspects being the possession of priority disposal rights. The issue of judicial disposal of virtual currencies has been a long-standing topic; here I will not elaborate further but briefly mention its general problem points:
Firstly, the lack of clear legal regulations and operational standards for the judicial disposal of virtual currencies may lead to legal issues for third-party disposal companies. For example, the custody and disposal of virtual currencies should follow the principle of 'separation of custody and disposal.' Violating this principle may result in asset loss or illegal transfer due to mismanagement, leading to problems.
Secondly, public security organs may hastily liquidate confiscated virtual currencies to avoid value loss caused by market fluctuations before a case is adjudicated. This practice may lead to third-party companies disposing of assets in pending cases. If the decision of the prosecution does not align with the expectations of the public security organ, the third-party company may bear corresponding legal responsibilities. Therefore, prior disposal of virtual currencies before a case is finalized must be approached with extreme caution to avoid legal disputes for blockchain technology companies.
Thirdly, if public security organs arbitrarily entrust third-party companies to dispose of virtual currencies involved in cases without following legal procedures, such behavior may violate relevant regulations such as the 'Management Measures for Confiscated Property,' thus making the disposal actions of third-party companies procedurally illegal. Therefore, blockchain technology companies must ensure that the disposal procedures of public security organs are legally authorized when accepting the commission.
Fourthly, according to relevant regulatory policies, activities related to virtual currencies are considered illegal financial activities in China. Therefore, even if third-party companies dispose of virtual currencies under the commission of public security organs, such as through currency exchange, they may violate relevant laws and constitute illegal operations or other criminal offenses due to lack of corresponding qualifications. Hence, blockchain technology companies must ensure they have legal qualifications when disposing of virtual currencies.
Fifthly, during the disposal process, blockchain technology companies may also face legal issues such as bribery and corruption, especially in cases involving large amounts of virtual currency assets. Ensuring transparency and compliance during the disposal process is crucial.
Summary by Mankun Lawyers.
Web3 blockchain technology companies, while assisting public security organs in combating virtual currency crimes, do not err in fighting crime itself; however, how to combat crime in a legal and compliant manner deserves study.
