It seems that the cryptocurrency industry has a magical power; once practitioners step into the world of Web3, they often do not want to return to traditional industries. Previously, I saw an article that accurately described the state of Web3 workers: high salary, remote work, comfortable yet dangerous.
Indeed, compared to traditional industries, Web3-related job positions have higher salary levels; project parties are generally overseas, so the domestic employees they recruit usually work in a distributed manner without needing to clock in. This is a great living condition for workers—high salary and freedom.
However, after entering the Web3 circle, many people will understand that there are related regulations such as the 94 announcement and the 924 notice in the country, which will raise a big question mark in their minds about whether their work content is legal in the domestic market.
Therefore, many Web3 practitioners may appear to have a 'heavy sense of secrecy.' While they are surfing the Web3 space at a high speed online, they are quite reticent about their profession in public settings offline.
Some Web3 practitioners also choose to directly consult lawyers, asking whether their work content has legal risks in the domestic market. The image below shows a recent question from a consultant to Lawyer Shao in the background:
The way this consultant thinks actually represents the thoughts of quite a few people. Therefore, today I want to discuss a perplexing question for many:
The 94 announcement and the 924 notice are not laws / Currently, there are no explicit legal provisions stating that xx behavior constitutes a crime.
So can’t I do my work (e.g., issuing tokens overseas, working at an exchange, DeFi, contract trading, U-commerce, etc.)?
Author | Lawyer Shao Shiwei
Why does it constitute a crime clearly without explicit legal provisions?
Friends with a certain search ability, after encountering related legal issues, will first search for relevant legal provisions and criminal cases. After searching, they will ask the lawyer:
Is my work illegal? But I haven't found any national laws stating that it cannot be done?
The 924 notice from 2021 and the 94 announcement from 2017 have been published for a long time. Will they still be used now?
I see some articles say that notifications and announcements are not legal regulations. Isn't it said that the basis for convicting someone must be law?
In fact, many people in the cryptocurrency circle feel indignant towards domestic judicial authorities due to frequent card freezes during withdrawals.
Why is it that in regions like Hong Kong, China, and many foreign countries, virtual currency trading is open, while in the domestic market, trading or engaging in related Web3 activities is deemed illegal financial activities?
Why is it that the law does not have explicit provisions stating that related behaviors constitute a crime, yet many criminal cases rely on the 94 announcement and the 924 notice to determine that the parties are guilty?
But this is actually a misunderstanding. Due to space constraints, today we will only discuss whether the basis for convicting parties in Web3 criminal cases is really just the 94 announcement and the 924 notice.
This must begin with the characteristics of law. One of the characteristics of law is stability, which requires that once it is formulated and published, it must maintain seriousness and authority and cannot be modified or changed arbitrarily. This results in obvious lagging when laws face emerging social issues. Often, they cannot timely reflect the rapid changes and developments in society. Currently, our existing (criminal law) is still the 1997 criminal law, although since then, there have been 12 amendments, it is still impossible to comprehensively regulate all emerging industries.
Take the NFT digital collectibles industry as an example. Digital collectibles have been on the rise in the domestic market since 2022, and it has been four years. Are there any legal regulations? There still aren’t any.
However, in the past three years, our team has represented nearly ten NFT criminal cases as defense lawyers. Some have been withdrawn, some have not been prosecuted, but there are also cases that have finally gone to court, and the sentences were not light.
Therefore, the industry itself does not have explicit legal provisions, which does not automatically lead to the conclusion that a certain business does not have legal risks.
So can we say that in emerging fields like Web3, where there are no legal regulations, law enforcement agencies can arbitrarily accuse parties of suspected crimes? Of course not.
What causes Web3-related businesses to involve criminal risks?
Determining whether a behavior constitutes a crime is analyzed and judged from the perspective of the constituent elements of specific criminal offenses in criminal law, rather than simply looking at whether a behavior has explicit legal provisions. How to understand this sentence?
For example, in a previously highly publicized national first criminal case involving the issuance of virtual currencies, a post-2000 university student named Yang Qichao issued a virtual currency abbreviated as BFF on an overseas public chain. Due to withdrawing liquidity, he suffered trading losses and was recognized by the court as constituting fraud, receiving a sentence of four years and six months in prison.
Many people may wonder, does issuing tokens necessarily equate to criminal behavior? Of course not.
Although the 94 announcement already classified initial coin offerings (ICOs) as illegal financial activities back in 2017, the announcement did not explicitly classify the behavior of issuing tokens as a specific crime. Moreover, the 94 announcement is not a legal regulation in terms of its level of effectiveness.
So why are the cases of post-2000 individuals withdrawing liquidity classified as fraud? Because the court's judgment has not been made public, we can only glean a glimpse from public reports. According to a report by The Paper, in the case details:
Withdrawing liquidity is a common arbitrage method in virtual currency trading. Issuing virtual currencies on a public chain does not have rules limiting 'whether it can be withdrawn' or 'how long it takes to withdraw.' Therefore, from the perspective of industry regulations, Yang's actions actually pose no issues. However, regrettably, he himself stated: 'I just want to get back what my big brother took from me,' which aligns with the subjective intent of the crime of fraud—deceptively obtaining property from others. If the victim adds: 'I didn't expect him to withdraw the liquidity pool so quickly,' it aligns with the objective requirements of the crime of fraud—leading the victim into a mistaken understanding.
After having the defendant's confession, it is too difficult to argue for a not guilty defense.
Therefore, for any Web3 project itself, as well as for the specific work content of Web3 practitioners, when assessing whether there are legal risks and the extent of those legal risks, we need to analyze specific issues in detail.
Many consultants feel fear and anxiety about the uncertainty of their own legal risks when consulting lawyers, so they want to seek a definitive outcome from the lawyers. We can understand this mindset, but especially in difficult situations, we need to maintain rationality. We must know that in the legal gray areas, the determination of guilt or innocence cannot be simply black or white.
Consultants must understand this principle clearly.
Web3 practitioners must not have an ostrich mentality. This is a piece of advice given by Lawyer Shao after representing many Web3 criminal cases.
When worried about whether one's work or business has legal risks, and thus consulting a lawyer, the consultant must think clearly about what their purpose of consulting a lawyer really is.
Is it just to dispute with the lawyer:
The 924 notice and others are not laws, so how could my behavior have legal risks?
Why do you say there are risks, but I see that the national laws do not state that this is illegal?
Since you say there are risks in this business, why do I see many people doing it, and they have been doing it for many years without incident?
Or through communication and Q&A with lawyers, to understand in detail:
What are the boundaries of the criminal risks involved in one's own behavior?
What is the scope and scale of our judicial authorities' crackdown on related behaviors?
Although there are no explicit legal provisions, which behaviors are relatively higher in criminal risk in judicial practice?
This will deepen the legal understanding of their own behavior and help them make better related decisions.
After all, given the domestic policy restrictions, some Web3 businesses do indeed fall within the red line in the country, such as issuing tokens, and business models involving gambling or pyramid schemes. The purpose of writing this article is not to categorically deny the legality of all Web3 projects but to explain that sometimes related businesses do exist in the gray area between crime and non-crime. However, each person's risk tolerance can vary greatly.
Lawyer Shao hopes that consultants can understand the corresponding legal risks and boundaries, and can foresee the worst outcomes before making the most correct decisions for themselves, so as not to leave potential regrets and regrets in the future.
