People's Court Daily: Identification of the Property Attributes of Virtual Currency and Disposal of the Property Involved in the Case (full text)

The People's Court Daily of China published an article titled "Identification of the Property Attributes of Virtual Currency and Disposal of Property Involved in Cases". The article analyzed the criminal law attributes of virtual currency. The author stated that virtual currency has economic attributes and can be classified as property. Current laws and policies do not define virtual currency as illegal items. Therefore, under the current legal and policy framework, virtual currency held by relevant entities in my country is still legal property and is protected by law.
The article suggests handling the money and property involved in the case based on the basic standpoint of legality. The author believes that for crimes involving virtual currency, the money and property involved cannot be confiscated or returned in general. They should be treated separately on the basis of the unified criminal and civil law order to achieve a balanced protection of personal property rights and interests and social public interests.

The full text of “Identification of the Property Attributes of Virtual Currency and Disposal of the Property Involved in the Case” is as follows:

The trend of virtual currency becoming an "accomplice" of crimes is becoming more and more prominent. The global transaction volume of virtual currency crimes has increased from US$8.4 billion in 2020 to US$20.6 billion in 2022, a record high. At present, there are increasingly divergent views in judicial practice on the characterization of crimes involving virtual currency and the handling of funds and property involved. It is necessary to further clarify the criminal law attributes of virtual currency and the disposal of property involved.

1. Analysis of the criminal law attributes of virtual currency

In practice, there are several opinions on the criminal law attributes of virtual currency:

The first opinion holds that virtual currency is merely electronic data stored in a computer system , and is currently circulated as illegal currency in China's "black market." It mostly serves as a means of payment for crimes and a medium for illegal entry of foreign funds, and other "black and gray" roles. In the absence of explicit legal provisions, it should not be considered property in the sense of criminal law.

The second opinion holds that virtual currency is a virtual commodity with property value, and from the judicial interpretation of the theft and robbery of drugs and other contraband, virtual currency should also be recognized as property in the sense of criminal law. However, given that China's current policy prohibits the circulation of virtual currency, it is not appropriate to recognize it as legal property and protect it.

The third opinion holds that virtual currency is property in the sense of criminal law and is legal property. Unless it is used by the holder to commit a crime or is directly caused by the holder's crime, the property rights and interests of the virtual currency holder should be protected.

The author agrees with the third opinion. The reasons are:

(I) Virtual currency has economic attributes and can be classified as property

1. Virtual currency itself has use value. Legal tender, especially paper money (except for those with collection value), in addition to having legal functions such as value scale, medium of exchange, and means of payment, does not have general use value.

But virtual currency is different. It can have certain use value, which is reflected in:

(1) Serving as a settlement medium. In some blockchain application areas, such as securities settlement, the circulation of encrypted assets within the blockchain system is indispensable. For example, in order to realize delivery versus payment (DVP) in the blockchain securities settlement system, the control or designated node in the blockchain needs to issue a virtual currency, namely "Settlement Coin", on the premise of depositing an equivalent amount of legal currency in the custodian bank to realize the securities and funds settlement within the system.

(2) Serving as virtual vouchers or property. For example, as concert tickets, blockchain technology can be used to achieve the function of being tamper-proof; as electronic voting, game props, etc., blockchain technology is used to ensure that virtual property cannot be tampered with. In this case, although its monetary function should be denied according to law, it does not affect the identification of its property attributes, and it is also a manifestation of the law's function of retaining necessary channels for the development of emerging technologies.

2. The exchange value of virtual currency exists objectively. Virtual currencies such as Bitcoin connect strangers in any corner of the world through blockchain, transmit value through "consensus mechanism" and "decentralized" peer-to-peer transactions, and become convenient settlement tools worldwide. In particular, after the emergence of stablecoins such as Tether (USDT) that maintain price stability by anchoring legal currency (or assets), the monetary function of virtual currency has been increasingly improved. Virtual currency has the decentralized characteristics of running through a distributed encryption system. All virtual currency hardware systems in the world have virtual currency ledgers, and virtual currency will not be lost due to the loss of a hardware. It is also based on the immutability and anti-fragility of virtual currency technology that virtual currency is regarded as "hard currency" by some groups and becomes a means of payment for purchasing goods and services in real life. In the current world payment system, virtual currency has surpassed its physical characteristics of computer data. As an emerging financial technology, it has been incorporated into the financial system of many countries and used as a legal currency, such as Japan, the United States, Europe, Australia and New Zealand. According to statistics, there are nearly 30,000 virtual currency ATMs in 73 countries around the world.

At present, my country has not recognized the legal tender status and currency function of virtual currency for the sake of protecting the status of RMB as legal tender and combating crimes. However, its exchange value objectively exists due to its legal recognition and legal circulation in overseas markets and cannot be eliminated. If virtual currency is treated as contraband such as drugs and its exchange value is not recognized, it will inevitably lead to the condensed labor value and market value of virtual currency being abandoned after it inevitably flows into China from overseas, objectively leading to the loss of property, and not conducive to the recovery of stolen goods and losses in criminal cases involving virtual currency.

3. Those who obtain virtual currency from others by illegal means shall be treated as property crimes. As mentioned above, virtual currency objectively has positive use value and exchange value, which is different from contraband such as drugs that do not have any positive value. In judicial interpretations, for the purpose of protecting possession, it is stipulated that theft, robbery, fraud, drugs and other contraband constitute relevant property crimes. "Using the minor to illustrate the serious", virtual currency should be the target of property crimes.

Based on the physical characteristics of virtual currency as computer data, there has always been a practice and view in judicial practice and theory to convict and punish crimes involving virtual currency as computer information system crimes. Obviously, the evaluation of the use value and exchange value of virtual currency has been abandoned. It has to expand the interpretation of the means of computer information system crimes stipulated in my country's criminal law to seek ways to convict such acts, which is indeed suspected of violating the "crime and punishment are legally prescribed". For example, in a certain case, the defendant involved did not use the technical means stipulated in Article 285 of the Criminal Law to illegally invade the computer information system, nor did he implement the acts of deleting and modifying the functions of the computer information system stipulated in Article 286 of the Criminal Law. His behavior was essentially to illegally obtain virtual currency, and the legal interest violated was the ownership of the property, and did not violate the legal interest of public order protected by computer information system crimes. Abandoning property crimes and convicting and punishing computer information system crimes violates the basic principle of proportionality between crime, responsibility and punishment, and also deprives the victim of the right to participate in litigation and the protection of property rights.

Based on the above analysis, the author agrees that the behavior of obtaining virtual currency from others through illegal means such as deception, theft, robbery, etc. and computer information system crimes should be considered as a conflict of laws, rather than an imaginary conflict of laws. For theft of virtual currency, if the amount does not reach the standard for conviction, we cannot settle for the next best thing and convict and punish it according to computer information system crimes.

(II) Current laws and policies do not define virtual currency as illegal items

1. Relevant regulations clearly identify it as a virtual commodity. In December 2013, the People's Bank of China, the Ministry of Industry and Information Technology, the China Banking Regulatory Commission, the China Securities Regulatory Commission, and the China Insurance Regulatory Commission jointly issued the "Notice on Preventing Bitcoin Risks" (Yinfa [2013] No. 289, hereinafter referred to as the "2013 Five-Department Notice"), which clearly stipulates: "In terms of nature, Bitcoin should be a specific virtual commodity, which does not have the same legal status as currency and cannot and should not be circulated and used as currency in the market." Furthermore, other virtual currencies such as Tether, which have the same characteristics as Bitcoin, such as "no centralized issuer, limited total amount, no geographical restrictions on use, and anonymity", should also be classified as virtual commodities. Article 127 of the Civil Code of the People's Republic of China stipulates: "Where the law has provisions for the protection of data and network virtual property, such provisions shall be followed." It can be seen that the classification of virtual commodities such as Bitcoin as virtual property for protection is also supported by the open attitude of the Civil Code.

2. Administrative laws and policies do not comprehensively prohibit virtual currency transactions. The Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation (Yinfa [2021] No. 237, hereinafter referred to as the "2021 Ten-Department Notice") issued by the People's Bank of China, the Supreme People's Court and other ten departments on September 15, 2021 stipulates in Article 1, Item (2): Virtual currency-related business activities such as conducting legal currency and virtual currency exchange business, virtual currency exchange business, buying and selling virtual currency as a central counterparty, providing information intermediary and pricing services for virtual currency transactions, token issuance financing and virtual currency derivatives trading are suspected of illegal financial activities such as illegal issuance of token tickets, unauthorized public issuance of securities, illegal operation of futures business, illegal fundraising, etc., which are strictly prohibited and resolutely banned in accordance with the law. There are two interpretations of this provision in judicial practice: one is that all virtual currency trading activities are prohibited illegal financial activities; the other opinion is that only virtual currency trading activities suspected of illegal issuance of token tickets, unauthorized public issuance of securities, illegal operation of futures business, illegal fundraising, etc. are illegal financial activities and are prohibited.

The definition of "business" is the professional work of an individual or an institution. An occasional buying and selling behavior obviously cannot be defined as a business activity. For example, in a certain case, Li Mouyi, who was the seller of virtual currency, has existing evidence to prove that this was the first time that he sold virtual currency on behalf of his son in the country. It is obviously inappropriate to characterize his sales behavior as a business activity. In summary, the author believes that the "2021 Ten Departments Notice" does not identify all virtual currency buying and selling behaviors as illegal financial activities and prohibit them. Judicial practice must combine the characteristics of individual case behavior to determine whether it is an illegal financial activity that should be prohibited.

According to the provisions of Article 1, Item (4) of the 2021 Ten Departments Notice, the buying and selling of virtual currencies can be identified as "virtual currency investment and trading activities". Only when it violates public order and good morals will the behavior be deemed invalid, not because it violates the mandatory provisions of laws and administrative regulations. Virtual currency trading activities that do not involve illegal financial activities are not administratively illegal. Although the civil behavior of buying and selling virtual currencies can be deemed invalid because it endangers the country's financial order, the virtual currency itself is not an illegal item.

3. From the perspective of civil trial practice, merely "disliking" trading behavior does not deny the legal property attributes of virtual currency. From the 16 final civil judgments involving virtual currency transactions randomly selected from the China Judgment Documents Network since 2022, the author found that judicial practice has deemed all civil acts carried out for the purpose of production, trading, and investment in virtual currency invalid on the grounds of violating public order and good morals, but has not taken measures such as transferring the virtual currency and transaction consideration involved to the relevant administrative departments for handling and recovering them by the administrative departments. Among them, the civil judgment of the Supreme People's Court (2022) Supreme People's Court No. 1581, which is quite representative and instructive, holds that the software development contract concluded for the purpose of obtaining virtual currency is invalid because it harms the public interest, but both parties are at fault for the invalidity of the contract, so the respondent is ordered to return the contract amount of 100,000 yuan to the appellant, rather than confiscating the 100,000 yuan or excluding the 100,000 yuan from the scope of legal protection, which is consistent with the spirit of the "2021 Ten Departments Notice". For virtual currency transactions that do not involve disrupting financial order or endangering financial security, civil actors bear their own risks and responsibilities. Current laws and policies have not yet prohibited virtual currency, and virtual currency has not been identified as contraband of the same nature as drugs, pornographic books and periodicals, and controlled knives. It is legal for relevant entities to hold virtual currency. For example, forest farmers can legally own the trees before obtaining a felling license, but they cannot dispose of them by felling.

In summary, under the current legal and policy framework, virtual currencies held by relevant entities in my country are still legal property and are protected by law.

II. Handling the money and property involved in the case based on the basic standpoint of legality

Based on the above analysis, the author believes that for crimes involving virtual currency, the money and property involved cannot be confiscated or returned in general. They should be treated separately on the basis of the unified criminal and civil law order to achieve a balanced protection of personal property rights and interests and social public interests.

(I) The victim did not engage in any transaction

If someone steals virtual currency from others, the victim has no behavior or intention to sell the virtual currency he holds. If the defendant obtains the victim's virtual currency key by illegal means and steals the virtual currency, the theft violates the victim's legitimate property rights to the virtual currency, and the victim has not endangered the national financial order or violated public order and good morals. In this case, the defendant should be sentenced to bear the obligation to compensate the victim for economic losses. For virtual currency that the defendant has not yet transferred, he should be ordered to return it to the victim; for virtual currency that has been transferred, the amount of the crime can be determined according to the defendant's selling price, the victim's purchase price or the victim's previous purchase price, and the defendant or the victim's recent transaction price of similar virtual currency, etc., and the victim should be ordered to return the victim; for the sale price, purchase price, etc. that cannot be ascertained, given that China has cancelled various forms of virtual currency trading platforms in the country, there is a lack of corresponding market reference prices, that is, it is impossible to make price determinations by the relevant government price determination departments in accordance with the provisions of the "Price Law of the People's Republic of China". The price of the relevant virtual currency is not included in the amount of the crime, but the criminal behavior should be determined.

(2) The victim has engaged in transactions

For crimes involving virtual currency such as fraud, robbery, snatching, and theft committed by the defendant using the victim's trading behavior, the victim is also at fault because his legitimate property was infringed during the process of committing acts that violate public order and good morals. When determining the defendant's liability for compensation, the criminal judgment should pay attention to consistency with the civil judgment. For situations where there are multiple virtual currency transactions, the legal source of virtual currency cannot be explained, and there is evidence to prove that the virtual currency is traded for the purpose of committing illegal crimes, etc., the defendant may be ordered to recover all illegal gains and confiscate them, and no longer be ordered to compensate the victim; if the aforementioned situations do not exist, the defendant should be ordered to partially or fully compensate the victim in combination with the degree of civil fault of the victim. If the defendant is ordered to partially compensate the victim, the rest should be ordered to be recovered and confiscated from the defendant. The seized virtual currency can be legally sold in the international market through special channels, and the proceeds obtained can be handed over to the state treasury.