Understanding the arguments in criminal cases involving theft of virtual currency in one article

Preface

In recent years, Liu Lei's team has handled many criminal cases involving theft of virtual currency. Due to the lag in legislation, the Supreme People's Court has no relevant guiding cases, judicial judgments are not unified, and there are different opinions in criminal law theory and practice on how to characterize the act of stealing virtual currency. "Coin circle" fans also often discuss with Liu Lei. The focus is on what crime should be charged for stealing virtual currency and how to reduce the sentence. We believe that as the state's supervision of virtual currency becomes stricter, the legal evaluation of virtual currency-related behaviors will also be affected to a certain extent.

Part 1. Classification of virtual currencies affects the application of crimes and sentencing

We believe that virtual currencies can be divided into three categories based on their different generation mechanisms, consensus levels, finiteness, and scarcity:

Type 1: A virtual currency with a unique solution formed by blockchain and cryptography, with a constant total amount and similar scarcity to gold, typified by Bitcoin (BTC) and Ethereum (ETH).

Type 2: Virtual currency generated with legal currency as the anchor object. Each unit of virtual currency corresponds to a corresponding unit of legal currency. Its market value fluctuates less. Tether (USDT) and PAX are typical examples.

Type 3: Initial Coin Offering (ICO) is similar to the initial public offering (IPO) of a joint-stock company. However, the difference is that ICO is almost in a regulatory vacuum. It has no price limits, no price limits, and no opening and closing limits. It is a 24/7 perpetual transaction, and the investment risk is extremely high. There are also some air coins, pyramid scheme coins, and copycat coins mixed in, which are often used as tools for fraud and money laundering. Investors who follow the trend and enter the market are very likely to be cut off.

A full understanding of the different operating mechanisms of the three types of virtual currencies will help clarify the legal protection of currency theft cases and the applicable charges:

Level 1: Type 1 virtual currencies have the strongest “scarcity” and the largest market size. Not only should the property rights of this type of virtual currency be recognized, but the public’s rights and interests in holding, using and trading such virtual currencies should also be protected as much as possible without affecting the national financial order. Therefore, in judicial practice, in cases involving theft of Bitcoin and Ethereum, the courts are more inclined to recognize the value of these mainstream currencies and thus apply the crime of theft.

Level 2: Although virtual currency type 2 has the advantages of stable currency value and good reputation, it is very easy to weaken and impact the status and ability of a country's central bank due to its low issuance cost and low threshold for issuing institutions. Therefore, the court needs to make an appropriate balance between rights protection and maintaining financial order based on individual cases. Based on our experience in handling cases, we found that stealing stablecoins is also very easy to be identified by the court as theft of "property" with property value attributes.

Level 3: Type 3 virtual currencies have the lowest "maturity" and are most questioned for their legitimacy. The regulatory vacuum and uncontrolled investment risks have led to low costs for counterfeiting, making them very easy to become tools for money laundering, fraud, pyramid schemes and other crimes. Therefore, before they form a sufficiently sound market mechanism and regulatory mechanism, the circulation and trading of such virtual currencies should be prohibited. Accordingly, if the theft targets ICO tokens, especially those air coins and pyramid scheme coins that do not have corresponding ecological scenarios, the judicial authorities cannot determine that these virtual currencies have property attributes.

Part 2. Changes in the policy on the legal attributes of virtual currency also affect the determination of this crime and that crime

On November 21, 2022, Wu Chunmei, member of the Party Leadership Group and Deputy Chief Prosecutor of the Third Branch of the Beijing Procuratorate, published an article in the China Prosecutor, a magazine supervised by the Supreme People's Procuratorate: "Criminal Prosecution | Criminal Characterization of Illegal Theft of Bitcoin". The article believes that if the theft of coins by means of intrusion into computer information systems occurs before September 2021, it constitutes both the crime of theft and the crime of illegally obtaining computer information system data, and is handled in accordance with the "choose one of the more serious crimes" of imaginary concurrent crimes; if the theft of coins occurs after September 2021, it cannot be regulated as a crime of infringing on property, and should be convicted of the crime of illegally stealing computer information system data.

We believe that to understand the above view, we need to first clarify the history of virtual currency policy changes. So far, there are three core documents on the legal attributes of virtual currencies: the 2013 "Notice on Preventing Bitcoin Risks" (hereinafter referred to as the "Notice"), the September 2017 "Notice on Preventing the Risks of Token Issuance and Financing" (hereinafter referred to as the "Notice") issued by the People's Bank of China and seven other departments, and the September 2021 "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" (hereinafter referred to as the "924 Notice") issued by the People's Bank of China and ten other departments. The above three departmental normative documents vividly show that the country's regulatory policy has gone through three stages: virtual currency as a virtual commodity has property attributes, to Bitcoin controlled by the trading platform does not have property attributes, to completely denying property attributes. In particular, the "924 Notice" has stricter control over virtual currencies such as Bitcoin, and defines virtual currency-related business activities as illegal financial activities and strictly prohibits them.

Liu Lei's legal team believes that in terms of the level of effectiveness, the above three documents are departmental normative documents, which are neither laws nor administrative regulations or departmental regulations. They do not have the mandatory binding force of law. According to the principle of legality of crime and punishment, these documents cannot go beyond the circumstances in the Criminal Law where the creation of virtual currency constitutes a crime.

Article 127 of the Civil Code states: "Where the law has provisions for the protection of data and network virtual property, such provisions shall apply." Objectively speaking, the legal attributes of virtual currency are not clearly stipulated at the current legal level. The Criminal Law and judicial interpretations do not clearly define virtual currency as "property" under the criminal law. Judging from the current judicial practice and judgment tendency, the courts have different judicial judgments on whether virtual currency has property attributes, and no unified judgment standard has been formed. And there is still great controversy in academic theory.

Although the Civil Code has made provisions for virtual property, theoretically, disputes about the legal attributes of virtual property still exist. In essence, the civil law provisions on virtual property are only declarative. That is, the legislative body has not fundamentally solved the problem of the attribute positioning of virtual property, and the judicial body still needs to make specific identification based on practical needs. Therefore, in the case of unclear prior legal basis, having property attributes does not necessarily mean that it becomes property under the criminal law, and property crimes do not necessarily apply to related behaviors.

In judicial practice, there are precedents that have convicted theft and illegal acquisition of computer information system data for stealing coins. We believe that stealing virtual coins must obtain account information or private keys, and must involve "means" to invade computer information systems. There is no problem that stealing coins violates computer information system crimes. The maximum sentence of fifteen years in prison can be applied for crimes such as illegal acquisition of computer information system data and destruction of computer information systems. In most cases, the crime and punishment can be commensurate and the crime will not be condoned. However, if the stolen virtual currency belongs to the highly consensus tokens and stablecoins listed in types one and two, and the degree of legal interest infringement in the individual case is high and the social harm is great, and the means are indeed difficult to punish appropriately, it can also be applied to the conviction and punishment of property crimes, and the crime of theft and computer information system crimes will compete, and one of the more serious crimes will be punished.

Part 3. The source of virtual currency should be identified to ensure that the punishment is commensurate with the crime

Since there is no officially recognized public value disclosure for virtual currency in my country, the "Notice on Further Preventing and Dealing with the Risks of Speculation in Virtual Currency Transactions" also stipulates that it is prohibited to provide information intermediaries and pricing services for virtual currency transactions. Therefore, when convicting and sentencing based on a certain amount, there are several main methods in judicial practice, such as the amount of stolen goods sold, the amount of loss suffered by the victim, the historical cost amount, the assessed value, and sentencing based on circumstances.

We believe that the determination of the amount of crime involving virtual currency should be different from the traditional "property" pricing and should take into account the source of the virtual currency.

The first type is virtual currency obtained from legal currency transactions, because these virtual currencies are exchanged for legal currency RMB and carry the original price. The RMB price at the time of purchase can be used as a reference for the amount of the crime. The currency price fluctuates greatly, and virtual currency is highly speculative. Our view is to adhere to the principle of loss compensation, regardless of expected benefits, and ensure that the price of virtual currency should be equivalent to the actual loss.

The second type is virtual currency obtained through mining or airdrops, especially mining, which is expressly prohibited by the state, violates public order and good morals, and is an invalid act in civil law. Therefore, such prior behavior as mining should not be supported by law. When evaluating the amount of crime, the virtual currency obtained through mining should also be distinguished from the virtual currency purchased with legal currency, and sentencing should be considered for lenient purposes.

The third type is that if the stolen currency is sold after being stolen, and converted into stablecoins or RMB, and then possessed, used, or squandered, the amount of the stolen money should be treated as the amount of the crime. This is also the common practice in current judicial practice.

We believe that from the perspective of the unity of the legal order, civil to criminal law is a progressive relationship from general violations to serious violations. Defining the legal attributes of virtual currency is also a three-dimensional process of building a complete legal responsibility system. On the basis of grading and classifying virtual currency, their legal attributes are defined separately . Legal virtual property should be protected as a legal interest, and the amount of crime should be limited to making up for the loss. This is a practice that not only meets the requirements of financial supervision, but also protects the legal property of citizens.

In addition, lawyers often use the relatively minor crime of "illegally obtaining computer information system data" as a defense for cases involving huge amounts of stolen currency. Liu Lei's lawyer team believes that with the implementation of the "Cybersecurity Law", "Data Security Law", and "Personal Information Protection Law", as well as the "Opinions of the CPC Central Committee and the State Council on Building a Data Basic System to Better Play the Role of Data Elements" (December 2, 2022) (referred to as "Twenty Data Articles"), data property rights, circulation, trading, use, and distribution mechanisms have been established, and the value attributes of data have been established to a certain extent. Therefore, the understanding of "data" in the crime may also be interpreted as "property", and there is a lot of room for defense in cases of stolen currency.

Part 4. Liu Lei's lawyer team's latest judgment on the theft of coins

In the latest coin theft case handled by Liu Lei’s lawyer team, the court’s ruling was as follows:

First, virtual currencies such as Bitcoin have both data attributes and property attributes. Illegal changes in the possession of such criminal objects may constitute both property crimes and computer information system data crimes. When there is a competition of criminal acts, the nature of the act should be fully and completely evaluated in combination with the subjective purpose of the perpetrator. As the evidence in the case proves that the defendant carried out the theft based on the real economic benefits carried by the Bitcoin and other virtual currencies owned by the victim, and did not aim to destroy electromagnetic data, he subjectively had the purpose of property infringement, and the victim suffered huge property losses. If it is regulated as the crime of illegally obtaining computer information system data, the appellant's purpose of property infringement will not be evaluated, and the property losses suffered by the victim will not be protected.

Secondly, regarding the determination of the amount of the crime, given that some of the virtual currencies controlled by the defendant have entered the circulation link and there is a transaction price, the price of the stolen goods also reflects the agreed price between the defendant and the buyer. The original court determined that Wang’s actual illegal income from selling some of the virtual currencies involved in the case was the amount of theft, and the unsold part was taken into consideration as a sentencing circumstance, which was favorable to the appellant and not improper. In addition, the audit report on the case confirmed that the source of the defendant’s illegal income was the income from selling some of the virtual currencies involved in the case, and the specific destination of this part of the illegal income, which did not violate national regulations. In summary, the court believes that the defendant is guilty of theft but not of infringing on computer information system data.

This case also illustrates that for cases involving theft of virtual currency, the specific crime of the defendant must be comprehensively determined based on the specific means and circumstances, and a targeted defense must be conducted.