New interpretation of P2P and virtual currency directly affects conviction and sentencing

Yesterday, major legal media outlets rushed to forward the Supreme Court's decision to amend the "Interpretation of the Supreme People's Court on Several Issues Concerning the Specific Application of Laws in the Trial of Criminal Cases of Illegal Fund-raising" (hereinafter referred to as the Amendment Decision). This decision has caused a huge uproar and will inevitably have a significant impact on the conviction and sentencing of illegal fundraising in judicial practice.

Given that the implementation date of the amendment decision is March 1, 2022, the time left for online lending platforms and virtual currency trading platforms is extremely limited. Please seize these few days to make predictions and plans (adjustments to litigation strategies), otherwise it will be too late to regret.

The following is purely personal opinion and just one person’s view.

01

"Virtual currency transactions" are directly defined as a way to illegally absorb funds, breaking the rule that virtual currency = funds. In judicial practice, many police friends from the case-handling agencies have asked whether simple currency-to-currency transactions are suspected of illegal fundraising crimes. In view of the principle of legality of crime and punishment, we were relatively conservative on this issue at the time and gave the following answer: If USDT and other virtual currencies that are directly linked to foreign legal currencies are used for transactions, they can be regarded as funds and then handled in accordance with relevant crimes; if they are all nameless small coins privately issued by various project parties, we believe that they are not funds and cannot be convicted and punished in accordance with crimes such as illegal absorption of public deposits.

At the same time, we have imagined another interpretation path. Given that some overseas countries regard certain virtual currencies as their own legal tender, these virtual currencies recognized as currencies by foreign countries are also considered a kind of "funds" under the premise of my country's protection of foreign legal tender. After March 1 this year, this debate will basically cease. Virtual currency transactions are directly listed as a way to absorb funds. Platforms for currency exchange or currency financing and financial management are suspected of the crime of illegally absorbing public deposits under Article 176 of the Criminal Law.

02

The third level of illegal fund-raising crimes has a threshold of more than 50 million. When the Criminal Law Amendment XI upgraded the sentences for the crimes of illegally absorbing public deposits and fund-raising fraud, due to the thresholds of each sentence level, it was still possible to directly apply the third level across the sentence levels, making it difficult to effectively distinguish the behaviors. Therefore, the amendment decision is to make a good distinction between the sentence levels and reduce the situation where ten-year imprisonment is common.

We understand the good intentions, but the online loan platforms that have not been dealt with are basically worth hundreds of millions, billions or even tens of billions of yuan, and will still be classified as the third tier. For behaviors before March 1, 2021 that have not been dealt with or are being dealt with before March 1, 2022, the criminal law should be applied according to the standards determined in this revision decision and the principle of combining the old and the lighter .

Since the online lending business basically lasts until March 2021, for the vast majority of people involved in online lending , if they illegally absorb 5 million yuan or 500 people or cause losses of more than 2.5 million yuan, they will be sentenced to fixed-term imprisonment of not more than ten years, and fifteen years' imprisonment will not be applied .

03

The penalty standards for crimes committed by individuals and those committed by units will no longer be distinguished, and the argument for unit crimes will become invalid. According to the draft of the press release by the relevant person in charge of the Third Criminal Division of the Supreme People's Court in response to reporters' questions on the judicial interpretation of the criminal law on illegal fundraising, the first point of the fourth question directly responded to the huge difference in the prison terms between unit crimes and crimes committed by individuals in judicial practice, and also reduced the space for rent-seeking.

In the case handling process in some places, whether it is the crime of illegally absorbing public deposits or the crime of fund-raising fraud, the debate on whether it is a crime committed by an organization or a crime committed by a natural person has always been the focus. Once the punishment standards are unified, it becomes meaningless to discuss the distinction between the two. This actually reflects the spirit of strict punishment for corporate crimes.

04

The eleventh amendment makes "before public prosecution" rather than "before judgment" the "turning point" for active return of stolen money and compensation, and the revised decision treats the return of money after public prosecution but before judgment as a "sentencing circumstance". The amount of illegal absorption is calculated based on the full amount of funds absorbed by the perpetrator, commonly known as the "total plate", so from the perspective of criminal law, "the difference between the impact and withdrawal" is not used as a standard for conviction. In previous judicial practice, the actual controllers of online loan platforms generally have strong personal abilities. Therefore, they generally have a certain repayment ability after the case is reported. For those who can repay the absorbed funds, the law is lenient. In some cases, all repayments were completed before the second instance judgment, and the sentence was suspended.

However, this leniency will not be so lenient in the future. The new turning point for repayment is "before prosecution", that is, the last day of the prosecution review period is the deadline. Those who have paid off before can expect suspended sentences or lenient treatment; those who pay off later can only use it as one of the sentencing conditions. This is also to encourage the actual controllers and executives of online loans to hurry up and repay the loans.

But Sister Sa must stand up and say that what online lending platforms actually need most is time. It will take a long waiting period to digest the billions of yuan in debt. I hope that in practice, prosecutors will take into account the actual situation and give online lending defendants and their families more time and sentencing space. Thank you.

05

Disguised issuance of stocks includes "transferring equity and other methods", which broadens the scope of application of Article 179 of the Criminal Law . Although Sister Sa often uses the crime of issuing stocks, company and enterprise bonds without authorization as an example to discuss the legal risks in financial innovation when writing books, the incidence rate of this crime is extremely low in practice. Just imagine, who would issue stocks without approval for a qualified company? Even if they want to issue stocks, they can't, which means "can't commit a crime".

Now, the revised decision includes a common practice of skirting the law in practice, namely, the transfer of equity, within the scope of conviction . Based on Sister Sa's experience in investigating the potential chaos in conference marketing and finance in coastal areas, many projects will be caught. At the same time, Sister Sa also reminds the entrepreneurial team of distributed computing that when developing C-end product lines, they should not only consider how to arouse customers' desire to buy and spread, but also carefully study the legal red lines to prevent crossing the line. "Turning customers into shareholders" is a dream, but it is easy to violate the criminal law if it is achieved rigidly .

06

Severely punishing advertising operators and publishers is the starting point of the special rectification of Internet finance. From the perspective of the industrial chain, the widely publicized publicity link actually has a great impact on the victims. In fact, without the promotion of the media, illegal platforms cannot become bigger and stronger. In the past, when large online platforms took over advertisements, the review was basically a formality. Agents at all levels waited for advertisers to pay wages and basically adopted a "tolerant attitude" of turning a blind eye. When the internal legal team encountered complaints, they would bring out the safe harbor principle, thinking that as long as the advertisements were removed, everything would be fine.

According to Article 12 of the Amendment Decision, if a person makes false advertisements for goods or services related to illegal fund-raising activities, and the illegal income exceeds RMB 100,000 or there are other circumstances, he shall be convicted and punished for the crime of false advertising. If he knows that the client is raising funds illegally and still helps to post advertisements, he shall be treated as an accomplice to the crime of illegal fund-raising. I sincerely hope that the legal teams of major e-commerce platforms must understand and learn criminal law knowledge, and not just be trapped in the ocean of contracts. The realistic possibility of becoming an accomplice is already a "gray rhino" and no longer a "black swan".

07

The burden of proof of "illegality" In terms of proof of illegality, there is a slight difference between "approval" and "permit". Lawyers with experience in handling cases should be familiar with the evidence of suspected illegal business operations of online lending. The first thing the prosecutor has to do is to cite the "Banking Law" to prove the illegality of the online lending platform. At this time, the defense will use the approval documents or encouraging documents of that year to counter it in order to reduce the perception of illegality.

After the amendment decision was implemented, the prosecutors did not need to explain the historical background and the legal interests of the Banking Law at that time. They could just use "without legal permission" to prove that the burden of proof was sufficient. As we all know, no online loan industry has been legally permitted to do online loan business before, during and after the rectification period. Therefore, in the case of online loan suspected of illegal fund-raising, the illegality is self-evident, and the defense cannot shake it even if it produces encouraging documents.

Final Thoughts

Due to limited space, the crime of illegally absorbing public deposits and the crime of fundraising fraud have evolved from a simple crime of amount to a crime of amount + circumstances . Although the sentence has not reached the current prison term, if the amount has reached half and there are other circumstances, it can be upgraded to a higher prison term. Please see Articles 3, 4 and 5 of the Amendment Decision for details.

For old cases, we urge online loan practitioners not to take chances and adjust and supplement repayment plans according to the new judicial interpretation, so as to make debt repayment for fund-raising participants more effective. At the same time, we remind the majority of e-commerce platforms to conduct self-examination and self-correction, set criminal law red line warnings for advertising releases, and prevent them from becoming targets of criminal law crackdowns .