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Wu Shuo Author | Guangdong Guangqiang Law Firm Lawyer Li Zemin Lawyer Han Wubin Lawyer This article is exclusively authorized to be published and edited by Wu Shuo Since ten departments issued the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" (hereinafter referred to as the "Notice"), many articles interpreting the document have emerged. Most of their arguments are based on strong supervision, and from different perspectives, they explain that virtual currency has "lived to the end of its life" and that business activities related to virtual currency will "die." Whether it is an individual, a legal person, or an unincorporated organization, as long as they engage in business activities related to virtual currency, they will embark on a path of "illegal" or "criminal." It is undeniable that the notice issued by the ten departments once again represents the country's tough attitude towards cracking down on virtual currency-related activities. However, according to the relevant provisions of the notice, does it necessarily mean that engaging in virtual currency-related business activities will become the basis for "illegality" of a crime? Does it mean that "illegal business operation" will become a normalized crime? 1. Divided into two aspects: domestic and foreign According to the content of the "Notice", virtual currency business activities are illegal financial activities, which are divided into domestic and foreign aspects. In China, the business scope of virtual currency that is considered illegal financial activities includes: 1. Carry out legal currency and virtual currency exchange business, that is, legal currency transactions, OTC; 2. The exchange of virtual currencies, i.e. currency-to-currency transactions, 3. Buy and sell virtual currencies as a central counterparty, i.e. market maker, acceptor 4. Provide information intermediary and pricing services for virtual currency transactions, namely traffic diversion, investment consulting services, NFT, and digital currency wallet services 5. Token issuance financing, namely ICO (initial coin offering), IMO (first mining machine issuance), IF0 (first fork issuance), IEO (initial exchange issuance) 6. Virtual currency derivatives transactions, namely spot trading, leveraged trading, contract trading, etc. Illegal financial activities abroad are manifested in the fact that overseas virtual currency exchanges provide services to residents in my country through the Internet. This includes domestic staff of relevant overseas virtual currency exchanges, as well as legal persons, non-legal organizations and natural persons who know or should know that they are engaged in virtual currency-related businesses and still provide them with marketing, payment settlement, technical support and other services. If the relevant entities engage in the above-mentioned virtual currency business activities, they will be suspected of illegal financial activities such as illegal sale of token tickets, unauthorized public issuance of securities, illegal operation of futures business, illegal fundraising, etc. according to the notice. If a crime is constituted, criminal liability will be pursued in accordance with the law. " However, how many of the above activities are related to financial activities? As far as the scope of virtual currency financial activities described in the "Notice" is concerned, virtual currency derivative business activities with strong financial attributes and business activities that do not have financial attributes but are related to virtual currency are actually treated as illegal financial activities. In other words, the Notice has classified businesses that are not financial activities as financial activities. For example, providing information intermediary and pricing services for virtual currency transactions, providing marketing, payment settlement, technical support and other services. These service activities themselves have nothing to do with financial activities, but because the objects provided involve virtual currency transactions, they are also classified as illegal financial activities. Under the premise of imagining illegal financial activities, those who engage in virtual currency-related business activities should be very cautious when cracking down on them as crimes. Not all of the above activities will become the basis for the "illegality" of criminal offenses. The Notice itself stipulates that engaging in virtual currency-related business activities does not constitute a crime. For example, the illegal sale of token tickets will not constitute a crime. If the relevant entity issues virtual currency to replace the circulation of RMB in the market, it only violates the currency issuance management system and does not involve a crime. A common example is using virtual currency as a voucher for internal commodity circulation. (Not including the issuance of virtual currency for fundraising). In practice, virtual currency financial activities that are treated as crimes are most often those involving the issuance of virtual currency to raise funds. For example, the issuance of virtual currency involves the crime of illegally absorbing public deposits, the crime of fundraising fraud, the crime of fraud, and the crime of organizing and leading pyramid schemes. The reason why virtual currency transactions and exchanges are treated as crimes is not because they have the nature of illegal financial activities, but because they are used as tools for criminal activities such as money laundering and gambling. 2. I do not believe that the Notice can be used as a basis for the “illegality” of the crime of illegal business operation. Since the content of the "Notice" does not treat all virtual currency-related business activities as criminal offenses, can the "Notice" be the premise of the "illegality" of the crime of illegal business operation? Many people believe that the Notice clarifies that virtual currency business activities are illegal financial activities, and that illegal business operations will become a common charge for future convictions. However, this article does not believe that the Notice can be the basis for the "illegality" of illegal business operations, nor does it apply to convictions for illegal business operations. In addition to the fact that the Notice is a departmental regulation and does not meet the effectiveness level of "national regulations", this article focuses on the scope of the crime of illegal business operations to combat financial activities. The crimes of illegal business operation related to financial activities include "illegally operating securities, futures or insurance businesses, or illegally engaging in fund settlement business, without the approval of the relevant state authorities"; "engaging in other illegal business activities that disrupt the market order and involve serious circumstances." Correspondingly, the Notice clearly states that engaging in virtual currency-related business activities will be suspected of unauthorized public issuance of securities and illegal operation of futures business. In this way, the Notice does provide a basis for the "illegality" of the crime of illegal business operation. However, the virtual currency business activities that can meet the characteristics of illegal futures and securities business operations, at present, are spot transactions, leverage transactions, and contract transactions in virtual currency derivatives transactions. Judging whether the characteristics of derivative transactions meet the requirements of futures and securities can be the basis for the crime of illegal business operations, but the problem is that virtual currency is not included in the scope of securities and futures management in my country. From a global perspective, the financial derivative attributes of virtual currencies are becoming increasingly apparent, with more and more countries incorporating virtual currencies into the scope of securities, futures, and commodities, which are then managed by specialized institutions. However, there is no administrative department in my country to regulate virtual currency. How can we determine the "illegality" of criminal offenses? The illegal financial activities in the "Notice" are merely for the convenience of administrative management, and are classified as "illegal financial activities", but criminal "illegality" cannot be based on this. Under the premise that virtual currency derivative transactions, which are most similar to the characteristics of securities and futures, lack the basis for the "illegality" of the crime of illegal business operations, information intermediation and pricing services, marketing, payment settlement, technical support and other services that do not have the characteristics of financial activities are even less likely to constitute the crime of illegal business operations. Since it cannot serve as a basis for illegal operation of securities and futures, can the "Notice" serve as a basis for "engaging in other illegal business activities, disrupting market order, and engaging in serious circumstances"? The answer is also no. For example, some people believe that opening a virtual currency exchange that does not have contract trading or leveraged trading may violate the "Decision of the State Council on Clearing and Rectifying Various Local Trading Venues to Effectively Prevent Financial Risks" and constitute the establishment of a financial product exchange without approval. If it reaches the level of disrupting market order, it can be deemed as illegal business operation. The premise here is that the exchange is opened in China. If it is opened overseas and then provides virtual currency trading services to the domestic market, the opening entity will not constitute the crime of illegal business operation. Even if it provides information intermediary and pricing services, marketing, payment settlement, technical support and other services, it will not constitute the crime of illegal business operation. Because information intermediary and pricing services, marketing promotion, technical support and other services themselves do not belong to business activities that require approval or licensing, and on the premise that the entity that opens the business does not constitute the crime of illegal business operation, the entity that provides assistance will not constitute an accomplice to the crime of illegal business operation. If an exchange is opened in China and provides services other than contract trading and leveraged trading, would it constitute the crime of illegal business operation? If an exchange does not provide contract trading or leveraged trading, then it cannot be determined that it has the characteristics of securities or futures trading, and it is difficult to determine whether it is an illegal securities or futures business. The "Decision of the State Council on Cleaning Up and Rectifying Various Local Trading Venues to Effectively Prevent Financial Risks" focuses on cracking down on various types of trading venues that are not approved by the relevant financial management departments of the State Council and are engaged in property rights transactions, cultural and art transactions, and medium- and long-term commodity transactions. In other words, those exchanges that conduct disguised futures transactions in the name of spot transactions. If a virtual currency exchange does not provide securities-like or futures-like contract transactions or leveraged transactions, it does not fall within the scope of approval for establishment by the relevant financial management departments of the State Council, and is therefore not subject to crackdowns on illegal business operations. Even if it is believed that virtual currency exchanges provide OTC and spot trading services that seriously disrupt market order and need to be cracked down on, in accordance with the "Notice of the Supreme People's Court on Accurate Understanding and Application of Relevant Issues on "National Provisions" in the Criminal Law", instructions should be sought from the Supreme People's Court at each level. In summary, although the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" issued by ten departments represents the country's severe crackdown on virtual currency transactions and related activities, and also clarifies that virtual currency business activities are illegal financial activities, it does not mean that the "Notice" can become the basis for the "illegality" of criminal offenses, nor does it mean that once the relevant entities engage in the above-mentioned virtual currency business activities, they will constitute the crime of illegal business operations. The "Notice" is more from the perspective of administrative management, and it uniformly classifies virtual currency derivative business activities with strong financial attributes and business activities that do not have financial attributes but are related to virtual currency as illegal financial activities. Therefore, under the premise of assuming that it is an illegal financial activity, it should be very cautious to convict virtual currency-related business activities of illegal business operations. In practice, virtual currency-related business activities are rarely convicted of illegal business operations. This shows that engaging in virtual currency-related business activities does not always constitute illegal business operations. According to the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" issued by the central bank and other departments, readers are requested to strictly abide by the laws and regulations of their region and not participate in any illegal or irregular investment behavior. The content of this article is only for information sharing and does not endorse the promotion of any business or investment activities. Readers are requested to raise their awareness of risk prevention. Wu said that the content published on the blockchain is prohibited from being reproduced or copied without permission, and violators will be held accountable. Welcome to read Wu's selected reports: Huobi exclusive report, Binance exclusive report, Bitmain series, supervision and card freezing series, Filecoin series, currency circle chaos exposure, mining farm supervision dynamics, etc. Risk Warning According to the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" issued by the central bank and other departments, readers are requested to strictly abide by the laws and regulations of their region and not participate in any illegal or irregular investment behavior. The content of this article is only for information sharing and does not endorse the promotion of any business or investment activities. Readers are requested to raise their awareness of risk prevention. Wu said that the content published on the blockchain is prohibited from being reproduced or copied without permission, and violators will be held accountable. |
