Legal perspective on the defense of cryptocurrency OTC suspected of aiding and abetting crimes

Original title: "Key points of defense for suspected aiding and abetting crimes in the cryptocurrency OTC industry"
Written by: Liu Yang, consultant, criminal committee executive member, practicing lawyer at Beijing Deheng Law Firm

At present, the suspected crimes in the cryptocurrency industry have attracted more and more attention from the investigating authorities. As a link in the transaction of legal currency and digital currency, the cryptocurrency OTC is more likely to be discovered in the entire criminal chain and is at the forefront of the entire case. Due to the limited understanding of the cryptocurrency industry by the investigating authorities, OTC merchants often know nothing about the law. The resulting information gap and cognitive gap have led to a large number of OTC merchants being "accidentally injured". Therefore, in the defense of the suspected crime of aiding and abetting in the cryptocurrency OTC, it is necessary to focus on the legality of the OTC behavior and whether the suspect has the subjective intent to commit the crime to defend innocence. At the same time, for those who do constitute a crime, based on the consideration that aiding and abetting in the crime is a minor crime, they should make a defense of minor crimes in combination with the specific circumstances of the crime and social harm, and strive for non-prosecution and the application of suspended sentences. At the same time, criminal reverse business such as disposal of non-involved property and protection of rights also runs through the defense work.

The behavior of OTC in the cryptocurrency circle is not prohibited by Chinese law

The OTC behavior in the cryptocurrency circle is usually referred to as "over-the-counter transactions" in the circle. Its essence is the exchange of legal currency and digital currency. In a nutshell, it is the exchange of money with one hand and currency with the other. It is a legal behavior in itself, but because of the customary term "over-the-counter transactions", it has led to many misunderstandings among law enforcement agencies. Many case handlers do not understand the cryptocurrency industry and relevant laws, regulations and departmental rules. When they hear the word "over-the-counter", they have a preconceived notion that OTC behavior is illegal and improper. Therefore, it is necessary to clarify relevant legal and regulatory issues.

First, the OTC behavior of individual merchants is legal. On September 4, 2017, the People's Bank of China and seven other ministries and commissions jointly issued the "Announcement of the People's Bank of China and Seven Other Departments on Preventing the Risks of Token Issuance and Financing", which is called the "94 Announcement" in the currency circle. The 94 Announcement clearly states: "From the date of this announcement, any so-called token financing trading platform shall not engage in the exchange business between legal currency and tokens, "virtual currency". "From this, it can be seen that the 94 Announcement, as a departmental regulation, regulates that "the so-called token financing trading platform" shall not engage in the exchange business between legal currency and tokens, "virtual currency", and does not prohibit individuals from engaging in transactions between legal currency and virtual digital currency. At present, the mainstream civil judgment view supports legal currency transactions between individuals, while recognizing that virtual digital currency has property attributes. Therefore, the OTC behavior of exchanging money and currency between individuals is not illegal in my country, and is still a civil behavior protected by the civil law.

Second, the "over-the-counter transactions" of individual OTC merchants are legal. The so-called "on-the-counter transactions" are transactions between individuals and trading platforms, while "over-the-counter transactions" are transactions between individuals that are separated from trading platforms. It should be made clear that there is no "on-the-counter transaction" in my country at present! Before the 94 announcement, individuals and trading platforms could engage in legal currency transactions. For example, if a buyer wanted to buy virtual digital currency, he only needed to pay the legal digital currency Huobi to the platform, and the trading platform would pay the buyer the corresponding virtual digital currency. This is an on-the-counter transaction. The 94 announcement completely banned this behavior, but did not prohibit legal currency transactions between individuals. Therefore, after the 94 announcement, trading platforms can no longer engage in legal currency transactions with individuals. At present, trading platforms widely adopt a matching mechanism. For example, if a buyer wants to buy virtual digital currency, the platform will "introduce" all sellers who want to sell virtual digital currency to the buyer. The buyer transfers legal currency to the seller offline through a bank or WeChat or Alipay. After receiving the money, the online seller confirms with the trading platform. After confirmation, the trading platform will put the seller's virtual digital currency into the buyer's "wallet", and a legal currency transaction ends here. In summary, from an offline perspective, the buyer gives the seller a legal currency, and from an online perspective, the seller gives the buyer a virtual digital currency. During the entire process, the trading platform does not participate in the transaction and does not charge any handling fees. In essence, the trading platform is not involved. Therefore, after the 94 announcement, in my country, the concept of "on-site trading" does not exist at all. Even if it is matched by a trading platform, it is still an over-the-counter transaction in essence. This is no different from "handing over money and currency" between individuals. Therefore, you must not take it for granted that OTC behavior is illegal when you hear the word "over-the-counter".

Third, the behavior of individual OTC merchants is necessary. "Cryptocurrency speculation" is a legal behavior in my country. Since cryptocurrency speculation involves legal currency transactions, both deposits and withdrawals are inseparable from individual OTC merchants. Therefore, from this perspective, the existence of OTC is very necessary, and legal OTC merchants should also be protected.

Cryptocurrency OTC suspected of aiding and abetting crime: a defense strategy for innocence

The Criminal Law Amendment (IX) adds the crime of assisting information network criminal activities, that is, knowing that others use information networks to commit crimes, providing Internet access, server hosting, network storage, communication transmission and other technical support for their crimes, or providing advertising promotion, payment settlement and other assistance, and independently convicting the crime. In the criminal law community, the crime of assisting is considered to be the principal crime of the accessory. The author believes that in the defense practice, the suspected crime of assisting in the crime of OTC in the currency circle mainly involves the assistance of "payment settlement". The focus of the defense of innocence for the crime of assisting in the crime is mainly on whether it is "knowingly", that is, whether the criminal suspect has the subjective intention to commit the crime. For the case handling agency, its preconceived presumption of guilt will lead to the confession of some suspects being inconsistent with the actual situation, or the confession of the suspect who thinks "nothing" under the induced situation, such as "I roughly know that the source of these money is improper", which can actually be determined to have subjective intention to commit a crime. Therefore, the defense counsel should defend the suspect's lack of criminal intent in combination with the following specific circumstances.

First, whether individual OTC merchants have fulfilled their KYC obligations. In the process of trading, individual OTC merchants should first clarify who the trading object is. It is not enough to know who it is. It is also necessary to determine whether the trading personnel and the bank card holder are the same. In the practice of the currency circle, video authentication is usually adopted, that is, the other party is required to hold an ID card and a bank card to record a video. The content is usually "My name, ID card, and bank card are all mine. My source of funds is legal and legitimate, and I am willing to admit any legal responsibility." In this way, individual OTC merchants can determine the basic situation of the other party to the transaction with themselves. It should be considered that individual OTC merchants have fulfilled their prudent KYC obligations. After all, individual OTC merchants are just ordinary individuals. They do not have many query systems of judicial organs and cannot further verify the counterparty. The defense believes that if individual OTC merchants have fulfilled their KYC obligations and can provide relevant information of the other party during the investigation by the case-handling agency, it should be determined that they do not have subjective criminal intent.

Second, whether the transaction price obviously violates the market conditions. Many investigating agencies believe that individual OTC merchants often have slightly higher transaction prices than the market conditions during transactions, and therefore believe that individual OTC merchants have criminal intent, which also reflects that the investigating agencies do not have a deep enough understanding of the currency circle OTC. First of all, there are differences in the legal currency transaction prices of trading platforms. Taking the legal currency transaction price in Huobi app as an example when the author wrote this article, the lowest price of USDT was RMB 6.58 and the highest price was RMB 6.61, with a difference of RMB 0.03. With the gradual deepening of the crackdown on "two cards" by public security organs, the situation of legal currency transactions in the currency circle being frozen has become more and more serious. Mainstream trading platforms such as Huobi app have launched the so-called "Blue Shield Merchants", that is, merchants with high KYC certification and good reputation. The prices of such merchants will also be more expensive, even RMB 0.05 more expensive than the prices of normal platform users. Therefore, the defense believes that as long as the transaction price does not obviously violate the market conditions, the criminal suspect cannot be determined to have subjective intent by the transaction price being higher than the market price.

The vast majority of individual OTC merchants are mainly engaged in the "reverse U" business, that is, they buy USDT with RMB at a price slightly lower than the trading platform, and then sell USDT at a price slightly higher than the trading platform. This process is called "reverse U", and the actual profit is the difference of a few cents between the purchase and the sale. The author has represented some currency circle OTCs suspected of aiding and abetting crimes, covering up and concealing the proceeds of crime. The transaction price of some OTC merchants is a few cents higher than the market price or even more. In this case, if the OTC merchant argues that he does not know that the other party's source of funds is illegal, this defense is difficult to be accepted by the court. After all, a normal OTC merchant should know the market situation, and a normal transaction counterparty cannot "send money" for no reason.

Many investigators believe that since buying and selling can be matched on the trading platform, why do we need to find OTC merchants? They believe that OTC merchants have criminal intent. In fact, to a large extent, this is also a helpless move in the currency circle. The author has also participated in digital currency transactions. At present, the phenomenon of frozen cards is very common in legal currency transactions, especially in the process of exchanging digital currencies for RMB. Some people have calculated that the freezing rate is over 30%, which is a very exaggerated number. Therefore, for the sake of safety, the two parties to the transaction will not be easily frozen. They can only seek more familiar and reliable OTC merchants to trade off-site. Even if the prices of these OTC merchants are slightly higher than those of the trading platform, they can only make this choice for safety. After all, if there are cheap and reliable merchants, who will choose the more expensive ones? Therefore, if the transaction price does not seriously violate the market conditions, it cannot be determined that the individual OTC merchant has subjective criminal intent because the transaction price has a slight deviation from the market conditions.

Third, whether the other party's transfer bank card has been subject to necessary review. Taking the sale of USDT as an example, as an individual OTC merchant, in addition to the transaction price, the most important thing to care about is whether the source of the other party's money is legal, and whether the transaction behavior will cause their own card to be frozen. Therefore, the vast majority of individual OTC merchants are most afraid of receiving black money. At present, the general trading practice in the industry is to require the other party to provide bank transaction flow. If the transaction flow is less than one month, the transaction will usually not continue. Transaction flow alone is not enough. The other party is also required to use a bank card to transfer money to their own WeChat, and then use WeChat to withdraw money to the bank card to prove that this card is a "live card". At the same time, it is also necessary to determine whether the other party's WeChat account has any abnormalities. Only when the above-mentioned transaction risks are eliminated, individual OTC merchants dare to continue legal currency transactions. If the suspect has performed all the above-mentioned tasks, how can it be determined that he has the subjective intention to receive black money? How can it be considered that he subjectively has the behavior of providing payment settlement for criminal acts?

Fourth, the size of the transaction amount has nothing to do with whether there is subjective criminal intent. Many investigators believe that the transaction amount of individual OTC merchants is too large and there is subjective criminal intent. The basic logic is that individual OTC merchants conduct such large transactions without asking about the source of funds, which does not conform to objective logic. In fact, the currency circle is a relatively closed circle, and there are many players who hold huge virtual currency assets, and there are also many "million-coin lords". You must know that the value of 10,000 bitcoins is about 3 billion yuan. Buying mining machines, paying electricity bills, and paying employees wages all require a large amount of virtual digital currency to be converted into RMB. Large transactions are widely present in the currency circle OTC, so the size of the transaction amount cannot be used as one of the factors to determine that the suspect has subjective criminal intent.

Cryptocurrency OTC suspected of aiding and abetting crime and defending the crime

Since aiding and abetting a crime is a minor crime with a sentence of less than three years, in most cases, a defense of a minor crime is also a good choice. For example, the defense counsel believes that the basic evidence proving the suspect's suspected crime is relatively comprehensive through the composition of the personnel subject to compulsory measures, the situation of items seized on the scene, and the collection of electronic evidence. In this case, blindly making a not guilty defense will lead to a more severe punishment of the suspect. In this case, when meeting with the suspect, the relevant laws and regulations should be explained clearly. In addition to the aiding and abetting crime itself, the relevant content of the procedural law should be explained, so that the suspect can find a better "way out" based on his actual situation. Most people in the currency circle have a weak legal awareness. Some suspects behave very extreme, blindly resist investigations, do not confess truthfully, and miss the opportunity to be released on bail or not approve arrest. In this case, they are often sentenced to actual imprisonment in the later stage. For cases where there is indeed evidence to prove suspected crimes, the defense attorney should make detailed records of the meeting during the meeting that can prove that the suspect has an attitude of admitting guilt and accepting punishment, to prevent the investigation agency from failing to express the suspect's subjective attitude well in the record. In addition, the defense attorney should determine the amount of illegal gains with the suspect and actively return it. Submitting the above materials together when the case is reported for approval of arrest can often obtain a non-arrest result of "no need for arrest."

Cryptocurrency OTC Disposal of non-involved property suspected of crime and other

On December 5, 2020, at a seminar on criminal issues in the field of Internet finance, the author introduced relevant cases about the currency circle, and judged that the efforts of the investigating authorities to crack down on criminal crimes in the currency circle will become greater and greater, and the efforts to recover and confiscate the digital currencies involved will also become greater and greater. On January 25, 2021, the Supreme People's Procuratorate of China held a press conference on "Giving Full Play to the Procuratorial Function to Promote Cyberspace Governance". Zheng Xinjian, director of the Fourth Procuratorate of the Supreme People's Procuratorate, said at the meeting that "the formation of an ecosystem for cyber black and gray industries has continued to "transfuse blood and supply food" for cybercrime, becoming an important reason for the high incidence of cybercrime. In combating and governing cyber black and gray industries, the procuratorate first highlights the focus of punishment and cuts off the chain of interests. The second is to strengthen the application of property penalties, increase the cost of crime, prevent criminals from gaining benefits from crime, and achieve "cutting off financial resources". The third is to promote comprehensive governance in combination with the performance of procuratorial duties. "This focuses on the application of property penalties. The "strike at the wealth" policy can easily be used as a sword by local law enforcement agencies to seize, freeze, and confiscate the legal property of the persons involved in the case beyond reasonable limits. Prior to this, many criminal judgments in the cryptocurrency industry also showed that the defense and defence of the suspects and defence counsel that some of the property involved in the case was legal property did not receive support from the court. For example, in the plustoken case, which has a wide impact in the cryptocurrency industry, the criminal ruling (2020) Su09 Criminal Final No. 488 showed that the Intermediate People's Court of Yancheng City, Jiangsu Province, held: "There is a problem with the identification of Chen Bo's legal property. Upon investigation, Chen Bo did not provide any relevant clues or materials that he legally owned more than 700 bitcoins. In addition, the plustoken platform was identified as a pyramid scheme platform. The digital currency invested in the platform was used for the operation of the pyramid scheme system and should be confiscated as property used for pyramid scheme crimes."

In the cases related to the cryptocurrency industry that I have represented, it is not uncommon for individuals’ legal property to be over-frozen and seized. This has also put forward newer and higher requirements for the defense lawyers, namely how to safeguard the legal rights and interests of criminal suspects, and how to prevent individuals’ legal property from being investigated, seized, frozen, or even confiscated. This is also a new area of ​​legal services for criminal cases. Lawyer An Jian of Deheng Criminal Committee summarized it as “criminal reverse business”. This legal service demand is particularly important in the cryptocurrency industry. The reason is that some law enforcement agencies handle cryptocurrency cases with tinted glasses, and preconceivedly believe that as long as it is a cryptocurrency case, there is no legal property. Even if the suspect can prove that it is legal property, it is still “a fine and done”.

When handling relevant cases, I will collect a lot of evidence for the legal property of the suspects to form a complete chain to prove that the relevant digital currency is the legal property of individuals. For example, some suspects earn digital currency through transactions. In this case, they can retrieve all transaction records on the exchange by sending emails to the exchange, and systematically describe the transaction process in legal language and submit it to the case-handling agency. Some suspects make huge profits by investing in the primary market, which requires actively contacting the project party, issuing relevant supporting materials, and retrieving chat records, investment contracts, and transfer records on the chain to prove it. Other suspects obtain digital currency by investing in mining machines. They need to retrieve mining machine purchase contracts, mining machine operation and maintenance contracts, mining machine maintenance records, electricity bill payment records, and digital currency output records, etc., supplemented by relevant chat records and other content to prove the generation process of digital currency in legal assets.

In practice, even if all the above evidence can be obtained and submitted to the investigating authorities, it is still difficult to unblock it in time, and there is still a risk of being fined and confiscated. Therefore, it is also necessary to prove that the digital currency in the individual’s legal assets has no relationship with the suspected criminal offense, that is, the individual’s legal property has not been used to fund criminal activities. In the process of argumentation, it is also necessary to analyze it in combination with the specific charges and different circumstances of the case. Due to limited space, I will not go into details here.

Conclusion

Cases of suspected aiding and abetting crimes in the cryptocurrency OTC are relatively common. Since aiding and abetting crimes themselves are misdemeanors, many suspects have given up on finding professional lawyers to defend them. Based on the characteristics of such crimes, the author believes that we must first understand through interviews whether the suspects have subjective criminal intent and objective criminal behavior, and on this basis accurately choose the direction of defense of innocence and defense of lesser crimes. We cannot blindly use defense of lesser crimes to make the parties who should not be convicted of crimes bear a lifetime criminal record, nor can we blindly use defense of innocence to close the two doors of not approving arrest and discretionary non-prosecution to the parties.