Can cryptocurrency professionals be charged with occupational embezzlement?
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Can cryptocurrency professionals be charged with occupational embezzlement?
Judging from the actions of some major exchanges like Binance and OKX, the crackdown on internal corruption will only intensify in the future.
Navigating Web3 tides with focused insightsAuthor: Liu Zhengyao
Introduction
Recently, I received two consultations regarding potential embezzlement offenses by individuals working in the crypto industry. Therefore, it is necessary to write this short article to analyze the issue, aiming to provide guidance for ordinary employees, executives, or leaders within the crypto sector—clarifying legal red lines and jointly contributing to the positive development of web3.
1. Breaking Down the Criminal Elements of Embezzlement
From the perspective of China's Criminal Law, the offense of职务侵占 (embezzlement by an employee) is not complicated—it refers to acts committed by staff members (qualifying主体身份) of a company, enterprise, or other organization who take advantage of their position to illegally appropriate organizational property, where the amount involved is significant (objective conduct). There are three sentencing tiers for this crime: up to three years’ imprisonment for basic circumstances; three to ten years’ imprisonment for large amounts; and over ten years’ imprisonment or life imprisonment for particularly huge amounts (consequences).
According to relevant judicial interpretations, the threshold for initiating investigation into embezzlement is 30,000 RMB—a relatively low bar.
2. The Particularities of the Crypto Industry
After the “9.4 Announcement” (Notice on Preventing Risks Related to Token Issuance Financing) in 2017, all virtual currency fundraising (coin offerings) projects operating on mainland China were suspended. Some cryptocurrency exchanges previously based in China relocated overseas. After the “9.24 Notice” (Notice on Further Preventing and Addressing Risks of Cryptocurrency Trading Speculation) in 2021, all business activities related to virtual currencies on the mainland were classified as “illegal financial activities.” As a result, cryptocurrency exchanges lost any legal basis to operate compliantly within mainland China and moved entirely offshore.
Other virtual currency-related operations—including exchange between fiat and cryptocurrencies, conversion among different cryptocurrencies, acting as a central counterparty in trading, and providing pricing or information intermediary services—are also banned on the mainland.
Currently, relatively safe areas for crypto entrepreneurship in China include blockchain projects that do not involve token issuance and cryptocurrency wallet companies.
Although the “9.24 Notice” prohibits overseas cryptocurrency exchanges from offering services to mainland residents via the internet, Chinese nationals still make up more than half of the user base on many exchanges founded by Chinese-speaking teams. Meanwhile, technical and customer service teams for some overseas exchanges continue to operate in mainland cities such as Shenzhen, Hangzhou, and Shanghai.
This situation is rare in other industries—where a business is declared illegal under national policy yet continues to exist “steadily” within the mainland. In fact, domestic judicial authorities sometimes engage in a form of judicial “cooperation” with these overseas entities conducting illegal financial activities. For example, Chinese law enforcement may request evidence from overseas cryptocurrency exchanges and use the obtained data as evidence in criminal prosecutions.
3. Can Employees in the Crypto Industry Be Subject to Embezzlement Charges?
As mentioned above, the subject of embezzlement must be a “staff member of a company, enterprise, or other organization.” If the employer is an overseas company engaged in “illegal financial activities” (such as a cryptocurrency exchange), or its branch or controlled entity within China, can such an entity qualify as a “company, enterprise, or other organization” under this offense?
This brings us to the view expressed by the official account of the Beijing High Court in an article titled “Is It OK to ‘Obtain’ Cryptocurrency Using One’s Position? The Court Says: Criminal!” In response to defense arguments claiming that the victim company’s involvement with cryptocurrency implies self-assumed risk and therefore lacks legal protection, the court held that the risks associated with cryptocurrency transactions and the nature of the company’s project do not affect the legal evaluation of the defendant’s conduct based on established facts and applicable laws.
In simple terms, within the context of a cryptocurrency exchange, employee misconduct such as embezzlement will still be legally evaluated regardless of whether the exchange’s operations are legal or illegal within mainland China.
Another question arises: How can we prove that Zhang San or Li Si is actually an employee of a particular cryptocurrency exchange or other crypto company? On the surface, one might look at formal indicators such as signed employment contracts or social insurance contributions. More importantly, however, is whether the company exercises management authority and pays compensation for labor.
In practice, crypto exchanges and similar companies typically avoid directly hiring employees on the mainland under their own name. Instead, they may use labor agencies (“intermediaries”) or other controlled entities (which do not conduct crypto-related business on the mainland) as the formal employer. Some adopt even more “freewheeling” web3 employment models—without signing any formal contract and paying salaries directly in USDT or other tokens. In such cases, determining the victim identity in embezzlement cases becomes highly controversial in practice. Both prosecutors and defense counsel have room to argue creatively to protect their respective interests.
Finally, if the assets involved in the case are cryptocurrencies, does that constitute a crime? Taking embezzlement as an example, misappropriating company-owned USDT, ETH, BTC, or other major cryptocurrencies through positional advantage is generally accepted as criminal in practice, since mainstream cryptocurrencies are widely recognized in both legal theory and judicial practice as having property value. However, what if the employee embezzles tokens issued by the company itself? Or what if they take future expected benefits (e.g., unvested or unlisted tokens)? These remain highly contentious areas—and represent promising fields where specialized web3 lawyers (whether defending or prosecuting) can play a significant role.
4. Applicability of Bribery of Non-State Functionaries in the Crypto Industry
Some crypto professionals may face legal scenarios involving both embezzlement and bribery of non-state functionaries. For instance, in the “Typical Criminal Cases Promoting Private Economic Development” released by the Supreme People’s Court, there is a case titled “Shi Mouyu’s Case of Bribery of Non-State Functionaries and Embezzlement.”
Summary of the case: Shi Mouyu used his position to illegally receive approximately 6.08 million RMB in assets from other companies during cooperation initiatives involving virtual currency rewards. Additionally, he leveraged his position in joint virtual currency operations between two companies to convert cryptocurrency from multiple company accounts into cash and transfer it to personal bank accounts under his control, thereby illegally appropriating about 3.66 million RMB in company assets.
Ultimately, the Haidian District Court in Beijing convicted Shi Mouyu of both bribery of non-state functionaries and embezzlement, imposing a combined sentence of 12 years in prison.
Conclusion
Last December, rumors spread that Binance and other major cryptocurrency exchanges had begun intensively investigating internal corruption. The recent exposure of a “front-running” incident involving a Binance employee is just a drop in the ocean of issues within the crypto industry. Due to the lack of stringent oversight comparable to traditional finance or securities institutions, insider trading, collusion between exchange staff and market makers or project teams, and similar misconduct occur frequently in centralized crypto organizations. Yet, the cost of such violations remains low, and investigations are difficult—unless basic mistakes are made. From a defense lawyer’s standpoint, there is relatively broad room to defend against charges of crypto-related embezzlement or bribery of non-state functionaries.
However, judging from actions taken by major players like Binance and OKX, the crackdown on internal corruption will only intensify in the future. Coupled with increasingly strict web3 compliance regulations in jurisdictions such as Singapore and Hong Kong, Attorney Liu believes that internal compliance standards at cryptocurrency exchanges and other crypto firms will gradually converge with—and even evolve beyond—those of traditional internet companies.
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