The Backside of "Stolen or Scammed" Cryptocurrencies: Why Civil Remedies Frequently Encounter Obstacles?
TechFlow Selected TechFlow Selected
The Backside of "Stolen or Scammed" Cryptocurrencies: Why Civil Remedies Frequently Encounter Obstacles?
Discussing the current state and challenges of criminal cases involving cryptocurrencies.
Navigating Web3 tides with focused insightsBy: Wei Fuhai, Manqin
Introduction
When the forest grows large, all kinds of birds appear—and the world of cryptocurrency is no exception. Back when Bitcoin was nearly worthless and stablecoins had yet to emerge, this community was just a small circle entertaining itself. But everything changed as Bitcoin rose from "10,000 coins for two pizzas" to "one coin for 10,000 pizzas." Especially after the advent of stablecoins, their unique characteristics gradually made them a favored money laundering tool for illicit and gray-market operations.
Having practiced criminal defense for many years, I've handled numerous cryptocurrency-related cases. One striking observation is that seemingly "unlucky" people abound in this field: some clearly innocent are convicted, while others who clearly commit crimes often escape prosecution.
Perhaps my perspective influences my judgment—cases I see as problematic may appear "not serious" or even "appropriately handled" to public security agencies, prosecutors, or courts.
Two recent cases I'm handling are closely related to this topic and highly representative. Through this article, I aim to discuss the current state and challenges of cryptocurrency criminal cases based on practical experience.
Reconstruction of Real Case Details
Case One
An H-country company planned to list its token on an exchange whose servers were located in country S, and coordinated with a Chinese national employed by the exchange. Both parties smoothly agreed on service fees, listing timelines, and other details, with the understanding that once the H-country company paid 800,000 USDT as a service fee, the exchange would initiate the listing process.
After finalizing the agreement, the Chinese employee provided a wallet address and requested the transfer of 800,000 USDT. The H-country company complied, but immediately afterward, the employee left all communication groups and became completely unresponsive. Upon detecting anomalies, the H-country company contacted the S-country exchange, only to be informed that the employee had resigned the day after the transfer and that the exchange had not received the payment. At this point, the H-country company confirmed it had been defrauded.
Case Two
A woman met online with someone claiming he could guide her in investment. He told her the investment platform did not accept RMB and only supported USDT transactions. Since she didn't own USDT, he recommended a U-merchant to assist with currency exchange.
She then contacted the U-merchant via WeChat and transferred over three million RMB in total to multiple bank accounts as instructed. However, after completing the transfers, she received no USDT, nor did funds appear in her investment account. When she tried to contact the original online acquaintance who referred her, he had already disappeared. Only then did she realize she had fallen victim to fraud.
Lawyer's Perspective: Approaches to Protecting Client Rights
Case One: Obstacles in Cross-border Reporting and Legal Negotiations
In Case One, the victim (the H-country company) initially reported the case on its own at the local police station in the suspect’s hometown in China. However, the police issued neither an acknowledgment receipt nor a decision of non-filing, leaving the victim unable to initiate follow-up remedies.
After being retained, our legal team began preparing legal documents and evidence materials meeting domestic reporting requirements. Due to the cross-border nature of the case, preparation took approximately two to three months.
We then formally reported the case at the police station in the suspect’s hometown. Initially, the front-desk assistant officer refused to accept the report, citing that the victim company was overseas. We immediately cited relevant provisions in the Criminal Procedure Law regarding territorial and personal jurisdiction to counter this. The officer then claimed “cryptocurrencies are not protected by law,” to which we responded that although the September 24 Notice bans exchange operations, holding virtual assets individually is not illegal, and judicial practice widely recognizes cryptocurrencies as property.
Despite repeated rational arguments, the police still refused to issue a written receipt. After we insisted, the assistant eventually called in the duty officer. After multiple rounds of negotiation and persistent effort, the police station has now accepted the case, though formal investigation has not yet commenced; we continue to push forward.
Case Two: Challenges in Recovery After Criminal Filing and Attempts via Civil Routes
In Case Two, the victim (the defrauded woman) successfully reported the incident, and police quickly opened an investigation, arresting the U-merchant who provided the currency exchange service. However, since the main suspect’s IP address was located overseas, he could not be apprehended.
Following interrogation and investigation, police confirmed the U-merchant was merely engaged in routine USDT exchange services and had no criminal collusion with the upstream fraud group, so the investigation against him was terminated.
To help the victim recover losses, we attempted civil litigation, intending to sue the U-merchant on grounds of unjust enrichment and request return of the corresponding funds.
Case Review: Problems with Civil Remedies
In Case One, civil litigation is not a viable solution.
The primary reason is that when a single event involves both criminal and civil aspects, the principle of "criminal priority" applies. Civil proceedings can only commence after the criminal case concludes. Moreover, if the criminal judgment has already addressed the victim’s property rights—for example, stating in the verdict “the defendant shall continue to compensate the victim”—the victim cannot file another civil lawsuit based on the same facts, as this would violate the fundamental civil litigation principle of “no retrial of the same matter.”
What if the victim, due to the long duration of criminal proceedings, chooses not to report and instead directly files a civil lawsuit?
Theoretically, such a suit may be filed, but if the court determines during review that the case involves suspected criminal activity, it will rule to transfer the matter to public security authorities. This returns the process to the criminal route, wasting several additional months.
If the suspect is ultimately convicted but lacks the ability to repay, how can the victim seek redress?
In such cases, hope lies only in whether the convict is willing to pay compensation in exchange for a sentence reduction. According to relevant regulations, prisoners who have not fulfilled financial penalties such as restitution or fines generally cannot receive sentence reductions or parole and must serve their full original term.
In Case Two, although we indeed attempted civil litigation against the U-merchant and reviewed numerous similar precedents, we found only two cases ruled in favor of plaintiffs—the rest ended in plaintiff defeat. Why?
During the filing stage, the judge in charge explicitly stated the case could not be accepted, frankly adding that even if勉强 accepted, our claims would ultimately not be supported. As a result, the civil case was not accepted.
Conclusion
Can victims of stolen or defrauded cryptocurrency effectively seek relief through civil means?
This article originally intended to explore this question as a form of public education, but after diving into real-world practice, it became clear: once a case involves criminal conduct, the path of civil remedy is extremely difficult—or even entirely blocked.
Some readers might object: many articles in the market thoroughly explain how to protect rights through civil litigation, including evidence preparation and filing procedures—why does it seem “impossible” here?
As we personally experienced in Case Two, the judge from the filing division clearly stated that even if the case were accepted, the chances of winning were extremely slim.
As lawyers, our duty is not merely to initiate procedures, but to assess risks for clients and choose paths that genuinely offer hope of recovering losses. Therefore, in cases of stolen or defrauded cryptocurrency, pursuing criminal avenues remains the more realistic option under current circumstances.
Join TechFlow official community to stay tuned
Telegram:https://t.me/TechFlowDaily
X (Twitter):https://x.com/TechFlowPost
X (Twitter) EN:https://x.com/BlockFlow_News
