Xiao Sa: Popularizing the Latest Criminal Charges on Virtual Currencies
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Xiao Sa: Popularizing the Latest Criminal Charges on Virtual Currencies
We understand that tools themselves are not guilty, but if a tool is routinely used for criminal activities, society's tolerance for it will decrease, and regulatory scrutiny will inevitably tighten.
Navigating Web3 tides with focused insightsThe crypto industry has been unsettled recently, and fear often stems from the unknown. We have observed an emerging trend: the crime of concealing or hiding proceeds of crime is becoming a new focus. To clarify common misunderstandings, Team Sa has prepared this article to provide legal education for our long-time readers.
01 Elements of the Crime of Concealing or Hiding Proceeds of Crime
According to Article 312 of the Criminal Law, the offense comprises two key elements: first, whether the perpetrator "knew" that the assets were derived from criminal activity; second, whether the individual engaged in acts of concealment or disguise.
Regarding the standard for determining "knowledge," existing laws and regulations do not offer a direct definition. Team Sa believes reference can be made to judicial interpretations on money laundering offenses: knowledge should be assessed by considering the individual’s cognitive capacity, their exposure to others’ illicit gains, the type and amount of the proceeds, methods of conversion or transfer, as well as the defendant's statements and other subjective and objective factors. In practice, courts may infer "knowledge" based on such circumstances.
As for the thresholds for criminal liability related to acts of concealment or disguise, according to the Supreme People's Court's Interpretation on Several Issues Concerning the Application of Law in Handling Criminal Cases of Concealing or Hiding Illicit Gains and Their Benefits, there are four main scenarios: (1) the value of the concealed or disguised illegal gains or benefits reaches a certain threshold; (2) the individual has previously been administratively penalized within one year for such conduct and reoffends; (3) the concealed or disguised proceeds involve public interest-related funds or property; (4) the act obstructs the investigation of upstream crimes, rendering them undetectable and losses irrecoverable.
02 Connection Between Crypto and This Offense
Based on Team Sa’s understanding of business models in the crypto space, we believe the connection between the crypto industry and the crime of concealing or hiding proceeds of crime mainly manifests in two ways:
Perpetrators of upstream crimes exploit the anonymous and decentralized nature of cryptocurrencies to invest illicit proceeds into private crypto offerings, converting them into various virtual currencies with fiat value and facilitating the transfer of assets overseas.
Many crypto platforms either provide fiat-to-crypto exchange services or refer users to such exchange platforms. The former may constitute illegal payment settlement activities and potentially violate illegal business operation provisions, while the latter could render the platform complicit as an accessory to the crime of concealing or hiding proceeds of crime.
Some individuals in the crypto community hold the mistaken belief that project teams or platforms cannot possibly know the source of funds, thus lacking the requisite "knowledge" element for this offense.
However, as previously noted, judicial authorities assess this mental state by comprehensively evaluating the obligations and cognitive capacity of project or platform operators. Although there is no official guideline for private fundraising akin to those in the securities industry, Team Sa maintains that during fundraising, project or platform operators bear at least a duty to verify the lawful origin of received funds—essentially, anti-money laundering (AML) responsibilities. Failure to fulfill these duties significantly increases the legal risk of being presumed "knowing" by judicial authorities.
03 Further Implications
The primary distinction between the crime of concealing or hiding proceeds of crime and money laundering lies in whether the type of upstream crime is restricted.
When the upstream crime involves drug offenses, organized crime, terrorist activities, smuggling, corruption, financial regulatory violations, or financial fraud, project or platform operators in the crypto space may also face charges of money laundering, which carry more severe penalties including longer terms of imprisonment.
04 Final Thoughts
We fully recognize that tools themselves are neutral. However, if a tool is routinely exploited for criminal purposes, societal tolerance will diminish, and regulatory scrutiny will tighten. For the healthy development of the crypto ecosystem, Team Sa urges all private offering entities to adopt the concept of "qualified investors" and strengthen compliance measures to avoid exposure to criminal liability.
Original URL: https://mp.weixin.qq.com/s/BLaxhK3cFwP0PirmJEm91g
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