Guide to Avoiding Criminal Liability for Workers in the Cryptocurrency Circle

Author: Gao Mengyang, Senior Lawyer at Shanghai Manqun Law Firm

Recently, a product colleague from a blockchain company consulted me, saying that he was suddenly assigned a project to launch a token. The boss was passionate during the project kickoff meeting and told everyone that they would definitely get rich after the project was completed. However, the colleague himself was in a panic, afraid that he would earn money but not have the chance to spend it. He came to Manqun for offline consultation based on a friend’s recommendation.

After answering his questions, we realized that this may be a common problem faced by many workers in the cryptocurrency industry: if the company they work for is suspected of illegal activities, will they be implicated? How should they respond?

01 Key Factors in Employee Involvement

To answer these questions, we first need to know what illegal activities are commonly involved in cryptocurrency companies. We have previously summarized and analyzed common criminal charges in the cryptocurrency industry (see: A Comprehensive Analysis of High-Frequency Criminal Charges in China’s Virtual Currency Field). Based on our professional experience, there are currently three major types of cases that cryptocurrency industry workers are most likely to be implicated in due to their work: illegal fundraising, online fraud, and pyramid schemes. Each type of case has its own focus.

Regardless of the variations in these cases, the key factor determining whether an employee (who is neither the designer nor planner, nor the leader or organizer) is involved or not in the majority of cases depends on whether they have “knowledge” of the illegal activities.

In simple terms, if an employee knowingly provides assistance to the company in engaging in illegal activities (even if this assistance is only part of their normal job responsibilities), they are highly likely to be deemed as accomplices by the court and ultimately subject to criminal penalties. Of course, this “knowledge” is not based solely on the employee’s own statement, but is determined in combination with objective circumstances. Once we understand this key point, let’s look at the situations in different types of cases.

1. Illegal Fundraising Cases

Since the announcement in 1994, China has banned various ICO activities related to virtual currencies. In 2021, the government directly classified business activities related to virtual currencies as illegal financial activities. Since then, financial projects related to virtual currencies have been subject to strict regulation. In fact, illegal fundraising cases related to virtual currencies are essentially the same as the P2P cases that once caused millions of people to lose their fortunes. With the additional influence of policy environment, during the crackdown on P2P platforms, even the lowest-level employees or functional personnel were often targeted and punished. This situation is not surprising when it happens to blockchain companies.

For example, in the first-instance criminal judgment of Jiang and Zhang’s fundraising fraud case [(2018) Yue 0304 Xing Chu 139], Jiang and Zhang were both team leaders responsible for business development and reception, neither of them were legal representatives or shareholders, but they were actual employees. However, they were implicated in the fraudulent fundraising of the entire company’s “air coin” issuance. Zhang left the company after only one month of employment. In such cases, the court often determines the employee’s judgment of the company’s business based on the standard of a rational person—for example, whether the company’s financial activities have obtained approval or permits, whether the invested projects truly exist, whether the underlying assets have corresponding value, whether investment returns are exaggerated, and whether they can be paid as promised. Readers can also evaluate their own situations based on these questions. If you cannot provide definite and convincing answers, then your company’s project carries a higher risk, and it is recommended to be cautious in participating.

2. Cases of Internet Fraud

Cases of internet fraud are common in the cryptocurrency and NFT digital collectibles industries. We have previously provided relevant suggestions on how companies can avoid falling into traps (see article: NFT Entrepreneur Suffers Huge Losses, Accused of Internet Fraud?). However, that article mainly focuses on the owners of NFTs. For company employees, it is difficult for them to access information about the company’s financial situation and fund flows, making it challenging to grasp the overall status of company projects. However, they should be aware of whether there is false advertising, false promises, or excessive hype on the business level. For example, if you are responsible for community operations and constantly make unrealistic claims in the chat group, it is obviously unrealistic. If you are also responsible for purchasing a large number of SIM cards for market manipulation, this may not be appropriate under normal circumstances. If you find that your boss is asking you to do things like this every day, you need to be extra careful.

3. Pyramid Scheme Cases

Criminal cases related to pyramid schemes only punish organizers and leaders, but this does not mean that employees are “immune.” This is because the organizers and leaders in this crime are not the legal representatives, shareholders, or executives of the known company, but rather their position within the pyramid scheme organization.

According to the “Opinions on the Application of Laws for Handling Criminal Cases of Organizing and Leading Pyramid Scheme Activities” by the Supreme People’s Court, the Supreme People’s Procuratorate, and the Ministry of Public Security, if the number of participants involved in pyramid scheme activities within the organization is more than 30 and the hierarchy is at least three levels, the organizers and leaders should be held criminally responsible. This means that if employees participate in a pyramid scheme and meet the conditions of more than 30 people and at least three levels, they will be considered organizers or leaders and will face criminal prosecution. If employees are aware that the company is involved in pyramid schemes and provide assistance, they can be considered accomplices without meeting the aforementioned conditions.

For example, in the criminal judgment of Tang and others for the crime of organizing and leading pyramid scheme activities (Case No. (2021) Hu 0110 Xing Chu 1160), Tang was a programmer for a certain information technology service company in Shanghai. Despite knowing that the company was engaged in pyramid scheme activities, Tang still developed software and provided technical support. The court convicted Tang of the crime of organizing and leading pyramid scheme activities.

Therefore, when a company’s business involves hierarchical organization and involves receiving rebates through the hierarchy and collecting membership fees, there is a high possibility of involvement in a pyramid scheme. It is advisable to avoid such situations and prevent getting involved.

02. Lawyer Man Kuen’s Suggestions

In the above three types of cases, employees can always “rescue” themselves by immediately leaving the company once they discover clear abnormalities. However, sometimes a company’s business is obscure and operates in a gray area where it is not clearly illegal but still feels “off.” In such cases, it is necessary to consult a lawyer for a specific analysis of the situation.

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