How will virtual currencies be handled in criminal cases?

In recent times, the reported cases involving virtual currency have been in the hundreds of billions or tens of billions. Editors are hesitant to write articles about cases involving less than one billion. So how are these large-scale cases, especially those involving virtual currency, handled by the judicial system in China, where virtual currency is strictly regulated? This article will provide an overview and explanation.

In criminal cases, general rules for property disposal

In modern society, the most common forms of punishment in criminal cases are imprisonment and fines, which is much more civilized compared to ancient China. In the Western Han Dynasty, Sima Qian was wrongfully imprisoned and subjected to torture. In a letter to a friend, he lamented, “Every time I think of this shame, my sweat drips and stains my clothes!”

In modern society, although we no longer have the brutal torture methods of ancient times, losing one’s freedom is still difficult to bear, which is more easily understood by the general public. As a result, many people tend to overlook the “power” of fines and only think about consulting a lawyer for remedies after the fact, often too late. Therefore, before discussing the practical disposal of virtual currency, it is necessary to understand the general rules for the disposal of property in criminal cases by judicial authorities in our country.

(I) Rules for property disposal during the public security phase

As the initiating authority for most criminal cases, the public security organs are usually responsible for the sealing, seizure, and freezing (referred to as “sealing, freezing, and seizure”) of the assets involved. According to the “Provisions on the Procedures for the Handling of Criminal Cases by Public Security Organs” and the “Several Provisions on the Management of Assets Involved in Cases by Public Security Organs,” the public security organs have the right to seal, freeze, and seize all kinds of assets involved in the case. The freezing period for frozen deposits, remittances, securities trading settlement funds, futures margin, equities, policy benefits or investment rights is six months, which can be continuously frozen upon expiration; for frozen bonds, stocks, fund shares, and other securities, the freezing period is two years, which can also be continuously frozen upon expiration.

The public security organs have the right to manage the assets involved, and except under special circumstances (such as the assets being easily damaged, lost, decayed, or spoiled), they cannot dispose of the assets privately. Assets involved as evidence should be transferred with the case; assets not transferred with the case should be disposed of according to the court’s judgment.

(II) How property is disposed of during the procuratorate phase

There are generally two situations for the disposal of assets during the procuratorate phase: one is the disposal of assets involved in cases investigated by the procuratorate itself (such as cases of dereliction of duty); the other is the disposal of relevant assets involved in cases transferred from the public security organs to the procuratorate.

In the first situation, in cases investigated by the procuratorate itself, the procuratorate has a greater discretion in the disposal of assets involved and can take the initiative to carry out sealing, freezing, and seizure operations. However, in principle, apart from returning assets to the victims or identifying assets that have nothing to do with the case, no disposal should take place before the end of the litigation process (such as the withdrawal of the case by the procuratorate or the court’s judgment).

If it is a case transferred by the public security organs, there is no substantial difference in the disposal rules for the property involved compared to the public security organs. If the procuratorate decides not to prosecute, the property involved will be returned to the criminal suspect or the person not prosecuted according to the case; if prosecuted, the property involved as evidence will generally be transferred to the court along with the case.

The main basis for the procuratorate’s disposal of the property involved is found in the “Provisions on the Management of Property Involved in Criminal Proceedings of the People’s Procuratorate” and the “Rules of Criminal Procedure of the People’s Procuratorate”.

(III) General provisions for the court’s disposal of property

In principle, the court has the final decision-making power to dispose of the property involved. Judges decide on the specific rules applicable in each case based on the legal provisions of different charges, such as fines, confiscation of illegal gains, confiscation of the defendant’s property, etc.

The specific rules are found in the “Criminal Law”, “Criminal Procedure Law”, “Interpretation of the Supreme People’s Court on the Application of the Criminal Procedure Law of the People’s Republic of China”, “Several Provisions of the Supreme People’s Court on the Execution of Criminal Judgments Involving Property”, etc.

(IV) Other provisions

In addition, there are some normative documents that make provisions for the disposal of property involved in criminal cases. Although they are not laws, regulations, or judicial interpretations, some of them are more effective in practice than them, such as the notice issued by the General Office of the Communist Party of China and the General Office of the State Council on “Further Standardizing the Disposal of Property Involved in Criminal Proceedings”.

Practice of disposing of virtual currency involved in criminal cases

In recent years, the number of criminal cases involving virtual currency has been increasing, especially cases involving fraud, theft, pyramid schemes, concealment, and non-absorption, which will inevitably involve the issue of the value calculation of virtual currency. On the other hand, network crimes such as assisting in trust, non-trust, and illegal acquisition of computer information system data generally do not involve the determination of the value of virtual currency. This not only shows that virtual currency is becoming more and more widely used in traditional criminal fields but also explains the natural value attributes of virtual currency. However, the current policy in China only treats virtual currency as a virtual commodity and does not allow centralized trading in the country, which leads to an awkward situation in the disposal of virtual currency in criminal cases.

In practice, Lawyer Liu divides the disposal of virtual currency into the following three processes based on common processing modes in criminal cases:

(I) Returning the original currency to the victim/parties involved

For the victims of criminal cases or criminal suspects, or defendants who have had their cases withdrawn, not prosecuted, or found not guilty, their property should be returned to them in principle. If the property involved that has been frozen or seized is virtual currency, the handling agencies should return the original currency to the victim or the criminal suspect/defendant.

(II) Entrustment Disposal – Realization

As virtual currencies that are illegal gains or criminal tools, they will be confiscated by the court and deposited into the national treasury. However, virtual currencies are not legal tender in China, and whether it is a “cold wallet” or a “hot wallet”, they cannot enter the gates of the national treasury. In addition to being executed by the court enforcement bureau, the property penalty ruled by the court will also be handled by the public security organs in some practical operations, especially in criminal cases involving virtual currencies.

The public security organs generally entrust third-party companies to dispose of the virtual currencies involved in the case. As for whether the public security organs or third-party companies violate the “Notice on Further Preventing and Disposing of Risks Associated with Virtual Currency Trading Speculation,” we will not express our opinions in this article. As for how third-party companies realize virtual currencies (international market or domestic underground market), we will not delve into it in this article. (Man Kun Law Firm will continue to update detailed introductions in the future). In summary, virtual currencies involved in such cases become fiat currencies that can be disposed of judicially.

In practice, there are some law enforcement agencies that illegally dispose of virtual currencies of the individuals involved in the case, but due to the special attributes of virtual currencies, it is difficult for the parties involved to seek effective remedies.

For the public security organs, there is a slightly more compliant way, which is to authorize the criminal suspects/defendants to the public security organs for the disposal of the virtual currencies involved in the case. Ideally, the criminal suspects/defendants themselves dispose of the virtual currencies within a controllable range. In the “Plus Token” pyramid scheme case, the defendant actively applied to the public security organs to find a third-party company to dispose of the seized virtual currencies, and the realized fiat currencies were used as restitution funds for the case.

Conclusion

The focus of attention in virtual currency criminal cases has always been how virtual currencies will be judicially disposed of. However, there is currently no clear and explicit disposal path in practice, and it remains in an ambiguous state that can be understood but not expressed. However, there is no doubt that the virtual currencies involved in the case will definitely be disposed of by the judicial authorities. What is urgently needed at present is how the virtual currencies involved in the case can be legally and compliantly disposed of. As a criminal defense lawyer, in addition to better defending the criminal case itself, understanding the professional knowledge of virtual currencies and appealing or accusing the judicial authorities’ illegal disposal of the virtual currencies of the parties involved is also a necessary part of effective defense.

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