ICO stands for Initial Coin Offering, which is defined as "first token issuance" in the 94 announcement. The ICO of the project party mentioned in the title of this article can be understood in a broader sense, including token issuance, token financing and other behaviors, as well as disguised ICO behaviors of some NFT, GAMEFI, Metaverse and other project parties, and also includes the so-called IEO, IMO, IFO and other variants.
The previous series of articles have introduced the behavior patterns and typical scenarios of ICO, so I will not repeat them here. If you don’t understand, you can look up the previous articles. The following will focus on the defense points of ICO suspected of illegal business operations.
First of all, we need to understand why many ICO cases are often filed for investigation as illegal business operations in the early stages of investigation. According to Article 225 of the Criminal Law of the People's Republic of China: "If anyone violates state regulations and engages in any of the following illegal business operations, disrupting the market order, and the circumstances are serious, he shall be sentenced to fixed-term imprisonment of not more than five years or criminal detention, and shall be fined not less than one times but not more than five times the illegal gains; if the circumstances are particularly serious, he shall be sentenced to fixed-term imprisonment of not less than five years, and shall be fined not less than one times but not more than five times the illegal gains or have his property confiscated." ICO cases involve a wide range of people and a large geographical span, and it is impossible to find out the specific circumstances of each investor. Therefore, from the perspective of the judicial organs, if criminal responsibility is ultimately pursued for the crime of illegal business operations, confiscation of property is often the most cost-saving way to save judicial costs.
However, based on my experience in handling cases, the procuratorates in various regions generally believe that there is no legal basis for ICO behavior to be suspected of illegal business operations. In practice, very few cases have been convicted and punished for illegal business operations, including all the ICO cases I have represented recently, in which no arrests or transfers for prosecution were approved for illegal business operations. Therefore, as a defense lawyer, when requesting approval for arrest and transfer for review and prosecution, sufficient legal arguments with the prosecutor in the case can often achieve better results, that is, not approving the arrest or changing the charge to a lighter one.
1. Commonplace: Insufficient Basis for Preliminary Law
As for the premise of "violating state regulations" for the crime of illegal business operation, the existing relevant regulatory policies, whether it is the 94th announcement or the 924th notice, can only be regarded as departmental regulations at most. Although the new judicial interpretation of illegal fund-raising includes the behavior pattern of "virtual currency transactions", the effect of this judicial interpretation can only apply to the crime of illegal fund-raising, not to the crime of illegal business operation. According to the "Notice of the Supreme People's Court on Accurate Understanding and Application of "State Regulations" in the Criminal Law", "Second, in the criminal trial work, the people's courts at all levels should accurately grasp the "violation of state regulations" involved in the relevant cases in accordance with the provisions of relevant laws, administrative regulations and judicial interpretations. For unclear regulations, they should be carefully determined in accordance with the requirements of this notice. Acts that violate local regulations and departmental regulations shall not be determined as "violations of state regulations". If there is a dispute as to whether the defendant's behavior "violates state regulations", it should be treated as a legal application issue and reported to the Supreme People's Court step by step. "Therefore, according to this provision, acts that violate local regulations and departmental regulations shall not be determined as "violations of state regulations". If there is a dispute, the Supreme People's Court should be consulted. However, in practice, the author has not encountered the situation of consulting the Supreme People's Court.
2. Analysis of each item: ICO scenarios do not fall within the scope of regulation of illegal business operations
The author believes that the ICO behavior of the project party does not meet the relevant circumstances stipulated in the crime of illegal business operations. According to the Criminal Law, among the four circumstances of illegal business operations, the first two "(i) operating the monopoly, exclusive sale of goods or other restricted goods stipulated by laws and administrative regulations without permission" and "(ii) buying and selling import and export licenses, import and export certificates of origin and other business licenses or approval documents stipulated by laws and administrative regulations" are obviously not related to ICO behavior. Regarding "(iii) illegally operating securities, futures, and insurance businesses without the approval of relevant state authorities, or illegally engaging in fund payment and settlement businesses", first of all, the author believes that ICO projects do not illegally operate securities, futures, and insurance businesses without the approval of relevant state authorities. The so-called coin issuance, from the appearance, the coin itself has nothing to do with securities, futures, and insurance. Even if it is believed that the ICO project issues coins and is listed on the exchange, then as a single project, it is impossible to form the above-mentioned business. Of course, whether the behavior of the exchange is regulated by this clause needs further discussion.
Secondly, the author believes that ICO projects do not involve illegal fund payment and settlement business. At first glance, the project party raises funds, issues coins, goes on exchanges, establishes coin-coin trading pairs, realizes coin-coin trading and even issues coin trading, which seems to meet the appearance of "fund payment and settlement". However, according to relevant judicial interpretations, the fund payment and settlement business regulated in the crime of illegal business operation has its specific scope. According to the first article of the "Interpretation on Several Issues Concerning the Application of Laws in Handling Criminal Cases of Illegal Fund Payment and Settlement Business and Illegal Foreign Exchange Trading", the following situations are stipulated: (i) Using acceptance terminals or online payment interfaces and other methods to pay monetary funds to designated payees in illegal ways such as fictitious transactions, fictitious prices, and transaction refunds. This clause mainly refers to the situation where the payee is designated to pay through false transactions. (ii) Illegally providing others with cash withdrawal services from unit bank settlement accounts or transfer of unit bank settlement accounts to personal accounts. This clause mainly regulates the cash withdrawal of unit accounts and the transfer of public to private. (iii) Illegally providing others with check cash withdrawal services. This clause is not difficult to understand through its literal meaning and does not require too much explanation. In short, it has nothing to do with the ICO behavior model. (iv) Other situations of illegal fund payment and settlement business. Although this clause is a general clause, it cannot be interpreted broadly, and the scope of regulation should be equivalent to the behavioral patterns of the above three clauses and similar situations, and it cannot regulate all fund payment and settlement behaviors.
III. Illegality determination: whether it is other illegal business activities that seriously disrupt the market order
In practice, the crime of illegal business operation is often criticized by legal professionals as a "pocket crime". Experts and scholars have been calling for it in various occasions. The reason is that the provisions of the law regarding "other illegal business operations that seriously disrupt the market order" are too general, and many cases often use this provision to pursue the criminal responsibility of the defendant. In fact, the relevant judicial interpretation also has strict provisions on the application of this provision. According to the "Notice of the Supreme People's Court on Accurate Understanding and Application of "National Provisions" in the Criminal Law": "Third, when hearing cases of illegal business operations, people's courts at all levels must strictly grasp the scope of application of Article 225 (4) of the Criminal Law. Whether the defendant's behavior falls under the "other illegal business operations that seriously disrupt the market order" stipulated in Article 225 (4) of the Criminal Law, if the relevant judicial interpretation has not made clear provisions, it should be treated as a legal application issue and reported to the Supreme People's Court step by step. "Based on the current situation, especially when judicial organs are handling ICOs suspected of illegal business operations, they cannot provide sufficient evidence of how the project party's behavior has seriously disrupted the market order, and there is currently no effective support from the prior law. Therefore, according to the requirements of the "Notice", if it is believed that ICO behavior has seriously disrupted social order and is suspected of illegal business operations, it should be reported to the Supreme People's Court step by step.