Original author: Lawyer Mankun

Original link: https://mp.weixin.qq.com/s/faUyofWGKxf-Uhv8_wc2qw

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With the unprecedented surge in the popularity of virtual (digital) currencies, the influx of new users has also heightened the emotions of some criminals, leading many new users to inadvertently transfer criminal funds during related transactions. Although they did not participate in upstream crimes, it is quite common for them to be arrested by public security organs on charges of 'aiding criminal activities' or 'concealment crimes' after being targeted.
This article will focus on 'aiding criminal activities', analyzing typical cases to explore the potential legal red lines that Web3.0 practitioners might encounter in transactions and related projects, and will provide compliance suggestions to help avoid potential legal risks early on.

Case

Case One:

Since 2022, Shen has sought profits by raising funds to purchase computers, IoT cards, and other equipment, recruiting Li, Chen, and four others to participate, and further recruiting over a dozen people. They rented houses in Hefei, Anhui, to establish a USDT trading studio, forming an over-the-counter trading group via Telegram software, buying low and selling high to obtain profits. The court found that the U coins received by Shen and others originated from online gambling and telecom fraud, which are part of the black and gray industry, and it was presumed that they were aware, with payment settlements exceeding 5.9 million yuan and profits over 880,000 yuan. The court determined that Shen and others constituted the crime of aiding information network criminal activities.

Case Two:

Li is primarily engaged in mobile software development and operates a company. He was commissioned by Zhang to develop a 'cash recharge system' and withdrawal restrictions for a virtual trading platform, charging a development and maintenance fee of 300,000 yuan in USDT. The platform was later used by Zhang and others for fraud. After court review, it was presumed that Li was aware of Zhang's fraudulent actions, and the court ultimately ruled that Li constituted the crime of aiding information network criminal activities.

From the above cases, it can be seen that although the behaviors of practitioners themselves do not involve crimes, if their upstream or counterpart encounters criminal circumstances, they can easily be implicated, and in serious cases, may be recognized as accomplices or meet the standards for the crime of aiding criminal activities.
So, how can one avoid being involved in such illegal activities? We can start by analyzing their essence.

Definition and Standards for the Crime of Aiding Criminal Activities

According to Article 287-2 of the Criminal Law, the crime of aiding information network criminal activities refers to behaviors that provide payment settlement, network technical support, and other assistance for information network crimes, including but not limited to advertising promotion, traffic diversion, and server provision, with serious circumstances.

The key standards for criminal liability require the simultaneous fulfillment of the following three conditions:

1. Whether the behavior provided 'assistance' in the nature of others' criminal activities.

2. Whether it meets the criteria of 'knowing' or should have known that others were committing crimes using information networks.

3. Whether it reaches the level of 'serious circumstances'.

Among them, according to relevant judicial interpretations, if any of the following conditions are met, the individual can be determined to be aware: ① Continuing to engage in relevant behaviors after being informed by regulatory authorities; ② Not fulfilling legal management responsibilities after receiving reports; ③ Transactions with obviously abnormal prices or methods; ④ Providing programs, tools, or other technical support specifically for illegal activities; ⑤ Frequently adopting measures such as concealed internet access, encrypted communication, or data destruction, or using false identities to evade regulation or investigation; ⑥ Providing technical support or assistance for others to evade or avoid investigation; ⑦ Other circumstances that are sufficient to determine that the person is aware: a comprehensive assessment based on the individual's cognitive ability, past experiences, transaction objects, the relationship with those committing information network crimes, the time and manner of providing technical support or assistance, profit situations, and the individual’s public knowledge.

If any of the following situations occur, it should be recognized as serious circumstances: ① Providing assistance to more than three objects; ② Payment settlement amounts exceeding 200,000 yuan; ③ Providing funds exceeding 50,000 yuan through advertising or other means; ④ Illegal income exceeding 10,000 yuan; ⑤ Having been administratively punished for non-compliance, aiding, or harming the security of computer information systems within two years, and still engaging in aiding; ⑥ The crime committed by the helped object resulting in serious consequences; ⑦ Other serious circumstances.

It should be noted that if it is objectively impossible to verify whether the person was 'aware', but the total amount reaches five times or more of the standards set in the second to fourth items of 'serious circumstances', or causes particularly serious consequences, it should be treated as aiding criminal activities.

If the above conditions are not met and do not reach the standards for criminal liability, administrative penalties may still apply. According to the Cybersecurity Law and the Anti-Telecom Fraud Law, knowing that others are engaged in activities harmful to network security and providing technical support, advertising promotion, payment settlement, etc., the public security organs will confiscate illegal gains, impose detention for up to five days, and may also impose fines between 50,000 and 500,000 yuan; illegal buying, selling, renting, lending phone cards, IoT cards, telecom lines, SMS ports, bank accounts, payment accounts, internet accounts, etc., providing real-name verification assistance, or impersonating others or fabricating agency relationships to open the above cards, accounts, or identities will result in confiscation of illegal gains and fines between one to ten times the illegal gains. If there are no illegal gains or the illegal gains are less than 20,000 yuan, a fine of up to 200,000 yuan may be imposed.

Combining the circumstances in Case One, the virtual currency trading behavior of merchants Shen and others buying low and selling high may not inherently involve criminal risks. For example, in an article published by Mankun Law Firm (Virtual Currency OTC Merchants Should Avoid Foreign Exchange, Yet They Are Suspected of Illegal Operations? | Web3 Entrepreneurial Criminal Risk Prevention Guide (3)), it mentions illegal operations. However, due to negligence or profit-driven motives, failing to strictly implement customer identity verification (KYC) procedures, and lacking monitoring measures for abnormal transactions, once they receive funds from the black or gray market, even if the U merchants do not have criminal intent subjectively, they still face considerable criminal risks. Once the upstream crime is verified, their arbitrage trading may evolve into aiding the transfer of criminal funds. Given the transaction volume, frequency, and profit situation of the involved funds, it is easy to presume they were aware of the criminal activities involved, thus constituting aiding criminal activities. Especially considering the intensified crackdown on relevant entities involved after the disconnection operations began, the extension of presumed knowledge is continuously expanding. Once there are abnormalities in the involved fund chain, there is a high risk of criminal involvement.

Similarly, in Case Two, providing software technology does not inherently involve illegal criminal situations. However, Li's provision of technology, coupled with Zhang's request and commissioning background, can lead to a presumption that Zhang is involved in criminal activities. If Zhang's crimes are verified, Li will be recognized as aiding, similar situations include creating advertising interfaces or building VPN tools to evade regulation. If verified to have a strong objective correlation with upstream crimes, even if some project parties are subjectively unaware, they still face a high risk of aiding.

Risk Prevention for Aiding Criminal Activities

With a clear understanding of aiding, we can take the following measures to prevent involvement in such risks as much as possible:

Practitioners

Strengthen KYC processes: Enhance customer identity verification mechanisms, clarify the sources of customer funds, and avoid transactions with customers whose sources of funds are unclear. At the same time, set transaction limits for customers and regularly review suspicious transaction accounts.

Reject suspicious transactions: For businesses that are clearly known or judged to likely involve trading counterparties engaged in illegal activities, they should be decisively rejected. If trading counterparties use transaction funds for investment or other purposes, one should be vigilant about whether their investment targets may involve criminal possibilities, to avoid criminal platforms using them as intermediaries for fund transfers.

Prevent scoring behavior: U merchants should prevent large and frequent transactions to avoid providing assistance for potential illegal activities, and prevent themselves from being exploited by criminal groups. They should also adhere to reasonable transaction prices that align with market conditions.

Project parties

Strengthen user agreements and liability waiver clauses: Increase clauses in the user agreements of project parties that prohibit illegal use, and specify that legal consequences arising from improper use by users will be borne by them. The agreement can further provide that if illegal activities by users are discovered, the platform has the right to terminate their usage rights.
Implement API usage tracking and risk control: Conduct tiered authorization management for open-source technology and API interfaces, ensuring that high-risk activities require more information verification. At the same time, implement a usage tracking system and risk control strategies, maintaining vigilance over accounts that frequently call interfaces, and stopping access if they reach critical thresholds.
Technical compliance review: Regularly conduct compliance reviews of technical services and platform structures, and implement special regulatory measures for high-risk usage scenarios. Be vigilant when handling large fund transactions to ensure the platform is not exploited by illegal activities.

Summary

In the virtual currency industry, related practitioners and project parties often conduct business without subjective criminal intent and have taken certain preventive measures objectively. However, they often easily cross legal red lines such as aiding criminal activities due to negligence or incomplete compliance measures. Therefore, on one hand, we should maintain sensitivity to legal risks; whether through strict KYC/AML measures or comprehensive customer usage review mechanisms and compliance agreements, these can effectively reduce related criminal risks. On the other hand, when encountering potential legal issues or having already violated relevant laws and regulations, promptly seeking professional legal assistance to avoid or reduce the harm caused by risks is also a clear choice.

Lawyer Mankun will continue to provide various common compliance issues related to blockchain, paving a safe and compliant future for more entrepreneurs and investors. Stay tuned!