This article is reprinted with permission from Mankun Blockchain Legal Services, and the copyright belongs to the original author.

Opportunities and legal risks often coexist. Web3 workers may encounter situations where overseas companies suddenly go offline, or they may be imprisoned due to their work being classified as pyramid schemes or fraud, among other issues. Due to the attractive nature of the Web3 industry and the gradually stricter regulations in our country, there has been a continuous emergence of individuals involved in high-risk projects due to unclear understanding of legal boundaries.

The Mankun criminal team has provided employment analysis consultations for many practitioners and has represented numerous criminal cases in similar situations. They understand that what people are most concerned about when looking for jobs is property risk and personal safety. This article will focus on personal safety and discuss the risks of Web3 workers being "arrested" domestically, outline the characteristics of high criminal risk projects, and help everyone improve their judgment, avoid pitfalls, and reduce risks.

"Operating a gambling house" is the most common, most hidden, and also the highest risk type of criminal charge. In current judicial cases, project members and developers have been identified as accomplices in the crime of operating a gambling house due to their involvement in related businesses. We have summarized the following four common high-risk scenarios:

1. Directly establishing a gambling platform on the blockchain

Xie and Liu's team built the "BigGame" platform on the EOS blockchain, offering games like "dice" and "red and black." Users can participate in betting using EOS coins (virtual currency) as chips, and EOS coins can be exchanged for legal currency through related trading platforms, forming a complete chain of virtual currency to legal currency conversion.

2. Using virtual currency as chips on traditional gambling platforms

Li's team established the "IFA" anti-betting gambling platform on the internet, allowing users to gamble by depositing RMB or virtual currency. Team members used computers and mobile phones to collect real-time football match scores and odds published daily by gambling websites like "Leisuwang" and "Taogold," edited the data, and uploaded it to the platform's backend for members to place bets. Users of the platform profit from betting, which is essentially a "small bet for a big win" gamble; at the same time, they can exchange their winnings for legal currency through trading platforms, forming a complete conversion chain.

3. Building a virtual currency trading platform without real transactions, only guessing price fluctuations

He’s team attracted players to participate in gambling activities on the platform by sending advertisements with "Star Coin Global" profit screenshots and website links via the internet and mobile communication terminals. Participants need to use USDT virtual currency to bet on the price fluctuations of other virtual currencies; the uncertainty of virtual currency price trends, combined with the platform's 50x leverage trading, further amplifies the risks and nature of "small bets for big wins." USDT is pegged 1:1 to the US dollar and can be exchanged for legal currency through platforms like Huobi, allowing players to cash out their winnings. The platform profits by charging a 0.2% fee on players' betting amounts.

4. Providing exchange services for gambling websites

Shu provided bank cards for online gamblers to recharge and wash codes, which is a key link in the monetization chain of gambling activities. Participants recharge Shu through RMB bank transfers, and he purchases USDT at market price on Huobi, then recharges the USDT to the "Lida" platform account. After clicking "confirm release," participants can obtain chips on the corresponding gambling platform; the gambling platforms he serves all have random gameplay. The "Lida" platform interconnects with overseas gambling platforms' USDT, allowing chips to be exchanged for USDT and then converted into legal currency for cashing out.

Article 8 of the "Interpretation on Several Issues Concerning the Application of Law in Handling Criminal Cases of Gambling" defines what constitutes gambling behavior: users invest a certain amount of legal currency; through some activities/games, they can ultimately obtain more or less currency or equivalent items; forming a chain from funds to funds.

From the above cases, it can be seen that cryptocurrency or blockchain is often embedded in key links of gambling activities: first, as chips used to directly replace legal currency in the betting process; second, as a settlement tool providing a cross-border, anonymous flow path for gambling funds; third, through exchanges to achieve free conversion with legal currency, completing the cashing out loop. Because of this, although the superficial form is "blockchain application" or "virtual asset gameplay," the underlying operational logic still meets the three major elements of gambling crimes—users invest counterpart funds, rely on random gambling to obtain profits, and form a complete chain from funds to funds.

It should be noted that in judicial practice, not only will the project parties that build or operate gambling platforms be identified as operating a gambling house; those who provide direct or indirect assistance to such platforms, such as agency, promotion, fund settlement, and technical support, may also be identified as accomplices or aiding offenders. For Web3 practitioners, whether they are developers, marketing personnel, or involved in settlement and community operations, it is essential to identify whether gambling elements are involved when engaging with projects to avoid being unknowingly drawn into criminal risks.

In judicial practice, the scenarios involving Web3 projects triggering pyramid scheme-related legal risks mainly have three characteristics, taking the PlusToken case as an example:

1. New payment forms: payment in virtual currency as a condition for participation;

2. Multi-level promotion models: using smart contracts for multi-level commissions, cross-chain platforms for multi-level promotion, and task-based new user recruitment with multi-level rebates;

3. Multi-level compensation: tiered profit sharing from transaction fees, multi-level rebate sharing, and gradient dividends for community members.

If you want to learn more about this case, lawyer Shao Shiwei from our firm has previously written related articles analyzing the case to explain the law: "How Web3 Games Can Avoid Pyramid Scheme Risks from the 40 Billion Cryptocurrency Pyramid Scheme Case."

According to the "Regulations on Prohibiting Pyramid Schemes" and the "Risk Warning on New Pyramid Scheme Activities by the State Administration for Industry and Commerce," the definition of a pyramid scheme is an illegal business activity that develops personnel through organizers or operators, calculates or pays rewards based on the number of developed personnel, or requires developed personnel to pay fees to obtain membership qualifications.

1. Payment of fees: payment or disguised payment of entrance fees, membership fees, or subscription for virtual or actual products, meaning that payment is required to obtain the qualification for earning rewards and developing downlines;

2. Developing downlines: directly or indirectly developing downlines, meaning recruiting new members and forming levels in a certain order. Article 1 of the "Opinions on the Application of Law in Handling Criminal Cases of Organizing and Leading Pyramid Scheme Activities" clearly states that if the levels exceed three and the number of developed personnel exceeds 30, it constitutes a crime;

3. Tiered compensation: rewards calculated from the sales performance of directly or indirectly developed downlines, or rewards and rebates calculated based on the number of directly or indirectly developed personnel, with obvious tiered income.

Combining the PlusToken case and the three characteristics from judicial interpretations, although the pyramid scheme model in the Web3 context is more hidden, it still possesses the three characteristics of payment of fees, developing downlines, and tiered compensation. Cryptocurrency may serve as a payment method for entrance fees, be used as a promotional gimmick to attract participants, and ultimately act as a means of rebate. Once it meets these three characteristics and reaches the legal standards for levels and numbers, it may be identified as a pyramid scheme.

Therefore, if you are an employee of the project party and you know or should know that the project has the above characteristics, yet you still deeply participate in promotion design, fund collection and distribution, and developing downlines, you may bear criminal responsibility.

In practice, raising startup funds through direct or disguised means has gradually become the main way to launch blockchain projects. Raising funds for startup projects often requires extensive promotion, and many individuals who are unclear about legal red lines engage in high-risk behaviors, such as exaggerating returns, promoting only declines without increases, guaranteeing profits, and ensuring capital preservation, which often leads to being identified as illegal fundraising.

Taking the "Shenyang Maker" case as an example, Huo established the Shenyang Maker Era Big Data Asset Management Center without the necessary qualifications, promoting three projects to over 400 people with high returns as a gimmick, illegally raising over 60 million yuan. The specific projects were: ① Bitcoin mining machine sales and rental project, where customers invest in Shenyang Maker to purchase mining machines, and Shenyang Maker pays investors 230 yuan daily for a contract period of 15 months, after which the mining machine belongs to Shenyang Maker and the 20,000 yuan purchase price is not refunded. ② Gravity-free ICO fund investment project. ③ Blockchain investment project, promoting returns of 20-30 times.

According to the "Regulations on Preventing and Dealing with Illegal Fundraising" and the aforementioned "Interpretation," illegal absorption of public deposits refers to activities that absorb funds from unspecified social objects without the legal permission of the State Council's financial management department or in violation of national financial management regulations, issuing certificates and promising to repay principal and interest within a certain period.

Additionally, according to Article 2, Item 8 of the "Interpretation on Several Issues Concerning the Application of Law in Handling Criminal Cases of Illegal Fundraising," virtual currency trading and other behaviors are explicitly included in the regulation of the crime of illegal absorption of public deposits. In conjunction with the legal provisions and the Web3 projects in the cases, although high-risk projects may have different promotional methods, they essentially exaggerate profits to the unspecified majority, thereby illegally raising funds.

Therefore, projects that simultaneously meet the following four characteristics pose a very high risk of illegal fundraising and should be approached with caution:

1. Illegality: without legal permission from the State Council's financial management department or in violation of national financial management regulations;

2. Publicity: through public forms such as the internet, television, and on-site promotions;

3. Sociality: absorbing funds from the public, i.e., unspecified social objects;

4. Inducement: promising high returns, promoting that the currency only rises and never falls, stable annualized returns, returning principal in equivalent tokens within a certain period, promises of compound interest on returns, stable dividend income, etc.

Combining the "Shenyang Maker" case and the above judicial interpretations, it can be seen that the forms of illegal fundraising in the Web3 context are diverse, with various models such as mining machine sales, token issuance, and on-chain financial management promoting fundraising to the public. However, the core still possesses the four characteristics of illegality, publicity, sociality, and inducement. Once a project meets these criteria, it may be identified as illegal fundraising. Moreover, if you are an employee of the project party and you know or should know that the project has the above characteristics, yet you still deeply participate in model design, promotional activities, fund raising, and distribution, you may also bear criminal responsibility.

In practice, fraud techniques are varied, but their core characteristic remains the "illegal possession" purpose defined in Article 266 of the Criminal Law of the People's Republic of China and related judicial interpretations, which involves causing property loss to victims through fabrication, concealment, and other actions.

In the "Xiong Fraud Case," the involved team recruited practitioners domestically under the guise of establishing a company, using communication tools and the internet, with their employees posing as "teachers," "assistants," and "senior investors," to deceive victims into investing in the company's fictitious "virtual currency." They initially created the illusion of small profits for victims, then encouraged them to invest large amounts, controlling the false digital currency to plummet through backend operations, creating the appearance of losses, leading victims to believe their investments had failed, thus obtaining their money. In the "Xiong Fraud Case," the specific manifestations of fraud in blockchain projects are as follows:

1. Fabricating facts/concealing the truth: creating false profit models during the project preparation phase;

2. Having the purpose of illegal possession: after raising funds, not conducting project development according to the white paper but instead squandering the money or absconding;

3. Victims making erroneous property dispositions based on misconceptions: after issuing tokens, maliciously manipulating token prices to create illusions, leading victims to dispose of their property based on these illusions, thus absconding with their funds.

In addition, those who knowingly provide payment settlement assistance for others committing telecom network fraud have also been recognized as accomplices in fraud in practice. In the "Xie Fraud Case," Xie was able to assist others in committing telecom fraud. To evade investigation, he sought cooperation from others, transferring the illegally obtained funds through bank transfers to the Alipay, WeChat, and bank accounts of other individuals, and then using these funds to purchase virtual currencies such as "Tether." The other individuals would transfer the virtual currency to Xie through online accounts, and Xie would sell the virtual currency for cash and hand it over to the individuals committing the fraud, earning a commission in the process.

Therefore, before joining a project, it is essential not only to carefully assess the project party but also to understand the upstream business of the settlement party as much as possible. Otherwise, as an employee, one will inevitably bear a higher criminal risk.

Overall, to determine whether there are criminal risks in working in Web3, it is necessary to first examine the risks of the project itself. This requires combining actual work content to preliminarily screen for risky projects and identify and avoid participating in high-risk businesses that meet the following characteristics.

1. Involvement in operating a gambling house risk: If the project has a "paid investment + random gameplay + monetization chain" model, it requires high vigilance.

2. Involvement in organizing pyramid schemes risk: When the project requires employees to "pay fees + develop downlines + tiered compensation," it essentially constitutes characteristics of a pyramid scheme.

3. Involvement in illegal public deposit absorption risk: If the project meets the four criteria of "illegal + public + targeting unspecified objects + promising capital preservation and interest," it is a typical illegal public deposit absorption behavior.

4. Involvement in fraud risk: When the project party induces users to "erroneously dispose of a certain amount of property" through "illegal possession purpose + fabrication of facts/concealment of the truth," it is suspected of fraud.

Career choices in the Web3 industry are like a double-edged sword, carrying the aspiration for financial freedom while entailing potential crises that cannot be ignored. The content discussed in this article is for reference only. If you encounter more complex or specific legal issues in your actual work, it is advisable to consult a professional lawyer or institution in a timely manner.

If you still have doubts, such as whether being an outsourced or non-core staff member, and not being the boss, would still hold you criminally liable, and if so, whether you would bear primary or secondary responsibility, the next issue will address this concern.

Related reading: "Criminal Legal Risks of KOL Promotion from the Perspective of Digital Collectibles"

Original article: “Is Remote Work in Web3 Risky in China? (Part 1)”

免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。