Author: Shao Shiwei

As the complainant, if one wishes to file a criminal complaint in mainland China to hold the infringer accountable, the first prerequisite is to determine: whether the infringer is located in mainland China. If the infringer is in Hong Kong or overseas, even if the domestic public security bureau files a case, it is likely that there will be no further developments. For the reasons behind this, please refer to the article "Can Chinese Public Security Arrest People Across Borders for Telecom Network Fraud Committed Abroad?" which will not be elaborated on here. This is also why many overseas Web3 projects that exploit users find that domestic users' reports are futile, as these individuals are usually located overseas.

With this prerequisite in mind, we now turn to the main topic. For the complainant, the following questions must first be addressed:

What materials need to be submitted for the report? Which public security bureau should the complaint be filed with? If a report is made to the public security bureau, will they determine that we are engaged in illegal activities and instead investigate us?

Who is qualified to file a complaint as a "victim unit"?

For Web3 project parties, if it involves project personnel receiving commercial kickbacks from trading parties, misappropriating project funds due to their position, or if project funds are defrauded or stolen, which entity should report as the victim unit? This needs to be discussed based on whether the Web3 project party has established a physical company in mainland China.

Generally, Web3 platform operators often set up their project entities in places like Hong Kong, Singapore, or the Cayman Islands. However, considering factors such as labor costs and ease of communication and management, they may recruit employees domestically.

For larger platforms, such as virtual currency exchanges, it is common to collaborate with domestic third-party companies, where the domestic third-party outsourcing company signs labor contracts with employees and pays social security. However, many Web3 project parties are established by the actual controllers or by third parties instructed by them, who set up companies and employ staff while paying social security and salaries through these companies.

In such cases, the appropriate reporting entity becomes crucial for whether a case can be filed.

If a Web3 project party registered overseas suffers losses, can a domestic entity be filed as the victim unit?

Referring to traditional criminal cases, if a foreign-funded enterprise is the victim unit and has subsidiaries, branches, or offices in mainland China, then the subsidiary, branch, or office can jointly file a complaint with the foreign-funded enterprise.

Therefore, if a Web3 platform can prove that its domestic company has a certain connection to itself, then the domestic company should be able to jointly act as the victim unit to file a complaint.

However, in many Web3 projects, although the project entity is established overseas, it only establishes labor relations with domestic employees through third-party outsourcing companies. This raises a practical issue: can the cooperating company act as a "victim unit" to file a complaint?

From a legal relationship perspective, third-party outsourcing companies typically do not directly participate in project fund management and do not have rights to control or benefit from the assets involved, making it difficult for their entity status to be recognized as a victim unit. If they report in their name, they may face challenges regarding the lack of direct losses or rights basis.

However, in judicial practice, there are still instances where cooperating companies act as reporting entities, with their staff submitting materials on their behalf. This approach can indeed help advance cases into the investigation stage in certain instances, but it also provides a loophole for the defense to argue about the consistency between the "reporting entity and the actual interest entity."

For Web3 project parties, another key issue they face is whether the platform itself can be recognized as a "victim unit" under Chinese law.

Certain Web3 business models, such as on-chain prediction markets, derivative trading, and on-chain token liquidity matching, have clear regulatory positions in some countries and regions. However, in mainland China, since virtual currency-related businesses are classified as "key areas for prevention and prudent regulation," judicial authorities often consider two aspects when determining whether the platform has "legal rights":

• Whether the entity qualifications comply with legal regulations (whether it has the qualifications for compliant operations within the territory);
• Whether the business content falls within areas prohibited or restricted by domestic law.

Therefore, if the core business of the platform falls within prohibited operational scopes in mainland China, its legal basis as a "victim unit" will be limited, and the corresponding complaint path will become complicated.

However, this does not mean that all Web3 businesses cannot obtain victim status. If the nature of the platform's business does not touch upon clearly prohibited areas in the country and can prove the existence of actual damage and asset rights connection, it may still be recognized as a victim unit by judicial authorities.

Will filing a report lead to risks for the Web3 project party?

This is one of the most concerning issues for project parties when considering criminal complaints.

Given policies such as the 924 Notice, virtual currency-related businesses are classified as illegal financial activities. Therefore, if the project party files a report, it needs to assess the legality of the project itself; otherwise, it may not only fail to be recognized as a "victim unit" under Chinese law but may also expose itself to criminal risks.

However, illegal financial activities are not equivalent to criminal offenses, or specific criminal charges; the risk level of the business still needs to be assessed comprehensively based on whether it conducts business targeting users in mainland China and whether it absorbs funds from domestic users.

Because many project parties are uncertain about this, some individuals exploit the project parties' concerns about "domestic risks" to extort them under the guise of "exposure," "rights protection," or "reporting."

For example, reports have mentioned that on October 16, 2023, Billy Wen, founder of Negentropy Capital, stated on the X platform that last year his fund was extorted by a so-called rights protection group after investing in a Web3 project. He subsequently reported to the Longgang police in Shenzhen, and the case was filed. The suspect, Wu, was accused of extorting 50,000 USDT (over 300,000 yuan in total). Wu claimed he was incited by a Twitter influencer named BitRun and used fabricated rights protection materials to carry out the extortion online. The court is set to hear and rule on the case soon.

This shows that even under cautious regulation, not all project parties are left without recourse. As long as they can clarify their rights basis and conduct a pre-assessment of business legality risks, they may still gain support from judicial authorities.

Which public security bureau to report to? — Determining jurisdiction

Which public security bureau should be approached for reporting, and which bureau has jurisdiction over the case? For the reporter, if this question is not determined beforehand and a report is made rashly, it may lead to:

• The public security bureau refusing to accept the case on the grounds of "lack of jurisdiction"
• Different regional public security bureaus transferring and shirking responsibility
• Even if a case is filed, the defense may later raise objections based on "improper jurisdiction," affecting the case's direction

Therefore, clarifying jurisdiction is the first step in determining whether the rights protection path is feasible.

In China's criminal case jurisdiction, the principle is to have jurisdiction based on the location of the crime, with the defendant's residence as an exception. However, there are also jurisdictional provisions for special circumstances, such as cybercrime.

According to the basic provisions of territorial jurisdiction, if a Web3 project party files a criminal complaint, at least the crime must occur within mainland China. So how is the crime location understood? In Web3 scenarios involving on-chain assets, permission management, and cross-regional personnel collaboration, the crime location is not limited to a physical location but includes any of the following places:

• The location where project funds or digital assets are transferred or controlled
• The location where private keys or account permissions are operated
• The location where asset losses ultimately manifest
• The location where criminal proceeds are obtained, concealed, or used

In other words: on-chain operations ultimately land at a certain point in the real world, whether it be people, devices, or the flow of funds; these "landing points" themselves constitute the scope of territorial jurisdiction that domestic justice may touch upon.

For criminal charges such as theft or fraud, complaints are generally filed with the public security criminal investigation department at the location where the theft or fraud occurred, or where the funds (currency) were transferred or received.

For criminal charges such as bribery of non-state personnel, embezzlement, or misappropriation of funds, if the Web3 project party has a branch in the country, it can report to the public security economic investigation department at the branch's location. However, for Web3 project parties without branches in the country, they can choose to report to the economic investigation department at the actual crime location or the suspect's residence.

Do foreign evidence and on-chain evidence require notarization?

The business operations, account systems, asset management, and communication collaboration of Web3 projects often occur on overseas servers, on-chain systems, or cross-border communication tools. Therefore, when filing a criminal complaint, a practical issue often arises:

Can this evidence be directly used in the country? Is notarization required?

According to the Criminal Procedure Law, if a Web3 project party collects relevant materials regarding the facts involved in the complaint, including the authorization procedures for relevant agents (such as employees, lawyers, etc.), notarization is required. If foreign languages are involved, a Chinese translation should also be attached.

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