Starting from personal safety, let's focus on the risks of Web3 workers being "arrested" in the country.

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Introduction

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… etc. Due to the enticing nature of the Web3 industry and the gradually tightening regulations in our country, there has been a continuous emergence of individuals engaging in high-risk projects due to unclear understanding of legal boundaries.

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

Risks Involved in Operating Gambling

"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

A team led by Xie and Liu 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 monetization chain of virtual currency and legal currency.1

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 recharging with RMB or virtual currency. Team members collected real-time football match scores and odds data from gambling websites like "Leisuwang" and "Taogold" using computers and mobile phones, edited it, 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, it can be exchanged for legal currency through trading platforms, forming a complete monetization chain.2

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 recharge and bet on the price fluctuations of other virtual currencies; the price trends of virtual currencies are uncertain, and the 50 times leverage set by the platform 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 monetize the USDT they win. The platform profits by taking a 0.2% fee from players' betting amounts.3

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; all the gambling platforms he serves 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 monetization.4

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 exchangeable equivalents; 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 cross-border, anonymous circulation paths for gambling funds; third, achieving free exchange with legal currency through exchanges, completing the monetization closed 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 helpers. For Web3 practitioners, whether developers, marketing personnel, or those 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.

Risks Involved in Organizing Pyramid Schemes

In judicial practice, scenarios involving Web3 projects triggering pyramid scheme legal risks mainly have three characteristics, taking the PlusToken case5 as an example:

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

2. Multi-level promotion models: Utilizing smart contracts for multi-level commissions, cross-chain platforms for multi-level promotions, and task-based multi-level rebates;

3. Multi-level compensation: Transaction fee tiered profit sharing, multi-level profit rebates, and community member gradient dividends.

For a detailed understanding of this case, lawyer Shao Shiwei from my firm has previously written related articles analyzing this case Explaining the Law through Cases | 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," pyramid schemes are defined as illegal business activities that develop personnel through organizers or operators, calculating or paying rewards based on the number of developed personnel, or requiring developed personnel to pay fees to obtain membership qualifications.

1. Paying fees: Paying or indirectly paying entrance fees, membership fees, or purchasing virtual or actual products, meaning that only after payment can one obtain the qualification to earn rewards and develop downlines;

2. Developing downlines: Directly or indirectly developing downlines, meaning bringing in 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: Upline earns rewards from the sales performance of directly or indirectly developed downlines, or earns rewards and rebates based on the number of directly or indirectly developed personnel, with tiered earnings being evident.

Combining the PlusToken case and the three characteristics of judicial interpretation, although the pyramid scheme model in the Web3 context is more hidden, it still possesses the three characteristics of paying fees, developing downlines, and tiered compensation. Cryptocurrency may serve as a means of payment for entrance fees, be used as a promotional gimmick to attract participants, and ultimately act as a rebate method. 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 are aware or should be aware that the project possesses the above characteristics, yet still deeply participate in promotion design, fund collection and distribution, and developing downlines, you may bear criminal responsibility.

Risks Involved in Illegal Fundraising

In practice, directly or indirectly raising startup funds has gradually become the main way to initiate blockchain projects. Raising startup funds often requires extensive promotion, many individuals who are unclear about legal red lines engage in some high-risk behaviors, such as exaggerating returns, promoting only declines without increases, guaranteed profits, and capital preservation, which often lead to being identified as illegal fundraising.

Taking the "Shenyang Maker" case6 as an example, Huo established the Shenyang Maker Era Big Data Asset Management Center without the corresponding 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, with a contract period of 15 months, after which the mining machine belongs to Shenyang Maker and does not return the 20,000 yuan for purchasing the mining machine. 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 public deposit absorption 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 return principal and interest within a certain period.

Additionally, according to Article 2, Item 8 of the "Interpretation of the Supreme People's Court on Several Issues Concerning the Application of Law in Handling Criminal Cases of Illegal Fundraising," it is clearly stated that behaviors such as virtual currency trading fall within the regulatory scope of the crime of illegal public deposit absorption. In conjunction with the legal provisions and the Web3 projects in the case, although high-risk projects may differ in 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 caution should be exercised when participating in such projects:

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 does not fall, stable annualized returns, returning principal in equivalent tokens within a certain period, compound interest promises, stable dividend returns, 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 are aware or should be aware that the project possesses the above characteristics, yet still deeply participate in model design, promotional activities, fund raising, and distribution, you may also bear criminal responsibility.

Risks Involved in Fraud

In practice, there are various methods of fraud, but their core characteristic remains the "illegal possession" purpose as defined in Article 266 of the Criminal Law of the People's Republic of China and related judicial interpretations, leading to property loss for the victim through acts of fabrication or concealment.

In the "Xiong Certain Fraud Case"7, the involved team recruited practitioners domestically under the guise of establishing a company, using communication tools, the internet, and other technical means, with their employees playing roles such as "teachers," "assistants," and "experienced investors" to deceive victims into investing in the company's false "virtual currency." They initially created the illusion of small profits for the victims, then encouraged them to make large investments, controlling the false digital currency's plummet through backend operations, creating the appearance of losses, leading victims to believe their investments had failed, thus obtaining their money. In the case of the "Xiong Certain Fraud," 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, failing to conduct project research and development according to the white paper's content, instead squandering the money and fleeing;

3. Victims making erroneous property dispositions based on misconceptions: After issuing tokens, maliciously manipulating the token price to create an illusion, leading victims to dispose of their property based on this illusion, thus absconding with their funds.

Additionally, those who knowingly provide payment settlement assistance to others committing telecom network fraud have also been recognized as accomplices in fraud in practice. In the "Xie Certain Fraud Case"8, Xie provided assistance for others committing telecom fraud. To evade investigation, he collaborated with others to transfer the illegally obtained funds through bank transfers to other individuals' Alipay, WeChat, and bank accounts, then used these funds to purchase "Tether" and other virtual currencies. The other individuals transferred the virtual currencies to Xie through online accounts, and Xie sold the virtual currencies for cash, handing it over to those committing the fraud and earning a commission from it.

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.

Mankun Criminal Team's Recommendations

Overall, to determine whether there are criminal risks in working in Web3, one must first examine the risks of the project itself. This requires combining actual work content, initially screening risky projects, and identifying and avoiding participation in related high-risk businesses that meet the following characteristics.

1. Involving gambling operation risks: If the project has a "paid investment + random gameplay + monetization chain" model, it requires high vigilance.

2. Involving pyramid scheme risks: When the project requires employees to "pay fees + develop downlines + tiered compensation," it essentially constitutes characteristics of a pyramid scheme.

3. Involving illegal public deposit absorption risks: 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. Involving fraud risks: When the project party induces users to "erroneously dispose of a certain amount of property" through methods of "illegal possession purpose + fabricating facts/concealing the truth," it is suspected of fraud.

Conclusion

Career choices in the Web3 industry are like a double-edged sword, carrying the aspiration for financial freedom while entailing significant 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 promptly.

If you still have doubts, such as whether being just an outsourced, non-core staff member, and not 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.

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