Criminal risks of providing points redemption services

Illegal and criminal acts such as pyramid schemes or illegal fund raising in the name of points are still not uncommon.

Criminal risks of providing points redemption services

Since the early years of game coins, Internet point rewards have been used as an important business model to exchange for specific props, membership benefits, and so on. After the announcement of 94, some project parties packaged the concept of virtual currency as Internet points.In 2018, the leaders of the Monetary and Financial Bureau of the Central Bank issued an article “Effectively strengthen the supervision of virtual currency and firmly safeguard the right to issue national currency”, which specifically mentioned the concept of Internet points and the regulatory bottom line, one is to prohibit the linking of RMB, which must not be exchanged in both directions with RMB; the second is to control the scope of use, and the Internet The scope of use of Internet points must be within the platform, and cannot be used between different legal entities involved in transactions on some platforms, and cannot be transferred between consumers; thirdly, the holding income is restricted, and no interest can be attached to the virtual currency itself. However, it is still not uncommon to see illegal and criminal acts such as pyramid schemes or illegal fund raising in the name of points.

Classification of point redemption services
At present, there are two mainstream modes of points redemption used by merchants, one is reward points and the other is recharge points. In the reward points mode, the user through the operator’s app or offline purchase of its goods or services, or to complete specific tasks, or to obtain points awarded by the operator, the points can only be used for its app or platform operated by the operator and the products or services provided by the partner merchants. According to the rules of the e-commerce platform, users can recharge RMB in exchange for points according to a certain percentage, and the points can be used to purchase goods or services on the platform.

The recharge points set by enterprises are essentially a kind of commercial prepaid card sold by the platform to users, i.e. a prepaid voucher for enterprises to redeem goods or services, including physical cards with magnetic stripe cards, chip cards, paper coupons, etc. and virtual cards with passwords, serial codes, graphics, biometric information, etc. (Measures for the Administration of Single-Use Commercial Prepaid Cards (for Trial Implementation) issued by the Ministry of Commerce in 2016). If the prepaid card is limited to the enterprise or the group to which the enterprise belongs or the same brand franchise system, it is a single-use commercial prepaid card and should be filed with the commerce department according to Article 7 of the Measures for the Administration of Single-use Commercial Prepaid Cards (for Trial Implementation); if it is redeemed across the group beyond the aforementioned scope, it is a multi-purpose commercial prepaid card.

Criminal risk of cross-group credit redemption
According to the Notice of Opinions on Regulating the Management of Commercial Prepaid Cards issued by the People’s Bank of China and the Ministry of Supervision, any non-financial institution shall not issue multi-purpose prepaid cards without the approval of the People’s Bank of China, and once found, it shall be investigated and punished as illegally engaging in payment and settlement business. As a non-financial institution, the issuance of multi-purpose commercial prepaid cards that can be used across regions, industries and legal entities is subject to the approval of the PBoC.

In addition, Article 2 of the Measures for the Administration of Non-financial Institution Payment Services formulated by the People’s Bank of China, non-financial institution payment services refers to non-financial institutions acting as intermediaries to provide some or all of the following monetary fund transfer services between payee and payer. Payment cards belong to non-financial institution payment services, and the provision of prepaid card services should obtain the Payment Business License. It is worth noting that according to the “Measures for the Management of Prepaid Card Business of Payment Institutions” of the People’s Bank of China, prepaid cards can only be topped up by cash or bank transfer, and institutions that handle “Internet payment” business can only issue prepaid cards for network payment.

Therefore, if an enterprise does not obtain a “payment business license” and does not handle “Internet payment” business, if it provides rechargeable points for rewards and uses the points for cross-group consumption or exchange, it may comply with Article 225(3) of the Criminal Law “without the approval of the relevant state authorities If a company illegally operates securities, futures or insurance business, or illegally engages in the business of payment and settlement of funds”, it may constitute the crime of illegal operation.

If an enterprise, under the pretext of promoting designated commodities whose prices are seriously deviated from their values or selling points issued by itself, makes participants purchase a certain number of commodities or a certain amount of points to obtain membership, and forms a hierarchy in a certain order, and directly or indirectly uses the number of people developed as the basis of remuneration or rebate to induce point buyers to continue to develop others to participate and obtain property, it may constitute an illegal business operation under Article 224 of the Criminal Law. Article 224 one of the crime of organizing and leading pyramid selling activities.

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