Is it illegal to conduct private equity in China or to mine abroad?

Recently, overseas banks and other institutions engaged in legitimate financial business , to China domestic use of private fund-raising, and then to overseas investment in the mining industry virtual currency, to earn profits back to Chinese investors. Today’s article by Sister Sa’s team intends to explore the legal risks of this type of behavior.

Is it legal for Chinese residents to invest in mining overseas?

On September 3 this year, the National Development and Reform Commission and other departments issued the “Notice on Regulating Virtual Currency “Mining” Activities” (“93 Notice”), proposing that it is strictly forbidden to add virtual currency “mining” projects and speed up the orderly exit of existing projects . According to this, Chinese residents engaged in virtual currency mining business in China undoubtedly violated the “93 Notice”, which is an administrative violation . However, given that some countries currently do not ban virtual currency mining operations, is it an administrative violation for Chinese residents to engage in virtual currency mining in these countries?

The “93 Notice” was issued to promote the optimization of the domestic industrial structure and help the carbon peak and carbon neutral goals to be achieved as scheduled, and it did not prohibit mining activities abroad . But generally speaking, investing in virtual currency mining is not just simply obtaining virtual currency through mining, but also involves processing the acquired virtual currency (such as converting it into legal currency or other virtual currency). In September 2021, the People’s Bank of China, the Central Cyberspace Administration of China, the Supreme People’s Court and others jointly issued the “Notice on Further Preventing and Disposing of the Risks of Hype in Virtual Currency Transactions” (“Circular 924”), which clearly stipulates that virtual currency-related business activities are illegal Financial activities . Virtual currency-related business activities, such as the exchange between legal currency and virtual currency, and the exchange between virtual currencies, are strictly prohibited. Once such actions are implemented, they may bear corresponding administrative or criminal liabilities. Do Chinese residents violate the “924” notice when they engage in virtual currency mining projects in foreign countries? This involves the extraterritorial effect of the “924 Notice” .

Regarding the extraterritorial effect of economic administrative law, there is a  presumption against extraterriorrial application  (the presumption against extraterriorrial application), that is, all laws in principle only have intraterritorial effect, unless the language of the law clearly indicates that it can be applied extraterritorially. As the U.S. Supreme Court has repeatedly stated, “The legislation enacted by Congress can only be applied within the jurisdiction of the United States unless there is a clear intention to the contrary.” There are exceptions to the assumption of no extraterritorial effect. According to the Washington DC Circuit Court, these exceptions have clear intent exceptions (Clear Intent Exception) and adverse effects exceptions (Adverse Effects Exception). Among them, the exception of clear legislative intent refers to the occasion where the Congress clearly expresses the affirmative intent to apply domestic laws to acts that occur in other sovereign countries, and that domestic laws apply to foreign countries.

Based on this, the “924 notice” in principle only has intra-territorial effects , unless the notice clearly expresses a certain intention that it will be applied outside the territory, is there such an intent in the “924” notice? The answer to this question can be clarified by analyzing the content of the “924 Notice”. The “924” notice stipulates: “The provision of services by overseas virtual currency exchanges to residents of China via the Internet is also an illegal financial activity.” This provision explicitly prohibits overseas virtual currency exchanges from providing services to residents of China via the Internet, which is intended to cut off China The channels for domestic residents to conduct virtual currency-related activities outside of China indicate that Chinese residents are engaged in virtual currency-related activities outside China, which is also an administrative violation prohibited by the “924” notice.

At the same time, Chinese citizens who invest in virtual currency mining overseas may be suspected of crimes such as fundraising fraud in the Criminal Law and illegal absorption of public deposits when processing the virtual currency obtained The “Criminal Law” adopts absolutism in the jurisdiction of persons. As long as Chinese citizens commit crimes stipulated by the Chinese Criminal Law outside the Chinese territory, they must be under jurisdiction. According to this, even if virtual currency mining is legal locally, Chinese citizens investing in virtual currency mining outside the territory, as long as they are suspected of crimes stipulated in the Criminal Law, the Criminal Law can also be applied.

The nature of overseas financial institutions’ private placement of Chinese funds to participate in overseas mining

If virtual currency mining is legal locally, does the behavior of foreign entities conducting virtual currency mining outside of my country violate the laws of our country? This can be discussed in two situations.

The first scenario is that the foreign entity conducts virtual currency mining outside of China and sells or provides the virtual currency obtained to Chinese residents. As mentioned earlier, the “924” notice prohibits overseas virtual currency exchanges from providing virtual currency-related services to residents in China. According to the “924” notice, which prohibits Chinese residents from engaging in virtual currency-related activities, the foreign entity uses various The act of providing virtual currency to Chinese residents violates the “924 Notice” and is an administrative illegal act, which may be subject to bans and sanctions by China’s administrative organs. At the same time, the behavior of the foreign subject may also be suspected of crimes of fundraising fraud and illegal absorbing of public deposits in the Criminal Law . Since the victim of the crime is a Chinese resident and the result of the crime occurred in China, according to Article 6 of the Criminal Law Territorial jurisdiction, this kind of behavior is considered to be a crime in China, and China’s “Criminal Law” can be applied. If a Chinese resident investing in the foreign entity participates in a criminal act of the foreign entity, such as the act of selling virtual currency to a Chinese resident, or is deemed to be the directly responsible officer or other person in the crime of a unit established by the foreign entity The person directly responsible also constitutes a crime , and the “Criminal Law” can be applied. The foreign subject went to China to raise funds. Since the funds raised were used to implement illegal and criminal activities, the fund-raising behavior undoubtedly violated the provisions of our country’s laws.

The second situation is that the foreign entity conducts virtual currency mining outside of China, and at the same time does not sell or provide the acquired virtual currency to Chinese residents. This behavior itself does not involve Chinese residents, so it does not violate Chinese law. However, if the foreign entity uses private equity to raise funds in China, and then invests in the virtual currency mining industry overseas, and the profit is returned to the Chinese investors, the nature of its behavior will change.

The first thing to be clear here is that financial licenses have national boundaries . For financial businesses that are prohibited by domestic and foreign investors, as well as financial businesses that have not been opened to the outside world, foreign institutions are not allowed to operate within the country. For financial services that have been opened to the outside world, overseas institutions must hold relevant domestic licenses to operate in compliance with laws and regulations. In other words, obtaining a license to legally engage in financial business outside of China does not mean that you can directly conduct business in China based on the license. According to the “Interim Measures for the Supervision and Administration of Private Investment Funds” (referred to as the “Measures”) of the China Securities Regulatory Commission, although there is no administrative examination and approval for the development of private investment funds, registration and filing are required. According to Article 8 of the Measures, after all types of private equity funds have been raised, the private equity fund manager shall go through the fund filing procedures in accordance with the provisions of the Fund Industry Association and submit the following basic information: (1) Main investment directions and notes based on the main investment directions The type of fund specified.

Since virtual currency mining is prohibited by China’s administrative law, if the funds raised by private equity are used for virtual currency mining activities abroad, then the private equity fund will not be able to go through the fund filing procedures unless the private equity fund manager falsely reports The main investment direction of the fund. In the case that the private equity fund cannot be filed, the funds raised for overseas mining will not only violate the “Measures”, but will also bear corresponding administrative responsibilities . It is more likely to be suspected of the crime of fundraising fraud, illegal business operations, and crimes in the “Criminal Law”. Crimes such as the crime of illegally absorbing public deposits .

Write at the end

Some people believe that Chinese residents, through domestic private equity, invest in institutions that are legally engaged in financial business overseas, and conduct virtual currency mining in countries that allow mining, similar to the fact that Chinese residents set up companies to engage in virtual currency mining in these countries. The essence is to provide funds for foreign entities engaged in virtual currency mining. But Sister Sa’s team believes that there are still differences between these two behaviors. Because the former situation also involves raising funds in the country, and this kind of private placement is usually impossible to obtain fund filing.

When new regulatory measures are introduced, there will always be new circumvention measures, but they often contain new legal risks, which are worthy of vigilance.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

Like (0)
Donate Buy me a coffee Buy me a coffee
Previous 2021-12-28 08:26
Next 2021-12-28 08:28

Related articles