This article analyzes the legal risks of virtual currency “going overseas to mine”

Summary:

The domestic virtual currency “mining” activity is based on the “Notice on Remediation of Virtual Currency “Mining” Activities (Fa Gai Run [2021] No. 1283)” (hereinafter referred to as “924 Notice”) jointly issued by the National Development and Reform Commission and other ministries and commissions on September 24, 2021 ”) As a turning point, the “924 Notice” made a framework for the investigation, punishment and removal of virtual currency “mining” projects. Since then, the addition of virtual currency “mining” projects in China is a violation of the policy , and the regulatory authorities can legally impose administrative penalties. In this context, domestic virtual currency “mining” projects are mainly withdrawn or retained in five ways:

(1) Selling “mining machines”, exiting the “mining circle”, and no longer engaging in virtual currency “mining” activities;

(2) Take the initiative to shut down the “mine”, suspend “mining”, take a wait-and-see attitude towards the policy, wait for the policy implementation method to be more clear, and decide whether to continue to “mining” in China;

(3) Exist in the form of virtual currency “mining” stock projects, and continue to operate the original “mining” projects in China after paying the additional electricity price;

(4) Switch to “underground hidden mining”, evade investigation, removal and punishment by law enforcement agencies, etc., and continue to operate “mines” in China;

(5) Going overseas, choose countries such as Iran, Ukraine, Kazakhstan, the United States, Canada and other countries where virtual currency “mining” is legalized to establish “mining farms” to continue “mining”.

What are the legal consequences of virtual currency mining in China? “In this article, we have analyzed the law enforcement consequences that the first four acts will face. This article will focus on the legal risks that may exist in the fifth “going to sea mining” activity.

(1) The status quo of overseas “mining” activities

The domestic “mining” ban has caused a large number of mining machines to be sold, and the price of mining machines plummeted in the short term, but some “miners” smelled “business opportunities”, that is, to buy mining machines at low prices and then transfer them to overseas “mining” or mining. Machine hosting. There are two common investment models for “overseas mining”: one is the personal model (generally refers to the domestic natural person investing directly in the overseas “mine farm” in the name of an individual or first legally registering a company overseas and investing in the “mine farm” in the name of the company); The second is the company model (generally refers to domestic natural persons legally registering companies in China to raise funds and investing in overseas “mines” in the name of domestic companies, including companies and partnerships). No matter which one of the two modes is used, there may be legal risks, such as being investigated or punished because overseas investment “mining” does not comply with the laws and policies of the host country; overseas “mining” under the corporate investment mode exceeds the company registration Legal risks such as contract invalidity that may arise in the business scope.

(2) Whether “overseas mining” violates the laws and policies of the country to which it belongs

Although Iran, Ukraine, Kazakhstan, and some state governments in the United States have legalized virtual currency “mining” through regulations, they generally require the permission of the competent authorities, that is, “licensed mining”, and the construction of virtual currency “mining farms” in these countries “Mining” first needs to obtain a “mining license” issued by the government department. Unauthorized “mining” or “mining” in violation of the power and energy consumption conditions stipulated in the license will also face investigation or punishment by the country’s regulatory authorities. . For example, according to Tasmin news agency, in January 2021, Iranian authorities seized 1,620 cryptocurrency “mining farms” and seized 45,000 Bitcoin “mining machines” because these “mining farms” were in the process of “mining” , the use of subsidized electricity (i.e., electricity that enjoys financial subsidies) from the state-run energy supplier Tavanir was illegally used.

According to Tencent.com on April 16, 2022, the Iranian government will pass new regulations to increase the penalties for illegal cryptocurrency mining using subsidized electricity. According to the new regulations, the increased penalties include increasing the fine by at least three times to a maximum of five times. , imprisoning offenders and revoking business licenses in the case of repeated violations; and according to Reuters, in June 2021, Iranian police seized 7,000 cryptocurrency “miners” at an abandoned factory in the capital Tehran, The reason is illegal “mining” without permission.

In addition, due to the shortage of energy supply, some governments will regulate virtual currency “mining” activities through temporary bans. For example, on December 28, 2021, the Iranian government issued a Bitcoin mining ban and ordered the closure of authorized Bitcoin mining centers. , to avoid a blackout crisis, the ban will remain in place until March 6, 2022. Therefore, “overseas mining” or “overseas managed miners” should first consult the laws of the country to which they belong to the relevant regulations on cryptocurrency “mining” activities; Penalties for confiscation of miners.

In addition to the above-mentioned “mining” risks, for some countries that are subject to international sanctions or foreign exchange controls (recognizing the legalization of Bitcoin), the sale of cryptocurrencies obtained from “mining” in the country or the remittance of foreign exchange may need to comply with their relevant regulations. Otherwise, you may face legal risks such as account freezing. For example, according to the Islamic Republic News Agency, in January 2021, the Iranian cabinet has revised legislation related to digital assets to allow the use of cryptocurrencies for the import of funds from the Central Bank of Iran (CBI), and “miners” can sell directly to the CBI after authorization. Cryptocurrency (i.e. CBI unified procurement of cryptocurrency).

This means that Iran has officially legalized “mining” of cryptocurrencies, and has recognized that cryptocurrencies and fiat currency Toman can be exchanged for conditional value. In this case, the Bitcoin obtained by “mining” is equivalent to a legal new currency, and the import and export need to follow the foreign exchange supervision policy of Iran, and the Bitcoin obtained by “miners” through “mining” should be Priority is given to converting into Iranian fiat currency. If you sell the mined bitcoins or remit the obtained foreign exchange across borders, cross-border transactions, etc., you need to pay attention to the country’s foreign exchange supervision and other regulations to avoid being identified as foreign exchange evasion, illegal transactions, money laundering, etc. Penalties for violations of the law.

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(3) Whether the “overseas mining” of domestic entities violates domestic laws

Under the premise that funds or mining machines are legally out of the country, the personal mode is generally not suspected of illegal acts. Although the “mining” ban policy has been issued in my country, the personal overseas “mining” occurs overseas because of the behavior, and will not violate domestic policies. or harm the public interest. As for the company model, according to my country’s current laws and policies, the legally registered business scope of the company (partnership) cannot include “virtual currency ‘mining'” business, so the company engages in virtual currency “mining” activities in the actual business process. , will inevitably exceed the business scope of the company’s legal registration. In this case, does the domestic company’s overseas investment in virtual currency “mining” business violate domestic laws? Are the “overseas mining” investment contracts, “overseas mining” mining machine trusteeship contracts and other similar contracts signed with such companies legal and valid?

1. Does the “overseas mining” business of domestic entities violate the provisions of the Company Law?

Does the company engage in overseas virtual currency “mining” business beyond the legally registered business scope, in violation of general legal provisions and what are the legal consequences? According to Articles 5 and 12 of the “Company Law of the People’s Republic of China”, the company’s business activities must comply with laws and administrative regulations. The company’s business scope is stipulated by the company’s articles of association and registered in accordance with the law. If the business scope is changed, the change registration should be carried out. The Company Law does not provide administrative penalties for engaging in business activities beyond the registered business scope. Similarly, the “Regulations of the People’s Republic of China on the Administration of Registration of Market Entities (Order of the State Council (No. 746)” and the “Implementation Rules of the Regulations of the People’s Republic of China on the Administration of Registration of Market Entities (Order of the State Administration for Market Regulation No. 52)” also do not provide for business operations that exceed registration. Administrative penalties shall be prescribed for the scope of business activities.

In addition, in accordance with the “Decision of the National Development and Reform Commission on Amending the Guidance Catalogue for Industrial Structure Adjustment (2019 Edition)” (Order No. 49 in 2021) and the administrative regulations formulated by the State Council, “Interim Provisions on Promoting Industrial Structure Adjustment (Guofa ﹝2005) ﹞40)” Article 19 stipulates that virtual currency “mining” is a phased-out industry, and domestic investment by enterprises is prohibited. So whether domestic companies investing in virtual currency “mining” business overseas violate domestic laws and regulations?

According to the provisions of Articles 2, 5, 13 and 14 of the Measures for the Administration of Overseas Investment by Enterprises (Order No. 11 of the National Development and Reform Commission) and the Guiding Opinions on Further Guiding and Regulating the Direction of Overseas Investment Notice (Guoban Fa [2017] No. 74)”, “National Development and Reform Commission <Notice on Issuing the Catalogue of Sensitive Industries for Overseas Investment (2018 Edition)> (Fa Gai Foreign Investment [2018] No. 251)” and other regulations, virtual currency “” “Mining” business is not an overseas investment business that is prohibited or restricted by current regulations. Therefore, according to the current laws and regulations in China, domestic enterprises investing in virtual currency “mining” business overseas do not violate relevant domestic regulations .

2. How does the Mainland court determine the validity of the “overseas mining” contract?

Under the trend of “mining” overseas, some investors choose to sign “Overseas Mining Machine Custody Contract” with companies that invest in “mining farms” overseas, and entrust their mining machines to overseas “mining farms” for “mining” and pay hosting fees. So if a civil lawsuit is filed in a domestic court due to a dispute over an escrow contract, how will the court determine the validity of the escrow contract? First, if the court finds that the trusteeship contract is not a foreign-related contract after review, and directly applies Chinese laws and regulations to confirm the validity of the trusteeship contract, after the “924 Notice” is issued, the court may determine the trusteeship contract based on the notice and the “Interim Provisions on Promoting Industrial Structure Adjustment”. Violating the mandatory provisions on the validity of administrative regulations, violating national policies, damaging public order, and determining that the trusteeship contract is invalid,

For example, according to the China Court Network (https://www.chinacourt.org/index.shtml) on December 17, 2021, the Chaoyang District People’s Court in Beijing found that the “digging contract” entered into between Fengfu Jiuxin and Zhongyan Zhichuang. The “Mining” contract damages social and public interests, and it is determined that the contract is invalid and the loss is borne by oneself, and the court of second instance upholds the original judgment; I)” (hereinafter referred to as “Judicial Interpretation (I)”) stipulates in item 3 or item 4 of Article 1, claiming that the custody contract is a foreign-related contract because the subject matter “mining machine” and the place where the contract is performed are both overseas. , the validity of the escrow contract should be confirmed according to the relevant laws of the location of the “mine” or other countries/regions selected in advance by both parties. Can this claim be supported by the court?

According to the provisions of Article 5 of the Law of the People’s Republic of China on the Application of Laws to Foreign-related Civil Relations, if the application of foreign laws will harm the public interests of our country, Chinese laws shall apply. If the court applies foreign laws to confirm that the escrow “mining” contract is legal and valid in China, it violates the domestic “mining” ban and contradicts the existing judgment results of some similar cases, so this claim may not be accepted by the court.

3. If there is a dispute over the custody of “overseas mining”, what is the remedy?

According to the previous analysis, the overseas “mining” custody contract will be judged invalid by domestic courts to a large extent. So when a dispute arises, is there still a need to sue? What was the court’s decision after the indictment? First of all, the trusteeship contract is an entrustment contract or an anonymous contract as stipulated in Article 919 of the Civil Code of the People’s Republic of China in nature. In the case of invalidity, according to the provisions of Article 157 of the Civil Code of the People’s Republic of China, after the contract is confirmed to be invalid, the property acquired by the parties due to the act shall be returned, and if it cannot be returned or it is not necessary to return, the property shall be reduced in value. compensate. However, it should also be noted that in practice, there are also some court judgments that after confirming that the contract is invalid, because mining activities are not protected by law, investors should bear their own risks and losses, such as the first-instance judgment of the Chaoyang District Court in Beijing.

Secondly, even if the court verdict confirms the validity of the escrow mining contract, it is generally difficult for the client to claim the loss of virtual currency such as bitcoin, and it is generally difficult to obtain the court’s support. The Civil Judgment (2019) (2019) Jing 0114 Min Chu No. 22088 issued on March 29 found that the trusteeship contract was an expression of the true intentions of both parties and did not violate the mandatory provisions of laws and regulations.

Therefore, in the “overseas mining” activities of domestic entities, the contract must be fully taken into account when the mining machine is entrusted to the overseas mine. Once the trustee breaches the contract, even if the lawsuit is brought to the court, there will be problems such as difficulty in producing evidence and difficulty in execution. In order to avoid When similar problems occur, in the contract signing stage, due to the full review of the contractual obligations of both parties, the mining machine price, custody fee, electricity fee, etc. are clearly disclosed, and traces are left in the form of returning overseas mining machine videos and photos during the contract performance stage, and keep as many as possible. Written material related to managed mining contracts.

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