Embezzlement Defense: Why Web3 Professionals Should Not Be Victims of Crime?

On October 27, 2025, Pan Gongsheng, Governor of the People’s Bank of China, reiterated at the Financial Street Forum that policies regarding the prevention and disposal of risks associated with virtual currency trading and speculation have remained effective since 2017 and will continue to be enforced. The PBOC will persist in cracking down on virtual currency-related business activities to safeguard the order of the economy and finance. This statement has drawn an insurmountable red line for our country’s virtual currency regulation policies.

However, on the other end of reality, a stark paradox is unfolding in judicial practice: numerous overseas Web3 projects and virtual currency exchanges, which are not recognized by law or are explicitly prohibited, when internal disputes arise—especially when employees are accused of “occupational embezzlement”—frequently seek and obtain protection from domestic criminal law enforcement. Some authorities, through expanding the interpretation of the concept of “unit” and forcibly connecting jurisdictional authority, have extended criminal law protections for occupational embezzlement to these entities that should be strictly regulated and targeted.

This raises a fundamental question that must be confronted: Does employing the harshest criminal law measures to protect an industry internally characterized by the state as engaging in “illegal financial activities” deviate from the purpose of criminal law’s legal interests protection and conflict with the central government’s macro-guidance to maintain financial security?

To answer this, one must start from the source—examining the organizational forms, employment models, and property attributes of the Web3 industry—and analyze why they inherently differ from traditional criminal patterns of occupational embezzlement. This will demonstrate that Web3 enterprises should not be included within the scope of criminal law protections for occupational embezzlement in our country.

Organizational Forms of the Web3 Industry

(1) Denial of Subject Qualification

Under sustained strict regulatory policies, the establishment and operation of Web3 projects and virtual currency exchanges have always carried the intent to evade regulation. They generally set up legal entities in jurisdictions open to cryptocurrency policies, such as the Cayman Islands, Singapore, Dubai, etc. In the article “Can Web3 Overseas Enterprises Report Employee Occupational Embezzlement in China?—Focusing on the Recognition of ‘Victimized Units’,” lawyer Shao mentions that Web3 enterprises commonly adopt a “multi-entity, role-separated” offshore-onshore hybrid structure, splitting different risk levels and business functions across jurisdictions. One consideration is to circumvent specific legal regulations.

The core legal interest protected by China’s criminal law for occupational embezzlement is the trust relationship and property order within legitimate economic organizations. The legality of a “unit” is the foundation of criminal law’s legal interest protection. A Web3 project or exchange registered overseas and primarily operating in China, which is explicitly deemed as engaging in “illegal financial activities,” lacks the legitimate basis for such special protection under criminal law.

They do not meet the organizational structure, registration location, or tax obligations required by laws such as the Company Law in China, and do not qualify as a “unit” in the criminal law sense. If enforcement agencies forcibly interpret them as “other units” under occupational embezzlement, it not only breaches the principle of legality but also effectively grants legal protection equivalent to domestic legitimate enterprises to an overseas entity that is not registered in China, not under Chinese regulation, and whose business model is policy-defined as “illegal financial activities.” This expanded interpretation essentially turns criminal law into a “fallback tool” for regulatory evasion, severely deviating from the original purpose of establishing the crime of occupational embezzlement.

(2) Lack of Jurisdictional Basis

More critically, through their offshore structures, Web3 enterprises have explicitly expressed their subjective intention not to accept Chinese judicial jurisdiction. They choose to establish and operate in jurisdictions that recognize their business models, meaning they voluntarily accept the regulation and protection of the laws of that jurisdiction. When internal governance issues arise, they should first seek remedies under the law of their registration jurisdiction.

Therefore, when such organizations report internal disputes to Chinese public security authorities, their actions constitute a “selective utilization” of regulation—they evade Chinese supervision during business operations but seek judicial shelter in China when resolving internal conflicts. If judicial authorities accept such reports, it not only condones their regulatory evasion but also undermines their own jurisdictional basis in legal theory. The establishment of criminal jurisdiction should be based on close legal connections stipulated by law, not on a resource that some globally roaming capital can invoke at will.

Hence, the offshore organizational form of the Web3 industry, which aims to evade regulation, has from the outset negated its qualification as a “victimized unit” under our criminal law. Recognizing its subject status would produce extremely negative judicial precedent—effectively encouraging market entities to engage in “regulatory arbitrage,” enjoying criminal law protections without compliance costs. This would be a serious injustice to domestically compliant enterprises and the financial order, and must be rejected.

Unique Employment Models of the Web3 Industry

To evade regulation, Web3 enterprises not only establish legal entities overseas but also carefully construct a “differentiated internal and external” employment model. On one hand, to control costs and leverage talent dividends, they tend to employ personnel from mainland China; on the other hand, to mitigate legal risks, they often entrust domestic third-party companies to sign formal labor contracts with employees, and then sign consulting or service agreements with the same employees in the name of offshore entities. This “triangle labor relationship” complex design not only evades regulation but also weakens the legal basis for applying the crime.

(1) From the perspective of “subject identity,” this model blurs the legal definition of “unit staff”

The core premise of occupational embezzlement is that the perpetrator must be a “staff member of the unit.” However, in this model, the legal employer of the employee is a domestic third-party company, which pays wages and social security. From the labor law perspective, the employee does not have a direct labor relationship with the offshore Web3 project. The employee provides services under a “consulting agreement” signed with the offshore entity. This means, legally, he is closer to an independent contractor or service provider rather than a “unit employee” under internal rules and dependency. When the prosecution cannot clearly prove that the employee belongs to the “personnel of a company, enterprise, or other unit” as stipulated in Article 271 of the Criminal Law, pursuing occupational embezzlement charges becomes baseless.

(2) From the perspective of “property ownership,” this arrangement highlights that the involved assets are not typical “unit property”

The employee’s remuneration essentially consists of two parts: the statutory salary paid by the domestic third-party company, and the “consulting fee” paid by the offshore Web3 project in virtual currency or other forms. The latter, due to the offshore nature of the payer and the virtuality of the payment, has legal property disputes. More importantly, this payment method reflects the cross-border and ambiguous nature of Web3 project assets. When the source, ownership, and nature of assets are outside the scope of domestic legal regulation and clear definition, equating them simply with “unit property” protected by our criminal law is highly problematic.

(3) From the perspective of “duty convenience,” the complex agreement relationships make “duty behavior” difficult to identify

The crime of occupational embezzlement requires the use of “convenience of duty.” However, when employees face both domestic employers (the third-party company) and offshore service targets (Web3 projects), which agreement’s authorization is their action based on? Are their operations on virtual assets fulfilling the duties under the domestic labor contract or the consulting services under the offshore agreement? This intertwining and confusion of responsibilities make it difficult for prosecutors to clearly and exclusively prove that the “duty convenience” utilized is solely derived from the offshore “victimized unit” Web3 project.

Moreover, the crime of occupational embezzlement punishes betrayal of “duty trust relationship.” In an organization where all members participate and the business itself operates in legal gray or black areas, where is this “trust relationship” to be found? When the entire organizational foundation conflicts with national financial regulation policies, internal “duty” behaviors are more akin to illegal division of labor rather than legitimate delegated authority.

Therefore, law enforcement should fully recognize this deliberately designed, regulation-evading non-typical employment model in the Web3 industry. Disputes arising from such organizational structures are fundamentally internal governance issues related to contract performance, profit sharing, and authority management, better resolved through civil or commercial channels. Rushing to criminal proceedings under highly unclear organizational, employment, and property relationships risks misjudging the nature of the conduct and may cause the criminal law to deviate from its “last resort” role, increasing unnecessary social costs.

Analysis of Property Attributes of Web3 Enterprises

After establishing that the subject is unqualified as a “victimized unit,” even if its subject status is recognized, whether the “property” it claims is protected by criminal law remains highly controversial. The protection of “unit property” in occupational embezzlement presupposes that the property rights are legal and positively recognized. However, the core assets of Web3 projects and exchanges—both in origin and nature—are seriously questioned regarding legality.

(1) Illegality of the source of property

According to policies issued by the People’s Bank of China and ten other departments, such as the “924 Notice” and the “94 Announcement,” virtual currency-related activities are explicitly defined as “illegal financial activities.” This means that funds raised through ICOs (Initial Coin Offerings) and revenues from virtual currency trading services are regarded as illegal gains under Chinese law.

Criminal law is the last line of defense for social fairness and justice, not a private bodyguard maintaining internal order and fair division of illicit gains. Using criminal law to protect “property” generated by “illegal financial activities” from internal theft is akin to trying to legitimize and secure the distribution of casino chips between dealers and croupiers through criminal law—illogical in theory and severely damaging to the seriousness and justice of criminal law in practice.

(2) Ambiguity and falsity of property nature

Furthermore, if the “property” accused of embezzlement by the victim is a token issued by the project itself, lacking actual value support, its property attributes are highly questionable in criminal law.

The legal attributes of virtual currencies in China have not yet reached a consensus, with viewpoints such as “data theory” and “property theory.” Tokens created by project parties for financing or incentives, without anchoring to real assets, are more akin to data or service vouchers. When their value heavily depends on market sentiment and speculation, and they lack a clear value anchor (like backing real assets), they are essentially virtual, uncertain “future expected benefits.”

The “property” in occupational embezzlement generally refers to tangible assets with clear economic value protected by law—movable or immovable property or property rights. For a self-defined, highly volatile, and legally uncertain token, forcibly interpreting it as “unit property” protected by criminal law exceeds the scope of the legal terminology and violates the principle of legality.

Therefore, from the perspective of criminal law, the “property” claimed by Web3 project parties and exchanges does not meet the necessary and legitimate criteria for protection under the crime of occupational embezzlement.

Conclusion

Applying China’s criminal law of occupational embezzlement to domestic Web3 practitioners and protecting overseas Web3 projects and virtual currency exchanges not only raises legal issues regarding subject qualification and property attributes but also conflicts sharply with our macro-financial regulatory policies.

From the “924 Notice” to recent statements by regulatory authorities, China has explicitly defined virtual currency-related activities as “illegal financial activities.” Under this policy context, if judicial authorities use the crime of occupational embezzlement to provide criminal law protection for such Web3 enterprises, it will cause a severe value conflict within the legal order—administrative regulation demands “rectification,” while criminal justice paradoxically offers “fallback” protection.

This split will not only weaken the deterrent effect of regulation, leading to market misconceptions, but also potentially encourage regulatory arbitrage, and result in valuable criminal justice resources being diverted to internal disputes of illegal businesses rather than combating crimes that threaten social order and citizens’ property.

Therefore, we sincerely urge enforcement personnel to adopt a broader macro perspective when handling such cases, to judge cautiously based on the legislative intent of criminal law, and to uphold the principle that criminal law as a last resort should not be used as a tool to maintain internal order of illegal financial activities. Maintaining the principle of restraint in criminal law and ensuring policy coordination between criminal justice and financial regulation are essential to uphold legal order and safeguard national financial security. Internal disputes arising from participation in illegal financial activities should be resolved through civil or administrative channels, not by hastily initiating criminal prosecution. Only in this way can a balance be achieved between encouraging technological innovation and maintaining financial stability in accordance with the rule of law.

Special statement: This article is an original work by lawyer Shao Shiwei and reflects only the author’s personal views. It does not constitute legal advice or legal opinions on any specific matter.