Behind the "theft and fraud" of cryptocurrencies: Why do civil remedies frequently encounter obstacles?

As Bitcoin's value rose from "10,000 Bitcoins for two pizzas" to "1 Bitcoin for 10,000 pizzas," everything changed. Especially after the emergence of stablecoins, their characteristics have gradually made them a preferred money laundering tool for illicit activities.

Author: Wei Fuhai, Attorney at Law, Mankiw Blockchain Legal Services

introduction

As the saying goes, "A large forest has all kinds of birds"—the world of cryptocurrencies is no exception. In the days before Bitcoin was worth much and stablecoins existed, this circle was merely a small-scale, self-contained activity. But as Bitcoin's value increased from "ten thousand coins for two pizzas" to "one coin for ten thousand pizzas," everything changed. Especially after the emergence of stablecoins, their characteristics have gradually made them a favored money laundering tool for illicit activities.

Having worked in criminal defense for many years, I've handled numerous cryptocurrency cases. One striking observation is that there seem to be an unusually large number of "unlucky" people in this field: some who clearly shouldn't be convicted are found guilty, while others who are clearly suspected of crimes struggle to get a case filed.

Perhaps one's stance influences one's judgment; some cases that seem problematic to me may be seen as "not a big problem" or even "handled properly" by the police, the procuratorate, or the court.

Two cases I'm currently handling are closely related to this topic and are quite representative. In this article, I'd like to discuss the current state and challenges of cryptocurrency criminal cases, drawing on my practical experience.

Real case details

• Case 1

A company from country H planned to list its token on an exchange located in country S and contacted a Chinese sales representative at the exchange. The two parties successfully agreed on service fees and the listing timeline, stipulating that the company from country H would pay 800,000 USDT as a service fee, after which the exchange would initiate the listing process.

After the agreement was finalized, the Chinese salesperson provided the company in country H with a wallet address, requesting a transfer of 800,000 USDT. The company in country H complied, and the salesperson immediately left all relevant group chats and became completely unreachable. Sensing something amiss, the company in country H immediately contacted the exchange in country S, which replied that the employee had resigned the day after the transfer and that the exchange had not received the service fee. At this point, the company in country H confirmed that they had been scammed.

• Case 2

A woman met someone online who claimed to be able to guide her in investing. The person told her that the investment platform did not accept RMB, only USDT. Since the woman didn't have any USDT, the person recommended a USDT broker to help her exchange it.

Subsequently, she contacted the USDT merchant via WeChat and transferred over three million yuan to multiple bank accounts as requested. However, after the transfers, she did not receive the corresponding USDT, nor did she see any funds deposited into her investment platform account. When she tried to contact the online friend who recommended the investment, the person had disappeared . Only then did she realize that she had been scammed.

A Lawyer's Perspective: Ways to Protect Clients' Rights

• Case 1: Obstacles to Cross-Border Police Reporting and Negotiation of Legal Basis

In Case 1, the party involved (Company H) initially went to the local police station where the Chinese salesperson was registered to report the case , but the police neither issued a receipt for receiving the report nor issued a notice of non-acceptance of the case, which prevented the party involved from initiating subsequent relief procedures.

After accepting the engagement, our lawyers began preparing legal documents and evidence materials that met the requirements for filing a police report in China. Due to the transnational nature of the case, the preparation of materials took approximately two to three months .

Subsequently, we went to the police station in the suspect's registered residence area to formally report the case. The auxiliary police officer at the window initially refused to accept the case, citing that "the victim company is not located in China." We immediately refuted this by citing the provisions of the Criminal Procedure Law regarding territorial and personal jurisdiction. The officer then claimed that "cryptocurrencies are not protected by law." We further pointed out that, according to the "September 24th Notice," although exchange operations are prohibited, it is not illegal for individuals to hold virtual assets, and judicial practice generally recognizes that virtual currencies possess property attributes.

Despite repeated arguments, the police refused to issue a written receipt. Following our insistence, the auxiliary police officer finally contacted the on-duty officer to come to the scene. After multiple rounds of negotiations and our continuous efforts, the case has been accepted by the local police station, but has not yet been formally filed; we are continuing to push for its resolution.

• Case 2: The Dilemma of Compensation After Criminal Case Filing and Attempts at Civil Approaches

In Case Two, the victim (the woman who was scammed) successfully reported the crime, and the police quickly opened a case and launched an investigation, successfully arresting the U-type merchant who provided currency exchange services. However, because the main suspect's IP address was located overseas, they were unable to be apprehended.

After interrogation and investigation, the police confirmed that the USDT merchant was merely a business person engaged in USDT exchange and had no criminal intent to contact the upstream fraud gang, so the investigation was terminated.

To help the parties recover their losses, we intend to pursue civil litigation and sue U for "unjust enrichment," requesting the return of the corresponding amount.

Case Review: Problems in Civil Rights Protection

In Case 1, the situation could not be resolved through civil litigation.

The main reason is that when the same facts involve both criminal and civil cases, the principle of "criminal priority" should be followed. Civil proceedings can only begin after the criminal case has been concluded. Furthermore, if the criminal judgment has already addressed the victim's property rights—for example, by stating in the judgment that "compensation will continue to be made to the victim"—the victim cannot file a civil lawsuit regarding the same facts; otherwise, it would violate the fundamental principle of "res judicata" in civil litigation.

So, if a party abandons reporting a criminal case due to its long processing time, is it feasible to directly file a civil lawsuit in court?

In theory, a lawsuit can be filed, but if the court, after review, deems the case to involve a crime, it will order the case to be transferred to the public security authorities for handling. In this case, the proceedings will still revert to the criminal route, which will instead take several more months.

If the suspect is ultimately found guilty but is unable to make restitution, how should the victim protect their rights?

At this point, the only hope lies in whether the suspect is willing to exchange compensation for a reduced sentence. According to relevant regulations, criminals who fail to fulfill their obligations under property penalties such as restitution or fines are generally not eligible for sentence reduction or parole and must serve the full term of their original sentence.

In Case Two, although we did attempt to file a civil lawsuit against U, and searched through numerous similar cases, we found that only two judgments supported the plaintiff's claims, while the rest resulted in the plaintiff losing. Why?

During the case filing stage, the judge in the case filing division clearly stated that they could not accept the case, and bluntly stated that even if they were to reluctantly accept it, they would ultimately not support our claims. Ultimately, the civil case was not accepted.

Summarize

If cryptocurrency is stolen or stolen, can one effectively seek redress through civil means?

This article was initially planned to be a popular science article on this topic, but after delving into the practice, it was found that once a case involves criminal offenses, the path to civil remedies is actually extremely difficult, or even impossible.

Some readers may question why this article, which has detailed how to protect one's rights through civil litigation, including evidence preparation and the litigation process, is "unworkable."

As we experienced firsthand in Case 2, the judge in the case filing division clearly stated that even if the case was accepted, the chances of winning were extremely slim.

As lawyers, our responsibility goes beyond initiating proceedings; it's also about assessing risks for our clients and choosing the most viable path to recover their losses. Therefore, in cases of stolen or defrauded cryptocurrency, pursuing criminal charges remains the more realistic option.

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