Does the involved Virtual Money need to be cashed out?

Author: Lawyer Liu Zhengyao

In criminal cases, cybercrime now almost occupies half of the country; and in cybercrime, the number of criminal cases involving virtual currency is increasing, showing signs of taking the lead.

For criminal cases involving virtual currency, there is a controversial issue both in practice and in theory: whether the virtual currency involved needs to be realized. This issue already includes an assumption, that is, virtual currency has property value, of course, limited to mainstream virtual currencies. At present, some judicial workers still believe that all virtual currencies can only be regarded as data of computer information systems, which obviously does not match reality and legal principles. Therefore, our discussion below is based on the premise that mainstream virtual currencies involved in the case have property value.

For this issue, there will be different answers according to different case handling needs.

One, virtual currency as evidence involved

In criminal cases, when the involved evidence has financial value, but is not presented as legal tender (tangible or intangible), it will not be disposed of for realization in principle.

Taking theft as an example, if A steals one bitcoin from B, the court ultimately determines that A's theft does not have any legal obstacles. If this bitcoin is confiscated, the judicial authority only needs to return the involved bitcoin to B. Even when it is necessary to determine the amount involved in A's case, there is no need to realize this bitcoin. In current practice, the amount of A's theft is generally based on the amount B used to purchase the bitcoin (according to the principle of 'victim not profiting', the judicial authority should not consider the appreciation of bitcoin, see 'What to do during the period when the involved virtual currency is confiscated and appreciates or depreciates?'); if B's bitcoin is a gift from others, or obtained through mining, the amount involved can be determined based on the market price of the bitcoin at the time of the theft.

All the above operations do not require actual realization of Bitcoin, because the final destination of the involved Bitcoin is to return to the victims (B).

2. Virtual currency as illegal gains

In some cases, when the seized virtual currency does not need to be returned to the victims (such as when the virtual currency has been sold by the suspect, or in criminal cases where there are no victims), it is generally necessary to consider liquidating the virtual currency involved.

In the criminal justice system in our country, cases involving virtual currency are basically economic/financial crime cases, and these cases basically involve fines, the amount of which is generally closely related to the illegal gains of the suspect/defendant, so it is required to realize the involved virtual currency to determine the illegal gains.

There is another more important reason for virtual currency as illegal proceeds. In many cases, the price of virtual currency determines whether it meets the filing standards: for different periods of virtual currency, the price fluctuates dramatically. It may be that at the time of the victim's report, the price of the virtual currency is high enough to meet the filing standards, but after the three stages of public security, procuratorate, and court, the price of the virtual currency involved ultimately drops to zero. At this point, no matter how low the suspect/defendant's sentence is, they are most likely to be dissatisfied internally—why should they be deemed to have committed a crime with virtual currency of zero actual value. Therefore, when virtual currency involved in a case is treated as illegal proceeds, it is required to be realized, and as early as possible.

Of course, reality is often complex, and in some criminal cases, virtual currencies may be both evidence of the case and illegal gains. At this time, we suggest that judicial authorities prioritize cashing out after fixing the evidence. (If the virtual currency involved in the case is stable coins such as USDT and USDC, it can be temporarily not disposed of for cashing out)

In addition, another important factor to consider is whether the case has been adjudicated by the court.

Disposal of virtual currency before court judgment

In principle, our country is disposed of the property involved after the judgment by the court, so if there is no special circumstance, virtual currencies involved in a case should be disposed of judicially after the court's judgment. But where there is a principle, there are exceptions.

According to the "Provisions on Procedures for Public Security Organs Handling Criminal Cases" (hereinafter referred to as the "Procedural Regulations"), for property such as stocks, bonds, fund shares, etc., with significant market price fluctuations, with the applicant's own application or consent, and with the approval of the principal person in charge of the county-level public security organ, it can be legally auctioned or sold before a judgment is made. There may be two main points of possible controversy on this issue:

First, virtual currency does not belong to the "stocks, bonds, fund shares, etc." listed in the "Regulations", and it is not clear whether the "etc." can be interpreted broadly.

Second, the "Procedural Regulations" are only the "words" of the public security organs, while criminal cases involve the coordinated cooperation and mutual supervision of the public security organs, procuratorates, and courts. As a departmental regulatory document, the legal force of the "Procedural Regulations" is certainly not equal to that of the procuratorates and courts. So, can the "Procedural Regulations" as the legal basis for the pre-judicial disposal of virtual currency involved in a case unify the "judicial circle" of the public security, procuratorates, and courts?

In the first point of the aforementioned controversy, 'no authorization, no action' is a basic principle for judicial authorities. If the 'Procedural Regulations' do not list 'virtual currency,' it seems that the public security organs indeed cannot dispose of it without authorization. However, the controversy lies in whether the 'etc.' following can be interpreted broadly to include virtual currency. It can only be said that there is controversy, and people have different understandings from different standpoints. There is currently no unified view.

Regarding the second point of the aforementioned controversy, although the power of laws and judicial interpretations is greater than that of departmental regulations, it is somewhat regrettable that there is currently no legal or judicial interpretation specifying the direction for the disposal of the property involved in the case. The Interpretation of the Criminal Procedure Law issued by the Supreme People's Court stipulates: The property involved in the case transferred with the case or seized and detained by the court shall be handled by the court after the effective judgment of the first instance. What if the public security organ does not transfer virtual currency with the case? At this time, the provisions of the Interpretation of the Criminal Procedure Law cannot be applied. (For a detailed analysis on this issue, please refer to 'At What Stage Should Virtual Currency Involved in a Case be Handled? Public Security or Court').

Through the above analysis, we also understand the current inconsistent situation in the disposal of the virtual currency involved. As for the solution, it can only rely on further clarification and refinement of relevant departmental regulations and judicial interpretations, especially the inclusion of virtual currency in future legislative and judicial procedures.

Disposal of virtual currency after court judgment

The most 'orthodox' way to dispose of the virtual currency involved after a court judgment is the most 'orthodox' way, with two common scenarios:

One, the virtual currency detained by the judicial authorities is the mainstream stablecoin. Due to the constant price of stablecoins, there is almost no value fluctuation from criminal filing to court judgment. In this case, the disposal after the court judgment is justified (unless it involves returning the virtual currency involved in the case to the victims)

Secondly, on the premise that the value of the virtual currency involved has not depreciated, judicial authorities conducted price appraisal/evaluation. At this time, although the virtual currency has not been realized and disposed of in substance, there are corresponding materials in the case file that seemingly authoritatively determine the price of the virtual currency. Courts often directly adopt the opinions of appraisal organizations, price evaluation agencies, and judicial audit institutions. However, it should be noted that as a web3.0 criminal lawyer, Lawyer Liu believes that according to current laws and regulations, and virtual currency regulatory policies, our country does not allow any organization or institution to provide pricing services for virtual currency transactions. Therefore, the aforementioned third-party organizations also have no legal basis for determining the price of virtual currency.

In short, the current judicial practice is not consistent on whether to realize virtual currency involved in the case, and at what time to dispose of it. The fundamental reason is the ambiguous attitude of the current legal and policy supervision towards virtual currency: unwilling to admit the financial attributes of virtual currency, yet difficult to avoid the actual value of virtual currency. In a sense, virtual currency is also a grassroots challenge to the holders of power by the masses.