Recently, the Pingjiang County Court of Hunan Province (hereinafter referred to as the "Pingjiang Court") made public 8 criminal judgments related to the BKEX virtual currency exchange, which attracted the attention of friends in the cryptocurrency circle. The main reason is that the judicial authorities identified the contract transactions of virtual currency exchanges as gambling, and then the virtual currency exchanges were casinos. As a result, the relevant bosses and employees were suspected of opening casinos.
Is the legal basis for such a determination sufficient? What is the controversial point? As a web3 lawyer, Lawyer Liu wrote a short article today to analyze it.
I. Case Background
Pingjiang Court determined that around July 2017, Ji Mouming and Lei Mou and others cooperated to develop contract trading functions through the BKEX exchange. After users install the "BKEX" APP or log in to its official website, they can recharge with Tether USDT and then buy contracts of mainstream currencies such as BTC and ETH.
Users can "buy long (bullish)" or "sell short (bearish)" through ordinary perpetual contracts (up to 100 times) and crazy contracts (125 times-1000 times). In addition, the "BKEX" exchange has market reference data, forced liquidation, matching transactions, platform gambling transactions and agent rebates.
The "Court Findings" section shows that the business team formed by Lei has developed multiple levels of agents and users, and has developed more than 10,000 subordinate agents directly or through others. As of the time of the incident, the "BKEX" platform had more than 270,000 contract trading users, including more than 60,000 active users. The platform has accumulated a net profit of 54,797,677 USDT (equivalent to more than 300 million yuan) by charging fees during user withdrawals and betting, as well as forced liquidation and gambling.
According to the court's verdict, there are no more detailed details of the case. What can be confirmed at present is that the main culprits in this case should be Ji Mouming and Lei Mou. Among them, Ji Mouming has not yet been brought to justice and is likely to be abroad; Lei Mou was prosecuted in a separate case, and the verdict may not have taken effect or has not yet been made.
The eight verdicts that have been made public all involved grassroots employees or agents of the "BKEX" exchange, and the sentences imposed did not exceed five years.
2. What is the crime of opening a casino?
To understand the crime of opening a casino, we must first know what the crime of gambling is.
Regarding the definition of gambling, my country's Criminal Law does not explain it. Generally speaking, gambling is considered to be "the act of gambling or gambling with money or property based on accidental wins or losses" (Zhang Mingkai). However, not all gambling is prohibited by law. There are only two types of gambling that are not allowed by Chinese law: one is to gather many people to gamble; the other is to make gambling a profession (full-time or part-time). In terms of specific identification, my country has relevant judicial interpretations with detailed provisions, so Lawyer Liu will not elaborate on them.
The crime of opening a casino refers to the act of providing a gambling venue or space for others, and dominating or controlling the casino. It is stipulated in Article 303, Paragraph 2 of the Criminal Law of China. As cybercrime accounts for an increasing proportion of traditional crimes, the Supreme People's Court, the Supreme People's Procuratorate and the Ministry of Public Security issued the "Opinions on Several Issues Concerning the Application of Law in Handling Cyber Gambling Crime Cases" in 2010, which stipulates that " establishing a gambling website and accepting bets ", " establishing a gambling website and providing it to others to organize gambling ", " serving as an agent for a gambling website and accepting bets ", etc., are all "opening a casino" in the criminal law, which constitutes the crime of opening a casino.
There are two levels of punishment for the crime of opening a casino: general circumstances are imprisonment of not more than five years, criminal detention or control; serious circumstances are imprisonment of more than five years; both levels are subject to a fine.
3. Is playing with contracts gambling?
Back to the topic that friends in the cryptocurrency circle are concerned about. Most people who trade in cryptocurrencies have a dream of getting rich overnight, and buying spot cryptocurrencies is of course impossible to realize this dream (unless the market has a very amazing performance); most people still want to get rich by playing contracts.
In the "Crazy Contract" of the "BKEX" exchange, there is a 1000x contract gameplay. If you buy in the right direction, you can indeed become a "5U God of War"; but returning to reality, does this gameplay comply with legal regulations?
Unfortunately, according to current Chinese laws, this type of play can indeed be classified as gambling.
According to the Supreme People's Court's Guiding Case No. 146 (December 2020) - Chen Qinghao and others opened a casino case, the court's ruling is: outside the statutory futures exchange, using the Internet to solicit investors, using the price trend of foreign exchange products in a certain period of time in the future as the trading object, and determining profits and losses according to "buy up" and "buy down", investors who buy in the right direction will make a profit, and the principal of those who buy in the wrong direction will belong to the dealer; if the profit and loss results are not linked to the actual price increase or decrease, it is essentially still a gambling behavior of "betting on size and winning or losing". The corresponding website should be identified as a gambling website.
In the contract gameplay of virtual currency exchanges, virtual currency + ultra-high leverage + perpetual contracts, etc. This series of high-risk behaviors is naturally difficult to win favor in the eyes of judicial authorities that already hold a more negative view of virtual currency, especially in a judicial environment where criminal thinking is absolutely dominant. At present, opening a virtual currency exchange in mainland China will inevitably involve criminal charges.
For those who often play contracts, especially if you play contracts full-time or part-time, and the main source of income is playing contracts, you may be suspected of gambling. However, due to realistic factors, such as virtual currency exchanges are all located overseas, it is difficult for judicial organs to investigate and collect evidence; the anonymity of virtual currency speculation is strong and the connection with the real world is weak; the state has weak supervision over ordinary investors in virtual currency, etc., all of which have led to few real legal risks for those who play cryptocurrencies. The current risks are mainly reflected in the freezing of cards when buying and selling U.
4. Final Thoughts
Since the release of the "9.24 Notice" in 2021, the owners of virtual currency exchanges in mainland China have either gone overseas or changed their careers. Those who insist on doing business in China are destined to face domestic criminal crackdowns. In the past two years, among the currency-related cases handled by Lawyer Liu, the most common cases are those involving the opening of virtual currency exchanges and being convicted of opening casinos and pyramid schemes. Whether it is CZ or Brother Sun, if they return to mainland China, they will most likely not escape the fate of being criminally prosecuted.
However, it seems that since the development of virtual currencies represented by Bitcoin in 2009, it is impossible to completely eliminate them. Chinese regulators should think about how to properly accept virtual currencies, but this seems impossible. No matter what form of acceptance, virtual currencies will have an impact on sovereign currencies and financial order, which is unacceptable to some people. What the future holds is unclear, at least for now.
