Defense in Embezzlement Cases: Why Should Web3 Professionals Be Targeted?

On October 27, 2025, Pan Gongsheng, Governor of the People's Bank of China, reiterated at the Financial Street Forum that the policies on preventing and dealing with the risks of virtual currency trading and speculation since 2017 have remained effective and that the bank will continue to crack down on virtual currency-related business activities in order to safeguard economic and financial order. This statement draws an inviolable red line for my country's virtual currency regulation policy. However, on the other side of the coin, a stark paradox is unfolding in judicial practice: many overseas Web3 projects and virtual currency exchanges, which are not legally recognized or even explicitly prohibited, repeatedly seek and receive protection from domestic criminal law when internal disputes arise, particularly accusations of "embezzlement" against employees. Some law enforcement agencies, by broadly interpreting the concept of "unit" and forcibly extending jurisdiction, are extending the criminal law's protection against embezzlement to these entities that should be severely punished by regulation. This raises a fundamental question that must be addressed: does using the most severe criminal law measures to protect the internal operations of an industry defined as "illegal financial activity" by national financial policy deviate from the inherent purpose of criminal law—protecting legal interests—and create a profound conflict with the central government's macro-guidance of maintaining financial security? To answer this question, we must start from the source—from the organizational form, employment model, and property attributes of the Web3 industry, and examine why they are inherently different from the traditional crime model of embezzlement, thereby arguing that Web3 companies should not be included in the scope of protection of embezzlement in my country.

Organizational Form of the Web3 Industry

(1) Denial of Subject Qualification

Under the continuous high-pressure regulatory policy, the establishment and operation of Web3 projects and virtual currency exchanges have been intended to circumvent regulation from the beginning. They generally establish their legal entities in jurisdictions such as the Cayman Islands, Singapore, and Dubai that are open to cryptocurrency policies. In the article "Can Overseas Web3 Companies Report Embezzlement by Employees in China? - Taking the Identification of 'Victim Units' as the Core," Attorney Shao mentioned that Web3 Enterprises commonly adopt a hybrid offshore-onshore structure of "multiple entities, multiple roles," separating different risk levels and business functions across different jurisdictions. One consideration is to circumvent the regulatory oversight of specific jurisdictions. The core legal interest protected by the crime of embezzlement under my country's Criminal Law is the trust relationship and property order within a legitimate economic organization. The legitimacy of the "entity" is the cornerstone of the protection of legal interests under criminal law. A Web3 project or exchange registered overseas, whose main business is explicitly defined as "illegal financial activities" in my country, does not possess the legitimate basis for such special protection under criminal law. They do not possess the organizational structure, place of registration, and tax obligations required by laws such as my country's Company Law, and do not belong to the "units" in the sense of criminal law. If the investigating unit forcibly interprets them as "other units" in the crime of embezzlement, it not only breaks through the legal boundaries of the principle of legality in criminal law, but also is equivalent to giving a foreign entity that is not registered in my country, is not subject to my country's supervision, and whose business model itself is defined by policy as "illegal financial activities" the same criminal law protection status as a legitimate domestic enterprise at the judicial level. The result of this broad interpretation is that criminal law becomes a "catch-all tool" for circumventing the regulatory structure, which seriously deviates from the original intention of establishing the crime of embezzlement. More importantly, Web3 companies, through their offshore structures, have legally expressed their subjective intention not to accept Chinese jurisdiction. Their choice to establish and operate in jurisdictions that recognize their business models signifies their voluntary acceptance of the laws and protections of those jurisdictions. When internal governance issues arise, they should first seek remedies under the laws of their place of registration. Therefore, when such organizations report internal disputes to Chinese public security authorities, their actions constitute a "selective use" of regulation—evading Chinese oversight when conducting business, yet seeking Chinese judicial protection when resolving internal conflicts. If the judiciary accepts such a case, it not only condones their intention to evade regulation but also undermines the very foundation of its own jurisdiction. The establishment of criminal jurisdiction should be based on closely defined legal connections, not become a judicial resource readily available for global capital to exploit. Therefore, the offshore organizational form of the Web3 industry, which is intended to circumvent regulation, has fundamentally negated its qualification as a "victim unit" under Chinese criminal law. Recognizing its status would have an extremely negative judicial demonstration effect—effectively encouraging market entities to enjoy the benefits of criminal law protection without incurring compliance costs through "regulatory arbitrage" structures. This is undoubtedly a serious injustice to domestic law-abiding enterprises and the financial management order, and must be rejected. The Web3 industry's unique employment model... To circumvent regulations, Web3 companies not only establish their legal entities overseas but also meticulously construct a "differentiated" employment model between domestic and overseas entities. On the one hand, to control costs and leverage the talent dividend, they tend to hire 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 under the name of an overseas entity. This complex design of a "triangular labor relationship" not only circumvents regulations but also weakens the basis for the application of this crime.

(1) From the perspective of "subject identity," this model blurs the legal definition of "employee of the unit."

Conclusion

Applying the crime of embezzlement under my country's criminal law to domestic Web3 practitioners while protecting overseas Web3 projects and cryptocurrency exchanges not only faces legal disputes regarding the applicable elements of the crime, such as the legal status and property attributes, but also creates a significant clash with my country's macro-financial regulatory policies.

From the "924 Notice" to recent statements from regulatory authorities, my country has clearly defined cryptocurrency-related business activities as "illegal financial activities." Under this policy background, if judicial organs provide criminal protection for such Web3 companies through the crime of embezzlement, it will create a serious value judgment split within the legal order—administrative regulation requires "cleanup," while criminal justice conversely provides "coverage."