Prosecution Of Illegal Crypto Trading Platforms
1. Legal Framework: Illegal Crypto Trading Platforms
Cryptocurrency regulation varies by country, but in China, the legal approach is particularly strict:
Ban on Crypto Trading:
The People’s Bank of China (PBoC) and other regulators have banned financial institutions and payment companies from providing services related to cryptocurrency trading.
Initial ban on financial institutions handling crypto: 2013; expanded to all crypto trading platforms: 2017.
Complete ban on crypto transactions, including foreign exchanges: 2021.
Relevant Laws:
Criminal Law of the PRC:
Article 192 – Illegal fundraising (including crypto fundraising schemes like ICOs) punishable by imprisonment and fines.
Article 224 – Fraud via internet or virtual currency is criminal.
Article 285 – Illegal business operations (operating unlicensed platforms) punishable with imprisonment or fines.
Key Principles:
Operating an unlicensed crypto exchange or facilitating illegal crypto transactions constitutes criminal liability.
Both platform operators and promoters/investors can face prosecution.
Penalties depend on the scale of operations, amount involved, and social impact.
2. Illustrative Cases
Case 1: OKEx China (2017 – 2018)
Facts:
OKEx, a major crypto exchange, continued operations targeting Chinese investors despite government prohibitions.
Facilitated millions of RMB in transactions without registration or license.
Legal Outcome:
Chinese authorities froze assets of platform operators and investigated violations under illegal business operations (Article 225 of Criminal Law).
Operators faced fines and administrative sanctions; some were arrested for further investigation.
Significance:
First high-profile crackdown emphasizing that even international exchanges cannot circumvent domestic law.
Demonstrates that cryptocurrency platforms cannot operate without registration or legal approval.
Case 2: Huobi China (2017)
Facts:
Huobi, one of the largest crypto exchanges, allowed Chinese users to trade Bitcoin and other virtual currencies despite official warnings.
Legal Outcome:
Regulatory authorities suspended operations and froze domestic assets.
Some operators were investigated for illegal fundraising and operating unlicensed platforms.
Significance:
Reinforced that platform operators bear criminal liability if they continue operations despite official bans.
Highlighted the Chinese government’s strict stance on crypto exchanges.
Case 3: PlusToken Scam (2018 – 2019)
Facts:
PlusToken was a crypto wallet and investment platform promising high returns to investors.
Collected over $2 billion USD from users and operated like a Ponzi scheme.
Legal Outcome:
Several operators were arrested and charged with fraud and illegal fund-raising under Articles 192 and 224.
Sentences ranged from 11 years to life imprisonment, and assets were confiscated.
Significance:
Illustrates that illegal crypto trading platforms often involve fraud.
Shows that large-scale operations causing public financial losses trigger severe criminal penalties.
Case 4: Gate.io & Domestic Prohibition (2017)
Facts:
Gate.io, another crypto exchange, continued accepting Chinese users after PBoC warnings.
Operators tried to use VPNs and offshore entities to bypass regulations.
Legal Outcome:
Authorities blocked IPs and froze local accounts.
Operators investigated for illegal business operations and facilitating unauthorized financial activities.
Significance:
Emphasized that circumvention through foreign registration or technical measures does not shield operators from liability.
Case 5: OKCoin – Illegal ICO Facilitation (2018)
Facts:
OKCoin helped launch initial coin offerings (ICOs) targeting Chinese investors.
ICOs collected millions of RMB without regulatory approval.
Legal Outcome:
Operators investigated for illegal fundraising and operating unlicensed financial platforms.
Several operators were arrested; funds were frozen and returned to victims when possible.
Significance:
Highlights that ICOs are treated as financial fraud or illegal fundraising under Chinese law.
Combines criminal liability for both platform operators and promoters.
Case 6: PlusToken Executives’ Trial in Jiangsu (2019 – 2021)
Facts:
In a follow-up to the PlusToken case, the main executives were tried in Jiangsu Province.
Accused of running an illegal crypto investment platform and defrauding thousands of investors.
Legal Outcome:
Top executives received 11 to 15 years in prison, confiscation of illegal gains, and heavy fines.
Significance:
Reinforces that large-scale crypto platforms causing public loss are prosecuted aggressively.
Illustrates the use of multiple legal provisions: fraud, illegal fundraising, and illegal operations.
Case 7: BHEX Exchange Investigation (2020)
Facts:
BHEX offered crypto trading and derivatives services to Chinese citizens, claiming to operate overseas.
Continued Chinese marketing despite bans.
Legal Outcome:
Authorities investigated operators for illegal business operations and unlicensed financial services.
The platform later suspended services for Chinese users and cooperated with regulators.
Significance:
Shows that even foreign-registered exchanges are subject to Chinese jurisdiction when targeting domestic users.
3. Key Takeaways
Legal Duty: Platforms must be licensed and approved; failure to comply triggers criminal liability.
Combination of Offenses: Operators often face multiple charges: illegal business operations, fraud, and illegal fundraising.
Scale Matters: Large-scale operations and financial losses aggravate penalties.
Domestic Enforcement: Even overseas exchanges targeting Chinese users are liable.
Deterrent Measures: Asset freezing, arrests, fines, and prison sentences are standard.
Summary Table of Cases
| Case | Platform | Crime | Outcome | Significance |
|---|---|---|---|---|
| OKEx (2017–18) | OKEx | Illegal business operations | Assets frozen, operators investigated | High-profile crackdown on exchanges |
| Huobi China (2017) | Huobi | Unlicensed trading | Suspended operations, investigation | Reinforced criminal liability for operators |
| PlusToken Scam (2018–19) | PlusToken | Fraud, illegal fundraising | 11 yrs – life imprisonment | Large-scale crypto fraud liability |
| Gate.io (2017) | Gate.io | Illegal trading, circumvention | Account freezes, investigation | Circumvention does not protect liability |
| OKCoin ICO (2018) | OKCoin | Illegal ICO facilitation | Arrests, fines, fund return | ICOs treated as illegal fundraising |
| PlusToken Executives (2019–21) | PlusToken | Fraud, illegal platform | 11–15 yrs imprisonment, confiscation | Severe punishment for operators |
| BHEX (2020) | BHEX | Unlicensed financial services | Investigation, services suspended | Overseas platforms targeting Chinese users are liable |
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