Can projects evade Chinese law by going overseas? Compliance misunderstandings that Web3 entrepreneurs cannot ignore

Even if the project structure is located overseas, as long as it touches the bottom line of Chinese law, there is still a high risk of being held accountable.

Author: Lawyer Shao Shiwei

Since the ten ministries and commissions issued the "924 Notice" in 2021, many Web3 project parties have expressed their willingness to "actively respond to Chinese supervision and stop services in mainland China" and move the main projects overseas. However, as we all know, there are still many crypto companies that continue to provide services to mainland users.

At the same time, many developers are considering transitioning from Web2 projects to Web3 . Compared with practitioners who have been deeply involved in Web3 for many years, technical personnel who intend to enter the market tend to pay more attention to the legality of the project, hoping to decide whether to actually enter the market on the basis of clarifying the legal boundaries and effectively controlling risks.

Whether you are a Web3 technician who has already joined the game, or an engineer or development manager who is planning to transition from Web2, you will encounter a common problem when starting a project from 0 to 1: where should the project be located?

Considering that mainland China has always maintained high-pressure supervision on Web3, especially innovative projects with financial attributes, many entrepreneurial teams tend to "export projects overseas" - choosing to register overseas and distributing technical teams in Hong Kong, Singapore, Southeast Asia and other places.

In the eyes of the technical founders or technical leaders of the Web3 project, this "overseas registration + remote deployment" approach seems to have a natural "compliance" advantage - since the project is not implemented in China, it is naturally not within the legal red line of China.

But the reality is far more complicated than imagined. Based on the experience of Shao Shiwei's lawyer team in representing many criminal cases in recent years, we have seen that even if the project structure is overseas, as long as it touches the bottom line of Chinese law, there is still a high risk of being held accountable.

Therefore, this article hopes to help technical decision makers in Web3 startup teams understand a core question: Why can “projects located overseas” also trigger Chinese legal risks?

(Note: Since many Web3 startup teams are led by technical personnel, this article is specifically aimed at project founders, CTOs, and core developers with technical backgrounds )

Author: Lawyer Shao Shiwei

1 Why do most Web3 projects choose to go overseas? Survival logic under the regulatory background

For most entrepreneurs, the most important demand in the early stage is to " survive first ." Compliance seems important, but in the early stage when resources are tight and the pace is tight, it is often ranked behind priority.

But entrepreneurs with long-term plans will pay attention to regulatory policies earlier, understand legal boundaries, judge what can and cannot be done, and thus decide how the project should be built and where it should be implemented.

Otherwise, the consequences of stepping on a landmine may be very serious. We once encountered a Web3 project that took only 13 days from birth to death , which is a typical negative case under a high-pressure regulatory environment.

So, what are the key regulatory documents on Web3 in China that project technical leaders must understand? Although there are many relevant policies, if we only look at it from the perspective of criminal risk prevention and control, we can focus on the following two:

• The 2017 Announcement on Preventing Risks in Token Issuance and Financing (“94 Announcement”)
• The Notice on Further Preventing and Dealing with the Risks of Virtual Currency Transaction Speculation (“924 Notice”) issued in 2021

The core spirit of these two policy documents is: banning initial coin offerings (ICOs) and clearly identifying virtual currency-related businesses as illegal financial activities.

In particular, the 924 Notice was directly called the " strongest regulatory document " by the industry. It not only explicitly stated that virtual currency trading activities are illegal, but also clearly stated that "overseas virtual currency trading platforms engaged in related businesses are not allowed to provide services to residents in China."

For this reason, most Web3 projects choose to "go overseas" to avoid risks.

But the question is: if the project is really launched overseas, is it really safe?

2 Can going overseas circumvent Chinese laws? Analysis of common misunderstandings of technical leaders

Many project parties actively consult lawyers at the start-up stage: In which country should the company be registered? Should it be Cayman, BVI, or Singapore? Should a foundation or a parent-subsidiary structure be established? These questions may seem like company strategies, but in fact, there is often a core assumption behind them - that "registering overseas can circumvent Chinese law."

However, based on our team’s experience in representing multiple criminal cases, we must clearly point out that although offshore structures do play a role in commercial risk isolation, tax optimization, and capital operations, they cannot constitute an exemption shield from Chinese law at the level of criminal liability.

In other words, the function of an offshore structure is “commercial isolation” rather than “criminal protection ”. Its main benefits are:

• Avoid securities law constraints from regulatory authorities in the United States and other places;
• Avoid double taxation and optimize global tax arrangements;
• Realize capital-level conveniences such as option incentives and financing structure design;
• Separate accounts and responsibilities from entities within China.

However, if the project itself involves activities that are expressly prohibited by Chinese law, such as illegal operations, opening casinos, money laundering, pyramid schemes, etc., even if the company's main body is located overseas, according to the principles of "territorial jurisdiction" or "personal jurisdiction" in my country's criminal law, Chinese judicial authorities still have the right to pursue accountability.

As to whether one will really be held accountable, this is a "probabilistic risk."

Therefore, when our team of lawyers provide structural design consultation for project parties, they often go back to the project itself first to understand its business model, funding path, and user targets in detail, rather than discussing where to register and how to build the structure from the beginning. Only by understanding the essence of the project can we determine whether it has a compliance basis and provide the most practical problem-solving solutions.

3. What does “penetrating law enforcement” mean? Several dimensions that Web3 project owners need to focus on

In our daily work, we often encounter similar questions:

• Is it okay if I set up the project in Cayman or Singapore?
• The project server is located abroad and is not open to Chinese users. Is that okay?
• I am just a technical consultant/outsourced developer. I am not involved in operations and do not touch funds. Is there still a risk?
• I found a foreign friend to be the nominal founder of the team, and I only work behind the scenes. Is it safer?
• I stated in my white paper that “services will not be provided to Chinese users”. Does that mean I am exempt from liability?

Behind these problems, there is actually a core misunderstanding - the lack of understanding of the "penetrating law enforcement" model of China's judicial organs.

The so-called "penetrating law enforcement" can be understood from two basic principles: the territorial principle and the personal principle.

▶ Territorial principle: Even if the project is registered overseas, if the following circumstances exist, it may be regarded as "the behavior occurred within the territory" and trigger Chinese law:

• The project users are mainly from China (such as building a Chinese community, promoting the project to Chinese people, etc.);
• The core members or technical team of the project are located in China;
• There are domestic promotion, business cooperation, settlement and other activities (even if completed through an outsourcing company or agency).

▶ Personal principle: According to Article 7 of China's Criminal Law, Chinese citizens who commit acts abroad that "should be subject to criminal liability according to Chinese law" can also be held accountable.

For example, if Chinese developers participate in the construction of on-chain gambling platforms, virtual currency fundraising platforms, and OTC redemption channels in Dubai, they may still be investigated and punished by Chinese judicial authorities as long as they violate relevant provisions of my country's criminal law.

For example: In a typical case jointly released by the Supreme People's Procuratorate and the State Administration of Foreign Exchange in 2023, Guo Mouzhao built an illegal foreign exchange website (matching RMB and foreign currency transactions through virtual currency) and was sentenced to five years in prison by the Shanghai Baoshan District Court for the crime of illegal business operation .

Therefore, common manifestations of “penetrative law enforcement” in the Web3 field include:

• Penetration of registration place: Even if a company is in Cayman, BVI, or Singapore, if its users and operations are in China, it may still be considered as “committing a crime within the country”;
• Penetrating technical identity: Even if the technical person in charge is only a consultant or developer to the outside world, as long as there are behaviors such as code submission, contract authority management, project profit sharing, and private key control, he or she may still be identified as the "actual controller";
• Penetrating on-chain data: Regulators can confirm whether a project "serves Chinese users" or involves illegal risks such as gambling, fraud, and money laundering through on-chain traceability, KYT audits, and user profiling.

For technical managers, understanding the basic logic of “penetrating law enforcement” is the first step to ensuring project risk control.

4 Conclusion

Many people think that as long as they "export" their projects, they can get rid of the supervision of Chinese laws once and for all. But the fact is that if a project has never undergone a legal risk assessment, it is hard to say that it is safe even if it is located overseas.

I hope this article can remind entrepreneurs and technical leaders in the Web3 field: the key to whether a project has a compliance basis does not lie in where it is registered, but in whether the project itself crosses the red line drawn by Chinese law.

Only by taking risk identification as the underlying thinking in the early stages can the project go further and last longer.

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