LEGAL RISK OF CRYPTO CURRENCY, FROM BITCOIN TO PI NETWORK

 

LEGAL RISKS OF CRYPTOCURRENCY, FROM BITCOIN TO PI NETWORK

 

Bitcoin price updated on 05/3 was over 48,000USD (at 7.00 am), equivelant to 1.2 billion VND / Bitcoin. Before that, on 22/2/2021, the price was even higher and there were times when the price passed 58,000USD, increased more than 20% in the week and increased 100% compared to the beginning of 2021. Facing the "crazy" escalate never seen before in Bitcoin history, many investors around the world including in Vietnam have actively particiated in the issuance, saving, mining, exchanging, investing,... in cryptocurrencies.

 

In Vietnam, although the Government has yet to accept or allow transactions of cryptocurrency, the trend persists. According to the Global consumer survey of Statista in 2020, Vietnam ranked at the second place regarding the interest in Bitcoin. The survey was conducted in 74 countries with 1,000-4,000 participants in each. There are several secret groups in relation to cryptocurrencies in Vietnam with tens of thousands if not hundreds of thousands followers. According to the unofficial information from digital websites abroad, Vietnam has approximately over 10 million accounts investing in cryptocurrencies, more than 5 times of that of the current securities accounts[1].

 

The most concerned issue is that the escalate of Bitcoin price became a great cause for other coins to bloom, thereof Pi Network (Pi) is an example. Mentioning Bitcoin and Pi network is not to compare, but Bitcoin and Pi represent thousands types of cryptocurrencies existing nowadays. Whereas Bitcoin represents the pioneer, the top of cryptocurrencies, Pi represents the currencies in the later stage expecting to replace position of Bitcoin one day. Whereas Bitcoin represents the types of cryptocurrencies build from Blockchain, noone can intervenes its operation, with the amount litmited to 21 million uinits, Pi was born from a group of people who manipulate its price, amount, can not be exchanged to money as Bitcoin and currently being accused of illegal multi level marketing by the authorities[2]. Meaning the risks of investing in cryptocurrencies are as diversed as the diversity of the currencies, which come from not only the attributes of the currencies but also from the people creating them.

 

Of course, "you might pick pebbles everyday and hope one day the world will recognize pebbles value as gold, but first consider the gain and loss before participating"[3] , because no one other than the investors will have to bear the risks from cryptocurrencies.

 

Then what are the risks?

 

Risk from no official "identification" of cryptocurrencies

 

There are many different opinions from experts to define whether cryptocurrency is a property or not according to the law. In this article, the author agrees with the idea to define cryptocurrency not a property in accordance with the 2015 Civil Code either a goods according to the 2005 Commercial Law.

 

Article 105 of the 2015 Civil Code provides: "Property comprise objects, money, valuable documents and property rights"

 

According to the above definition, property only exist in the forms of:

 

 

- Object: In civil relationship, not all objects are considered as property. Object as a property in civil relationship is an object existing in material form, which human can manipulate, control and exploit to serve their material or spiritual needs.

 

- Money: Money not only is used for the purposes of exchange, payment, saving, but also to represent the national sovereignty. Article 16 of the 2010 Law on credit institutions provides: "The currency unit of Socialist Republic of Vietnam is «Đồng», nationally abbreviated as «đ», internationally abbreviated as «VND», one Đồng equals ten dimes ("hào"), one dime equals ten cents ("xu"). In Vietnam, only the State Bank of Vietnam has the right to issue money, anyone can use money, wide range of use in the territory."

 

Valuable documents: These are valuable documents such as government bonds, stocks, promissory notes, savings books, etc.

 

- Property rights: are rights valued in money, transferable in civil legal relations such as: land use rights, intellectual property rights, the right to claim compensation for damage,....

 

According to the legal regulations cited and analyzed above, it can be seen that the characteristics of cryptocurrencies do not satisfy any type of property existence in civil legal relations. Therefore, cryptocurrency is not considered as property in Vietnam's civil legal relations.

 

The fact that there is no provision of civil law affirming that cryptocurrency is a type of property leads to the consequences that the civil relations such as ownership, inheritance, contract or compensation for damage related to cryptocurrencies also falls into the "gap", without a mechanism to properly solve it.

 

In fact, when trading cryptocurrencies, the trading parties face many risks that can lead to the loss of part or all of their assets, such as: (1) E-wallets being hacked and stolen some or all of the cryptocurrencies; (2) The cryptocurrency seller fails to perform the obligation to transfer the cryptocurrency to the buyer after the buyer has performed the payment obligation; (3) Wrong e-wallet address or wrong currency; (4) Join an unscrupulous exchange, who "runs away" bringing investors' wallets or provides products with insufficient security, hackable, crashed...

 

Or in fact, there are also some cases where the inheritance being shared is cryptocurrency; ask a person to return a password or key to log into an account; or claim compensation when a person breaks another person's e-wallet, making login impossible...

 

When encountering these cases, the victim does not know who to sue and "call for help" to which authorities. Or if there is, the competent authority does not have a legal basis to handle the situation. At this point, cryptocurrency holders will have to bear all risks.

 

Risk of losing personal information

 

Before being granted the right to participate in applications, cryptocurrency exchanges, users must provide personal information, send photocopies of personal documents such as ID card, passport, driver's license... to verify their identity, or even a facial recognition photo. The Pi Network mining application is an example. This application is free to download and use, but in order to install and use this software, users must provide their personal information.

 

Therefore, the most visible thing that participants of applications and virtual currency exchanges inevitably lose is personal information (full name, phone number or facebook ID..., eKYC authentication information). and may lose other information in the device (because the app requires many permissions to interfere with the device). This information is associated with clear identification of a specific person, in order to distinguish this person from others. If this information is not properly protected, some one might illegally collect and exploit it.

 

Currently, Vietnamese law has provisions on privacy protection, including quite adequate and appropriate personal data information. Clause 1, Article 21 of the 2013 Constitution of Vietnam provides: “Everyone has the inviolable right to private life, personal secrets and family secrets; has the right to protect its honor and reputation. Information about private life, personal secrets, and family secrets are protected by law. Article 38 of the 2015 Civil Code provides that an individual's right to privacy is respected and protected by law. Acts of infringing upon other people's personal information, depending on the nature and extent, may be handled for administrative violations or for penal liability according to current legal regulations.

 

Regarding administrative responsibilities, in Clause 2, Article 84 of Decree 15/2020/ND-CP dated February 3, 2020, stipulating penalties for administrative violations in the fields of post, telecommunications, and electronic radio frequencies , information technology and e-transactions provides a fine of from 20 to 30 million dong for one of the following acts: a) Using personal information for improper purposes as agreed upon when collecting or not consent of the subject of personal information; b) Providing or sharing or spreading the collected, accessed or controlled personal information to third parties without the consent of the personal information owner; c) Illegally collecting, using, spreading and trading personal information of others. Concurrently apply remedial measures: Force to delete such personal information due to violations.

 

Regarding criminal prosecution, acts of buying, selling, exchanging, giving or publishing other people's personal information online without the permission of the owner of that information in order to gain illicit profits from 50,000,000 VND to less than 200,000,000 VND or causing damage from 100,000,000 VND to under 500,000,000 VND or causing bad public opinion, reducing the reputation of agencies, organizations and individuals, may be examined for penal liability pursuant to Article 288 of the Penal Code 2015 stipulating the crime of illegally giving or using information on computer networks, telecommunications networks with a fine of up to 1,000,000,000 VND or a maximum prison term of up to 07 years.

 

In case the use of photos and personal information to gain illicit profits for the purpose of humiliating, seriously offending the dignity and honor, causing bad public opinion and reducing the reputation of the individual, they may be prosecuted for the crime of humiliating others under Clause 1, Article 155 of the Penal Code 2015.

 

Thus, the law has sufficient deterrent provisions for acts of infringing upon personal information. However, because of the high anonymity of cryptocurrency transactions, it is difficult for investors as well as authorities to identify the offending party to handle. Therefore, the responsibility to protect personal information should first and foremost belong to the users themselves.

 

The risk comes from the fact that Vietnam's law does not have a legal framework for cryptocurrencies

 

Currently, the law does not recognize virtual currency as a currency and a legal method of payment. According to the press release of the State Bank of Vietnam on cryptocurrencies dated February 27, 2014, the State Bank of Vietnam affirmed that Bitcoin is a form of digital currency (virtual money), not issued by the Government or a financial institution, which is created and operated on the basis of a system of peer-to-peer internet-connected computers, the use of Bitcoin (and other similar virtual currencies) as a means of payment is not recognized and procted by the law. Credit institutions are not allowed to use Bitcoin (and other similar virtual currencies) as a currency or means of payment when providing services to customers. Following the Press Release on February 27, 2014, on the morning of October 28, 2017, in a document sent to the press agency, the State Bank of Vietnam confirmed that Bitcoin and other similar virtual currencies are not is a legal means of payment in Vietnam. Accordingly, the issuance, supply and use of Bitcoin and other similar virtual currencies as a means of payment is prohibited in Vietnam.

 

The law does not recognize but does not prohibit businesses of the kind. Article 33 of the 2013 Constitution stipulates: “Everyone has the right to freely conduct business in professions not prohibited by law”. In addition, according to the provisions of Clause 1, Article 7 of the Enterprise Law 2020, enterprises have the right to freely conduct business in industries and professions that are not prohibited by law.

 

Currently, Vietnamese law prohibits the following investment and business activities:[4]

“a) Trading in narcotic substances as prescribed in Appendix 1 of this Law;

b) Trading in chemicals and minerals specified in Appendix 2 of this Law;

c) Trade in specimens of wild plants and animals of natural origin specified in Appendix I to the Convention on International Trade in Endangered Species of Wild Fauna and Flora; specimens of endangered, precious and rare species of forest plants, animals and aquatic animals of Group I, derived from natural exploitation as specified in Appendix III of this Law;

d) Doing business in prostitution;

dd) Buying and selling human, tissues, corpses, body parts, human fetuses;

e) Business activities related to human cloning;

g) Trade in firecrackers;

h) Debt collection service business.”

 

Thus, cryptocurrency trading is not on the list of prohibited business investment activities. Therefore, the fact that the authorities have not yet been able to legally intervene with the business and investment acts in cryptocurrencies. Therefore, fundraising activities with virtual money (ICO) or cryptocurrency exchanges are still taking place, the subjects still conduct business activities, transfer, contribute capital, mobilize investment capital ... with cryptocurrencies. However, the process of establishment, establishment registration, tax code issuance, responsibilities or activities or sanctions related to cryptocurrency is currently still open to the law, along with the settlement of legal issues. Disputes related to these activities also do not have an appropriate mechanism to settle. This is a fertile ground for fraudulent ICO activities, multi-level business which actually happened in our country, typically the cases of cryptocurrency iFan5, AOC 6 or VNCOINS7...

 

Cryptocurrency frauds or scams in Vietnam are often associated with a multi-level marketing model that uses the money of the later participants to pay interest to the earlier participants. Criminal tricks of the subjects are often very sophisticated. First, scammers establish companies to create prestige, then they call on investors to raise capital to buy cryptocurrency miners with attractive profits, many times higher than the Bank's interest rates many times. Or these objects issue their own cryptocurrency and self-assess, then, in order to hide the illegal financial mobilization, these subjects ask participants to buy a cryptocurrency with cash, which has the same value as Bitcoin, then commits to paying very high profits, committing to payback in a very short time of about 4-5 months. At the same time, in order to expand the business network, the "investors" raise additional capital indirectly by creating rewards in case the previous player introduces more people to join and when more people are attracted, the players will be paid attractive profits up to 8% - 20% on the amount of money players later deposited to buy virtual money. The tricks of these subjects aim at the player's greed.

 

In the first few months, investors will receive regular returns at attractive interest rates. However, with the fraudulent nature by taking the later player's money to pay interest to the earlier player, to a certain extent when the capital has reached a huge number, it means paying a lot of interest to the player, the fundraising subjects will "suddenly disappear" or use tricks to lock and cancel the player's account, cancel the transaction sites, and then appropriate the participants' money.

 

Expert M. Ali from TheCoinsPost considers Pi Network like a multi-level scam model. According to Ali, users cannot enter the Pi mining network on their own, but must go through a referral code. This is the manifestation of a business model in the form of a pyramid, attracting people with the promise of profits if more members are recruited.[5]

 

The virtual currency network with the characteristics of a large number of participants, crimes committed in an electronic network environment with a high rate of anonymity, and lack of knowledge and greed of investors have created a lot of challenges for the authorities in the process of investigating the cases, especially when the mastermind is often a foreigner and the server is located abroad, the nature of cross-border transactions. And the object to bear this risk is none other than virtual currency investors. Therefore, investors themselves, before investing in any virtual currency, need to equip themselves with enough knowledge to understand it, and at the same time learn carefully about the currency they invest to limit the risk for themselves.

 

Risk that the investors may be handled administratively, even criminally, when trading cryptocurrencies

 

According to the provisions of Article 16 of the Law on State Bank 2010, the monetary unit of the Socialist Republic of Vietnam is «VND», the national symbol is «d», the international symbol is «VND», one dong equals ten dimes, one dime equals ten pence.

 

As such, cryptocurrency is not money.

 

According to Article 1, Decree 80/2016/NDCP of the Government, Non-cash payment means used in payment transactions (hereinafter referred to as payment means), including: Checks, payment orders, payment authorizations, collection requests, collection authorization, bank cards and other means of payment according to regulations of the State Bank.

 

Illegal means of payment are those that do not belong to the above subjects.

 

Issuing, supplying and using cryptocurrency in general and Bitcoin, Pi in particular as currency or means of payment is prohibited. Sanctions for handling this behavior have been specified in Decree 88/2019/ND-CP dated November 14, 2019 of the Government on sanctioning of administrative violations in the field of currency and banking and the Penal Code 2015 (amended and supplemented in 2017).

 

Specifically, on administrative sanctions:

 

Regarding administrative sanctions: the act of issuing, providing and using illegal means of payment may be sanctioned according to Point d Clause 6 Article 26 of Decree 88/2019/ND-CP dated November 14/ In 2019, the fine level for violators is VND 50,000,000 to VND 100,000,000, the fine level for organizations is 2 times higher than that of individuals. In addition, criminal individuals and organizations are also subject to the additional sanction of confiscating material evidences and means of violation and forcing the application of remedial measures to prevent the expansion of the scope, scale. and areas of operation during the time when the violations have not been completely remedied for violations; forced to pay into the state budget the illegal profits obtained from the commission of violations.

 

Criminal liability: Illegal issuance, supply, and use of means of payment that cause damage to other people's property from VND 100,000,000 or more may result in criminal prosecution. Crime of violating regulations on banking activities and other activities related to banking activities as prescribed in Article 206 of the Penal Code 2015 (amended and supplemented in 2017) has the highest fine up to 20 years in prison. In addition, offenders may also be banned from holding certain posts, practicing certain professions or doing certain jobs for between 01 and 05 years.

 

As such, Vietnam has not yet recognized cryptocurrencies as a means of payment. The act of issuing, storing, supplying and using them as a means of payment may be handled in accordance with the law.

 

Risk of being taken advantage in money laundering and tax evasion crimes

 

Money laundering is an act of an organization or individual in order to legitimize the origin of the proceeds of crime. Different from the traditional transaction type, which is transferring money through an intermediary, the bank is very easy to detect due to the mechanism of reporting and controlling suspicious transactions under the Law on Anti-Money Laundering 2012, the transfer of dirty money in the form of cryptocurrencies are made very easily and difficult to detect in the digital environment because of the anonymity of the virtual currency network, it is impossible to know who is sending money and who is receiving money.

 

It is also because of the anonymous nature that this currency facilitates tax evasion, illegal money transfers, payments, and financing of illegal transactions. Subjects can exchange dong into virtual currency, and then transfer money abroad through exchanges in a short time and almost without leaving a trace. In fact, when trading virtual currencies, no authorities can control where the money goes, how valuable the goods are, where the money comes from, so it will increase the risk of money laundering in the form of virtual currency.

 

With the above analysis, it can be seen that, currently, in Vietnam, there are still no specific legal provisions governing cryptocurrency, cryptocurrency is not yet considered a form of property or means of payment, having no mechanism for control and handling from state agencies to cryptocurrency exchanges and activities. When operating such an outlaw, investing in cryptocurrency is extremely risky. So be clever, discerning investors to recognize this profit temptation trap so as not to become a victim like many people nowadays.

Lawyer Duyên Trần – FDVN LAW FIRM