New rules being developed by the Chinese government against illegal financing may be used to crack down on initial coin offerings (ICOs). A draft of the regulations has been released by the Legislative Affairs Office of the State Council, the executive Branch of the Chinese government. Officials are soliciting public comments over the next month before officially commencing the legislative process. Though broadly focused on a range of fundraising activities, the fifteenth article of the draft ruleset identifies cryptocurrency-based funding efforts as potential targets for investigations. The text states:
"If the department overseeing illegal fundraising activities found a fundraising without proper permission, or a fundraising that violates the relevant provisions of the State, and if one of the following circumstances is found, the department shall launch an administrative investigation. Other relevant departments shall cooperate with the investigation. …. (2) to raise funds in the name of issuing or transferring equity, raising funds, selling insurance, or engaging in asset management activities, virtual currency, leasing, credit cooperation and mutual funds..."
The draft outlined that the government shall establish an interdepartmental committee to combat illegal fundraising. It also clarified, for the first time, that participants of illegal fundraising shall be responsible for their own losses. There are currently two laws dealing with illegal fundraising in Chinese crime law system. The crime of fund fraud, which used to be punishable by death, now carries a maximum sentence of life in jail. The other one – the crime of illegally absorbing public deposits – carries a maximum sentence of 10 years in jail. The new regulations also come amid a public outrage on pyramid selling scams. Last month, several college graduates were found dead after being imprisoned and assaulted by members of a pyramid selling organization in Tianjin, China.