The case of Zhang Mou (pseudonym) for the crime of illegally absorbing public deposits

Keywords: Crime of illegally absorbing public deposits; accomplice; ordered to return the funds; joint and several liability for restitution.

Counseling Attorney: Zhao Zhihao

Basic Facts of the Case:

From January 22, 2016, to August 2, 2018, Zheng established several enterprises one after another, including Beijing某 Fund Management Co., Ltd. and Beijing某 Investment Group Co., Ltd. Pan successively served as the company’s manager and president, assisting Chairman Liu in handling administrative tasks such as corporate publicity, salary approvals, and personnel appointments. Without obtaining approval from the banking regulatory authorities, Zheng, Pan, and others adopted a management model in which regional managers directly controlled branch managers and internal staff. They attracted investors by distributing promotional flyers and having lecturers give presentations, offering interest rates higher than those currently offered by banks—for example, a 7% annual yield for 3-month deposits, a 9% annual yield for 6-month deposits, and a 10.2%–11% annual yield for 12-month deposits. Furthermore, they used legal documents such as “Equity Transfer Agreements,” “Equity Repurchase Agreements,” “Equity Custody Agreements,” and powers of attorney to facilitate the absorption of funds from unspecified members of the public for projects including Yizhu Yiguo, Shuxiang Men Di, and Tiande Biology. The funds thus absorbed were paid into the bank accounts of Zheng and others via POS machine transactions and then transferred through other channels to generate interest rate differentials, repay principal and interest on maturing deposits, and distribute profits to investors. Personnel at various regional offices and their affiliated branches had their salaries and commissions calculated according to the “Wealth End Compensation and Performance Management Assessment Plan” formulated by the company, based on the amount of funds they had helped to absorb. After being approved by Pan, these payments were then distributed to the employees.

In May 2017, the defendant Zhang joined the First Regional Office of a certain fund management company in Beijing, where he successively held the positions of Director, Regional General Manager, and Regional Office General Manager. According to the audit, the First Regional Office had a total of 550 investors involved in the fundraising scheme, who collectively contributed a total of 116.31 million yuan, with repayments totaling 82.033659 million yuan.

After trial and investigation, it was found that the defendant Zhang obtained a total of 587,222 yuan in wages and commissions during his tenure in the First Major District. Zhang voluntarily turned over 50,000 yuan of his illegal gains.

On April 19, 2024, the court of first instance found that Zhang was an accomplice and rendered the following judgment: First, the defendant Zhang was convicted of the crime of illegally absorbing public deposits and sentenced to three years and six months of imprisonment, together with a fine of RMB 150,000; second, the defendant Zhang was ordered to compensate the investors for their economic losses totaling RMB 39,784,157 (with any amounts already compensated by the principal offender being deducted). After the pronouncement of the judgment, the defendant Zhang filed an appeal, requesting the reversal of the second item of the first-instance judgment.

After a second-instance trial, the second-instance court issued a second-instance ruling on July 22, 2024, reversing the original judgment and remanding the case for retrial.

Case Highlights:

   In cases involving the crime of illegally absorbing public deposits, regarding accomplices who have only obtained fees such as agency fees, commissions, or performance-based bonuses, there is currently no uniform view in judicial practice across different regions as to whether these accomplices should bear joint and several liability for returning the illegal proceeds of the principal offender when the illegal proceeds of the accomplice are recovered or ordered to be refunded. In this case, the first-instance court held that the accomplice should bear joint and several liability for restitution. However, during the second-instance proceedings, the defense counsel, by interpreting Article 64 of the Criminal Law and presenting opinions issued by relevant local authorities, succeeded in persuading the second-instance court to adopt their argument—that the accomplice should not bear joint and several liability for restitution. This ruling holds certain reference and guiding significance for future judicial practice.

Typical significance:

I. Combining Multiple Methods of Criminal Law Interpretation—Clarifying that the “order to return and compensate” stipulated in Article 64 of the Criminal Law is a measure for dealing with the illegal proceeds of criminals, rather than a liability for compensation.

   The measures of “recovery,” “ordering restitution,” and “confiscation” stipulated in Article 64 of the Criminal Law are all measures aimed at handling property involved in a case that belongs to the perpetrator. The measures of “returning” and “turning over to the state treasury” represent further steps taken after such property has already been recovered, ordered to be restituted, or confiscated and turned over to the judicial authorities. Among these, “recovery” and “ordering restitution” target the illegal proceeds objectively obtained by the offender—a measure designed specifically to deal with the offender’s illicit gains. This is also explicitly provided for in Article 64 of the Criminal Law: “All property illegally obtained by the offender shall be recovered or ordered to be restituted.”

The 2016 “Notice of the Supreme People’s Court on Standardizing Enforcement Practices and Effectively Protecting the Property Rights and Interests of All Parties Involved in Enforcement Work” (Fa [2016] No. 401) stipulates: “In the enforcement of property-related criminal cases, it is essential to strictly distinguish, in accordance with the law, between illegally obtained proceeds and lawful property. Where, after trial, the nature of certain property cannot be confirmed as illegally obtained proceeds, it shall not be ordered to be confiscated or required to be returned...” Therefore, on the one hand, no judgment may order the confiscation or restitution of property that is not illegally obtained; on the other hand, confiscation or restitution may not extend to lawful property beyond the illegally obtained proceeds of the offender. In other words, confiscation and restitution are not a form of compensation liability nor a type of property-based punishment—they are merely measures for dealing with illegally obtained proceeds.

From the perspective of legislative intent, the handling of assets involved in a case—such as “confiscation” and “ordering restitution”—as stipulated in Article 64 of the Criminal Law, is aimed at stripping away the illegal gains obtained through criminal activities by means of criminal procedures, ensuring that “no one shall profit from unlawful conduct.” This measure targets those who have obtained illegal proceeds, rather than compensating the victims for their losses.

Therefore, ordering restitution is a measure aimed at dealing with the illegal proceeds obtained by criminals, rather than constituting liability for compensation.

II. Distinguishing the Scope of Application Between Recovery and Order to Compensate—With regard to the illegal proceeds obtained by criminals, all such proceeds that can be recovered shall be recovered in accordance with the law. Only those proceeds that have been damaged, lost, or squandered by the criminals and thus cannot be recovered should be subject to an order to compensate.

Articles 64 of the Criminal Law and Article 176 of the Supreme People's Court’s Interpretation on the Application of the Criminal Procedure Law of the People’s Republic of China both stipulate that “recovery” and “order to return compensation” are listed side by side as measures for handling the illegal proceeds of criminals. So, when should “recovery” be applied, and when should “order to return compensation” be applied? According to Article 1 of the Supreme People's Court’s “Reply Concerning How to Handle Cases Where the Defendant’s Relatives Voluntarily Return the Stolen Funds on Behalf of the Defendant” (Fa [Yan] Fu [1987] No. 32), “If the defendant is an adult and has squandered all his or her illegal proceeds to the extent that they cannot be recovered, the defendant shall be ordered to return the compensation...” Thus, with regard to illegal proceeds, any amount that can be recovered should be ordered to be recovered. Only when the proceeds have been damaged, destroyed, or squandered by the criminal actor to the point where recovery becomes impossible should the measure of ordering return compensation be applied.

III. Comprehensive Argumentation and Analysis—In cases of joint crime, an accomplice who has not obtained any illegal proceeds from the principal offender should not bear “joint and several liability” for the principal offender’s illegal proceeds.

(1) In joint crimes, the principle of “partial implementation, full responsibility” refers to criminal liability and penal sanctions—that is, how co-offenders are convicted, how they are sentenced to substantive imprisonment, and how they are sentenced to property penalties—but it does not pertain to the handling of assets involved in the case. In other words, measures for handling assets involved in the case, such as “recovery” and “ordering restitution,” do not involve the principle of “partial implementation, full responsibility.”

(2) Joint crime is not equivalent to joint tort liability under civil law. Moreover, the “order to return and compensate” stipulated in Article 64 of the Criminal Law does not involve “joint compensation” or “joint and several liability.” “Joint compensation” and “joint and several liability” are forms of civil liability—specifically, compensatory liabilities—whereas the “order to return and compensate” is a measure for handling property involved in a criminal case. The two differ fundamentally in their legal nature.

(3) In criminal cases involving illegal fundraising, the “Two Supreme Courts and One Ministry” as well as meeting minutes from certain regions explicitly stipulate that, for accomplices, the recovery of funds and the order to make restitution shall be limited solely to the actual illegal gains personally obtained by the accomplice.

For example, Article 4 of the “Opinions of the Supreme People’s Court, the Supreme People’s Procuratorate, and the Ministry of Public Security on Several Issues Concerning the Application of Law in Handling Criminal Cases of Illegal Fund-Raising” stipulates: “If one provides assistance to others in illegally absorbing funds from the public and thereby receives agency fees, kickbacks, rebates, commissions, or performance-based bonuses, and such conduct constitutes joint criminal participation in illegal fund-raising, criminal liability shall be pursued according to law. If such person promptly returns the aforementioned fees, he or she may be given a lighter punishment in accordance with the law...” This clearly indicates that, for accomplices of this type, their responsibility for restitution is limited solely to “agency fees, kickbacks, rebates, commissions, and performance-based bonuses.” As long as they can return these specific fees, they may receive a lighter, reduced, or even exempted punishment. Meanwhile, as mentioned earlier, Article 5 of the Opinions further provides: “...the agency fees, kickbacks, rebates, commissions, and performance-based bonuses paid to those who assist in absorbing funds shall be recovered according to law.” This explicitly clarifies that, for such accomplices, the scope of recovery of illegal gains is limited exclusively to the “agency fees, kickbacks, rebates, commissions, and performance-based bonuses” they themselves have received; they do not bear “joint and several liability” for repaying the investment funds obtained by the principal offender from the investors.

For another example, the “Minutes of the Meeting on Legal Application Issues in Handling Criminal Cases Involving Illegal Fundraising,” issued by the Chongqing Higher People’s Court, the Chongqing People’s Procuratorate, and the Chongqing Public Security Bureau (Yu Gao Fa [2018] No. 186) (hereinafter referred to as the “Minutes”), provides more specific provisions and interpretations. Article 24 of the Minutes stipulates: “With regard to the scope of property to be recovered or ordered to be refunded, there is a distinction between the recovery or ordering of refund of illegal proceeds and the joint and several liability borne by co-defendants in civil litigation for losses suffered by investors. The recovery or refund of illegal proceeds does not fall within the scope of civil compensation litigation and does not involve issues of civil joint and several liability. The recovery or refund shall be limited to the actual illegal proceeds obtained by the perpetrator. For those illegal proceeds that have not yet been recovered or cannot be recovered, the court may, in accordance with the law, order their refund; such refunds shall also be limited to the actual illegal proceeds.”

Article 6 of the “Answers of the Shandong Provincial Higher People’s Court on Relevant Issues in the Trial of Illegal Fund-Raising Cases” also stipulates: “With regard to the scope of the defendant’s liability for restitution... those who organized, planned, and directed the fund-raising activities, as well as the principal perpetrators who actively participated in the commission of the crime and the primary beneficiaries, shall bear full responsibility for restitution for all losses caused by the illegal fund-raising activities they organized, planned, and directed. As for those who carried out illegal fund-raising activities under the direction and management of others or who merely provided support for such activities, only the agency fees, benefits, rebates, commissions, and performance-based remunerations they personally obtained may be recovered; if such amounts cannot be recovered, they shall nonetheless bear the responsibility for restitution.”

As stipulated above, both the “Two Supreme Courts and One Ministry” and regulations issued by certain local authorities have explicitly clarified that, in joint criminal cases involving the illegal absorption of public deposits, accomplices who merely receive commissions, bonuses, or other remunerations and play a secondary role in the joint crime shall not bear “joint and several liability for restitution” with respect to the investment funds obtained by the principal offender from the investors. When sentencing such accomplices and ordering them to return the illegally obtained proceeds, the court shall limit its judgment to the actual commissions, bonuses, and other unlawful gains they have actually received.

(4) From the perspective of proportionality between crime and punishment, since an accomplice has not come into contact with the funds raised from investors absorbed by the principal offender, nor has the accomplice obtained, possessed, or controlled such investor funds—and given that the accomplice neither obtained nor possessed nor controlled these funds—how could there be any “property involved in the case” to be dealt with? How could there be any “recovery” ordered against him? Moreover, it is even less likely that the accomplice would squander or misuse the investment funds provided by the investors. So how could he possibly be ordered to make restitution? Furthermore, the commissions and bonuses earned by such accomplices are vastly disproportionate compared to the sums—often tens of millions or even hundreds of millions—of funds raised from investors. According to... Several Provisions of the Supreme People's Court on the Enforcement of Property-Related Portions of Criminal Judgments According to the relevant provisions, once a people’s court issues a criminal judgment ordering restitution, the portion ordered to be repaid will enter the enforcement procedure—meaning that the lawful property of these accomplices will be subject to execution. Now, if an accomplice who has received only tens of thousands or hundreds of thousands in commissions, bonuses, or other similar fees is ordered by the court to “jointly and severally” repay the tens of millions or even hundreds of millions of yuan that the principal offender was required to return to the investors, on the one hand, this accomplice has never had any contact with those tens of millions or hundreds of millions of yuan in funds at all. The enormous financial enforcement pressure placed upon him would make it virtually impossible for him to continue surviving after his release from prison. On the other hand, ordering such an accomplice to “jointly and severally” repay tens of millions or even hundreds of millions of yuan carries essentially the same level of punitive severity as sentencing him to life imprisonment—a penalty that is fundamentally disproportionate to the nature of his accomplice role and the gravity of his crime. Such a severely disproportionate punishment could not possibly have been the intended purpose behind Article 64 of the Criminal Law, nor could it serve as a proper standard for judicial discretion in criminal trials.

Moreover, the function of criminal justice encompasses not only the suppression of crime but also the protection of the human rights of defendants. If judicial authorities focus solely on the losses suffered by those who participated in fundraising activities, without taking into account the specific facts and circumstances of the principal offender and accomplices in a joint crime involving illegal fundraising—such as the accomplices having received only small commissions or bonuses—and order these accomplices, who earned only modest remuneration, to “jointly and severally compensate” the principal offender for the tens of millions or even hundreds of millions of yuan in illegal proceeds that the principal offender is required to return, and then proceed with enforcement procedures, this approach would deviate from the principle of achieving an organic unity among the political, social, and legal effects of criminal justice.

In summary, in cases of joint crime, an accomplice who has not obtained any illegal proceeds from the principal offender should not bear so-called “joint and several liability for restitution” with respect to the principal offender’s illegal proceeds.