The Summary of the National Courts’ Symposium on the Trial Work of Financial Crime Cases states: “Cracking down on all types of financial crimes in accordance with the law is a long-term and important task for the people’s courts in criminal adjudication.” It further emphasises that “courts at all levels must resolutely uphold the legislative spirit and, in accordance with the law, strictly punish entities and individuals who undermine financial order and commit fraud”.
Liu Jun
Partner
Kangda Law Firm
Tel: +86 10 5086 7666
Email: jun.liu@kangdalawyers.com
Before criminal regulation intervenes, the unlawful conduct of such entities or individuals often first appears in the form of civil legal acts. From the perspective of judicial practice, disputes in the financial sector not only concern the preservation of financial order, but also the protection of parties’ rights and the stability of transactions.
In particular, when transaction structures are complex, such disputes frequently involve both civil claims and concurrent financial crimes. This makes a solid grasp of the principles and rules at the intersection of criminal and civil law an essential requirement for all parties engaged in litigation, defence and adjudication.
Significance
Article 64 of China’s Criminal Law (2023 amendment) stipulates: “All property illegally obtained by criminals shall be recovered or ordered to be returned; the lawful property of victims shall be returned in a timely manner; contraband and property used by criminals in the commission of the crime shall be confiscated. All confiscated property and fines shall be turned over to the state treasury and must not be misappropriated or disposed of at will.”
Article 172 of China’s Civil Code provides: “Where a person without authority, acting beyond the scope of authority or continuing to act after the termination of authority, carries out an act of agency, that act shall be valid if the counterparty has justified reason to believe the person possessed such authority.”
In judicial practice, the identity of an offender may shift among personal, official, representative or agency capacities, while the proceeds of crime often circulate through different entities, creating multiple layers of nesting. Consequently, when applying the above-mentioned provisions, the boundaries of liability frequently overlap and intersect.
In practice, personal crimes often implicate asset recovery by financial institutions, and civil or commercial disputes involving entities frequently give rise to criminal allegations due to causal links and conflicts of interest. Under the combined pressures of regulatory constraints and profit-driven incentives, a deep grasp of the intersection between criminal and civil reasoning and rules is no longer optional but has become an essential competence for navigating the complexities of the financial legal environment.
Application
The Supreme People’s Court issued a reply regarding the application of article 64 of the Criminal Law, as raised by the Henan High People’s Court. The reply states: “In accordance with article 64 of the Criminal Law and articles 138 and 139 of the interpretation of the Supreme People’s Court on the Application of the Criminal Procedure Law, any property of victims unlawfully possessed or disposed of by the defendant shall be traced and recovered, or the defendant shall be ordered to make restitution, in accordance with the law.
“Accordingly, the specific details of recovery or restitution must be clearly stated in the main text of the judgment. If any property has already been returned to the victim prior to the judgment, this must be indicated. If the victim files an incidental civil action or separately initiates a civil lawsuit to request the return of property that has been illegally possessed or disposed of, the court shall not accept the case.”
In its reply, dated 19 July 1990, concerning the case of Guangdong Lian County Industrial and Trade Company v Industrial and Commercial Bank of China Huaihua, the Supreme People’s Court stated: “After the advance payment of Guangdong Lian County Industrial and Trade Company was defrauded, and after the offender Yang was punished and part of the stolen funds were recovered, the company is entitled to file a civil lawsuit and demand corresponding civil liability from both the Yushu Rural Credit Co-operative of Huaihua Agricultural Bank and the Industrial and Commercial Bank of China Huaihua, which bear direct responsibility for the loss of the payment.”
This reply remains valid, and it clarifies that victims may file civil lawsuits against parties “bearing direct responsibility” for losses that have not been compensated through recovery procedures, but excludes the right to file civil lawsuits against the offender.
Although the above-mentioned reply restricts the victim’s right to claim property from the defendant, it does not limit the right of victims and others to file lawsuits against third parties if losses remain uncompensated after recovery procedures. In judicial practice, even if a case is determined to involve a personal crime, relevant entities may still face civil lawsuits. Once a civil action is initiated, the court will inevitably need to assess the validity of contracts involved in the personal criminal conduct.
At the same time, according to the Several Specific Issues of the Supreme People’s Court on the Current Trial Work of Commercial Cases and the Minutes of the National Courts’ Civil and Commercial Trial Work Conference, if the adjudication of a civil or commercial case must be based on the outcome of a related criminal case, the civil or commercial proceedings shall be suspended pending the conclusion of the criminal case. Under this basic paradigm of intersection between criminal and civil matters, the choice of procedure will ultimately have a significant impact on the determination of the validity of contracts.
In financial disputes, the choice of litigation parties and procedures often determines the plaintiff’s stake in the litigation. Underlying these choices is the fundamental interplay between criminal and civil rules. Awareness of this intersection is not only a technical requirement for litigation practice, but also a central element of overall litigation’s strategic planning. It provides a framework for navigating the complex overlap of criminal and civil procedures, and for striking an appropriate balance between fairness and efficiency.
Liu Jun is a partner at Kangda Law Firm. He can be reached by phone at+86 10 5086 7666 and by email at jun.liu@kangdalawyers.com
