Fraud on the Rise: PRC Edition
Due to the pandemic and subsequent economic downturn since 2020, the number of telecom and internet fraud cases has climbed. Upgraded fraud tactics, like impersonating police officers or other government officials to prey on susceptible victims, and overseas operations in regions like northern Myanmar and Laos, have made fighting the fraudsters more challenging for local authorities.
Rising Fraud – Impact of the Global Pandemic
Currently, telecom and internet fraud, the act of swindling others’ property remotely via telecommunications or the internet with the purpose of illegal possession, are some of the most rampant crimes happening in Mainland China. For 2021 alone, police authorities nationwide have resolved more than 441,000 telecom and internet fraud cases, arrested more than 690,000 suspects, busted more than 39,000 criminal gangs involved in SIM card and credit card fraud, as well as recovered up to 12 billion yuan of defrauded funds in total, according to an article published on the website of The National People’s Congress of the People’s Republic of China earlier in March.
General provisions governing criminal prosecution in Mainland China normally require victims to go through a preliminary investigation, further prosecution by the Procuratorate and trial at the People’s Court before making a final judgment and imposing punishment on fraudsters, which may include fines and fixed-term sentences up to life imprisonment (Article 266 of the Criminal Law of the People’s Republic of China). Remedies available to victims are practically limited to a return of the property or compensation for the actual losses in criminal proceedings.
“The legislation entitles the enforcement agencies to pursue suspects abroad and order telecom companies and banks to help hunt down fraudsters.”
The Law Against Telecom and Online Fraud (反電信網絡詐騙法)
To supplement the current criminal statutes, Chinese lawmakers passed the Law Against Telecom and Online Fraud (反電信網絡詐騙法) on 2 September 2022. The legislation entitles the enforcement agencies to pursue suspects abroad and order telecom companies and banks to help hunt down fraudsters.
Coming into effect on 1 December 2022, the law applies to all such fraud activities, including the provision of products and services, carried out by national citizens and/or assisted by any overseas organisations or individuals within the territory of China. It also applies to national citizens committing fraud overseas.
In other words, we can expect that PRC citizens who choose to defraud someone outside of Mainland China; or non-PRC citizens, whether on their own account or under the corporate veil, as long as committing fraud within Mainland China, to all be subject to its jurisdiction from December onwards.
“While a better foundation is being paved for tackling telecom and internet fraud, such crimes, with the help of ever-evolving technology and emerging fraud tactics, will not disappear overnight.”
Violation by the Assisting Parties
Targeting the assisting parties, the new law contains provisions which prohibit any individual or organisation from “unlawfully manufacturing, selling, buying, supplying or using” any device or software that plays a part in telecom and online fraud. This may include any technology that enables caller ID spoofing, automatic account-switching systems, and platforms that can send or receive SMS verification codes in bulk.
Recognising that overseas fraudsters depend primarily on SIM cards, banks and other payment accounts, the law also outlaws a range of activities, such as participating in unlawful trade, assisting with real-name verification, and opening cards or accounts via impersonation. These activities per se would be deemed to violate the new regulations even without any involvement in fraud cases.
Exit Ban on Fraudsters
Another highlight of the new law would be the imposition of exit bans on those who travel to overseas hotspot regions and are strongly suspected of engaging in telecom and online fraud abroad. Once they are convicted of telecom and online fraud, police officials may also forbid them from leaving the country for 6 months up to 3 years after the service of sentences.
System of Early Warning and Dissuasion
A new system named “System of Early Warning and Dissuasion” (预警劝阻系统) will be established where police officials are required to work with financial, telecom and cyber regulators to identify potential victims and dissuade them from proceeding with the fraudulent transactions.
Responsibilities of Service Providers
Indeed, the bulk of provisions in the new law focused on the prevention of any potential fraud claims by imposing a range of responsibilities on service providers.
To name a few, the real-name registration requirement for all telephone subscribers, limitation on the number of SIM cards that can be owned, accurate display of caller’s true number and restriction of spoofed calls must be implemented throughout the telecom sector.
On the other hand, the extensive range of internet services that require prior user identification would now encompass basic internet access, proxy service, domain registration, web hosting, cloud service, content and software distribution, instant messaging, online payment, gaming, live streaming, and advertising.
Generally speaking, institutions across the telecom, internet and financial sectors must establish mechanisms to monitor abnormal accounts. In the event of any suspicion, they are allowed to suspend services.
Effectiveness of the Law Remains to Be Seen
While a better foundation is being paved for tackling telecom and internet fraud, such crimes, with the help of ever-evolving technology and emerging fraud tactics, will not disappear overnight. Ideally, increasing surveillance for the hunt of potential fraudsters would bring some meaningful windfall for securing the innocent without putting at risk their right to privacy and data protection.
Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
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