TYGlobe

[Author's Note]

The essential difference between the crime of fraud and civil fraud lies in whether the "purpose of illegal possession" exists, that is, the perpetrator's intent to exclude the right holder from exercising their rights, exercise dominion over the property of others as its legitimate owner, and use and dispose of such property in accordance with its original economic purpose. However, the purpose of illegal possession is, after all, a subjective state of mind. Accurate understanding and determination of this abstract intent cannot be achieved solely by relying on the perpetrator's volatile confessions, and a comprehensive judgment must be made after criminal presumption is conducted on the basis of objective facts. Therefore, the criminal presumption method plays a vital role in resolving the determination dilemma in judicial practice.

I. Case Summary

Actor A established C Technology Co., Ltd. in City B, which had no actual business operations. During the relevant period, Company C recruited and trained a number of employees, and instructed them to sell purported new products of State-owned Enterprise D to consumers by falsely representing themselves as staff of the large state-owned enterprise D. In fact, State-owned Enterprise D had never launched such new products, nor had Company C obtained any authorization from State-owned Enterprise D. The sales personnel claimed that only a deposit of approximately RMB 3,000 was required for installation of the aforesaid product, and that the deposit would be fully refunded to the user's account within four years in the form of monthly rebates. They also stated that users who subscribed to the services of State-owned Enterprise D could receive a free mobile phone worth RMB 1,000. In reality, after users installed the aforesaid product, the rebates they received failed to meet the agreed standards, and some users even obtained no rebates at all. Upon consultation, Company C indicated that it could make up the shortfall of rebates, or process a refund on the condition that the user paid 20% liquidated damages. However, after detecting the abnormality, users contacted the customer service of State-owned Enterprise D, and found that such product did not exist under State-owned Enterprise D, and the aforesaid deposits were not paid into the account of State-owned Enterprise D, but were actually controlled by Company C. The users subsequently filed a report with the public security organ.

In the aforementioned case, it is self-evident that the objective fact that Company C has induced users to fall into a mistaken belief by means of fabricating facts and concealing the truth is established. However, whether it has the purpose of illegal possession remains open to discussion, and the focus of the dispute lies in:

1. Do the aforesaid acts constitute criminal fraud or civil fraud? What are the essential differences between the two?

2. With respect to the criminal patterns of the crime of fraud, the purpose of illegal possession is generally generated prior to the fraudulent act or concurrently therewith. If such purpose arises after the fraudulent act, does it still meet the subjective constituent elements of the crime of fraud?

3. In judicial practice, when determining the purpose of illegal possession, the subjective purpose of the actor shall be presumed on the basis of his or her objective acts. Are there unified principles applicable to such presumption? What key factual factors shall be selected? What presumption methods shall be adopted? Only when the aforesaid questions are clarified can the subjective purpose of the actor be accurately ascertained.

II. The Dividing Line Between Criminal Fraud and Civil Fraud: The Purpose of Illegal Possession

The key to distinguishing between criminal fraud and civil fraud lies in whether the perpetrator who committed the fraudulent act has the purpose of illegal possession in terms of subjective aspect. As Professor Zhao Bingzhi pointed out: "Civil fraud shall include criminal fraud, and the two are in a relationship of inclusion and being included, that is, criminal fraud is equal to fraud plus the purpose of illegal possession." The establishment of the subjective purpose element of civil fraud does not require assessment of whether losses are caused or benefits are obtained as a result of the fraudulent act. In contrast, the subjective element of the crime of fraud requires that the perpetrator must have the purpose of illegal possession; objectively, the amount involved in the fraud and the status of losses are key factors for criminal presumption in the determination of the subjective purpose.

In the above-mentioned case, does the act constitute criminal fraud or civil fraud? In other words, whether the actor has the purpose of illegal possession. Such judgment shall be made in combination with three objective aspects: the use of funds collected by the actor, the property status of the actor, and the subsequent performance of contractual obligations. The use of funds can directly reflect the actor's declaration of will regarding the disposition of property; the property status of the actor shall be used to judge whether the remedy channels for the counterparty are unobstructed, and whether the losses can be "easily" recovered through civil litigation; the subsequent performance of contractual obligations by the actor shall be used to judge whether the actor subjectively holds a positive desire for, indifference to, or resistance to the remedy measures of the counterparty.

Specifically, after the actor's fraudulent acts are discovered, the opposite party will resort to legal means to safeguard their rights and recover losses. If the actor hopes that the opposite party can recover the losses, the actor shall not be deemed to have the purpose of illegal possession. However, if the actor holds an indifferent or resistant attitude, and even erects layers of obstacles, the actor shall be deemed to have the purpose of illegal possession. Accordingly, the author holds that the actor in this case has actively performed their contractual obligations, thus shall not be deemed to have the purpose of illegal possession, nor shall the actor be convicted of the crime of fraud.

III. How to Determine the Purpose of Illegal Possession Arising Subsequent to Fraudulent Acts

The typical steps taken by the perpetrator in the crime of fraud are as follows: the perpetrator forms the purpose of illegal possession, makes premeditation and creates conditions for such purpose, implements the fraudulent act, and gives rise to harmful consequences. Will the establishment of the crime of fraud be affected if the criminal intent of illegal possession is formed after the fraudulent act has been fully committed and the opposite party has voluntarily delivered the property?

The author holds that Article 266 of the Criminal Law of China stipulates: "The crime of fraud is committed for the purpose of illegal possession, by means of fabricating facts or concealing the truth...". From the perspective of legal dogmatics, the expression of the purpose of illegal possession is explicitly positioned prior to the expression of objective acts, and there shall be a "sequential" or "simultaneous" relationship between the two. The subjective criminal intent of the actor shall be precedent, that is, the subsequent criminal acts of the actor shall be conducted under the control of his subjective will. It shall not be retroactively inferred that the actor has the criminal intent of illegal possession ab initio merely based on the subsequently formed criminal intent and the objective deceptive acts committed thereafter. Accordingly, it is more reasonable to deem the purpose of illegal possession generated after the commission of deceptive acts as falling under the embezzlement-type property crime for conviction.

IV. Principles and Procedures for Criminal Presumption of the Purpose of Illegal Possession

The determination of the purpose of illegal possession shall adhere to the principle of unification of subjective and objective elements. The subjective viciousness of the perpetrator and the fraudulent acts committed thereby shall be evaluated in light of the overall status of the perpetrator in the case. It is prohibited to conduct reverse presumption solely based on damage results, which may lead to objective imputation, nor shall excessive emphasis be placed on the role of the confession of the party concerned. The subjective purpose of the perpetrator must be presumed via strict legal logic on the premise that objective facts have been ascertained.

In the aforesaid cases, the actor's act of disposal of the deposit is the key basis for presuming whether he has the purpose of illegal possession. If the actor has committed such acts of disposal as dividing the booty with respect to the deposit, it is self-evident that his subjective purpose shall be presumed accordingly. However, where the actor has perfected relevant after-sales channels and has not committed any act of disposal of the deposit, the determination that he has the purpose of illegal possession shall be made through comprehensive judgment in accordance with the principles and procedures of presumption.

Then what are the procedures for criminal presumption? First, the evidence of the case shall be collated to form a complete chain of evidence, so as to determine the factual basis required for the presumption. Second, key attention shall be paid to whether the actor made false promises before the commission of the act, the fraud methods and means adopted by the actor during the commission of the act, and the actor's disposal of property after the commission of the act. Finally, the actor shall be allowed to rebut the presumed facts, so as to guarantee his right to plead on relevant facts and his right to adduce evidence.

In view of the foregoing, accurately ascertaining whether an actor has the purpose of illegal possession and the time when such purpose arises is the key to determining guilt or innocence and differentiating one crime from another. The criminal presumption principle of unification of subjective and objective elements shall be followed, and comprehensive analysis shall be conducted in accordance with strict criminal presumption procedures. Meanwhile, the relevant rights of the actor shall be fully guaranteed to avoid the occurrence of inconsistent judgments for similar cases.