The main difference between contract fraud cases and civil contract fraud lies in whether the perpetrator has the purpose of illegal possession.

 In practice, accurate estimation of the purpose of illegal possession relies on detailed investigation and analysis of objective facts. According to Article 224 of the Criminal Law of the People’s Republic of China, Article 7 of the Interpretation of the Supreme People’s Court on Several Issues Concerning the Specific Application of Law in the Trial of Criminal Cases of Illegal Fundraising, and the minutes of the National Symposium on the Trial of Financial Crime Cases by Courts, when examining whether the perpetrator of contract fraud has the purpose of illegal possession, the focus should be on the perpetrator’s ability to perform the contract, performance behavior, disposal methods after obtaining property, and post event attitude, and make a comprehensive judgment.

 Lawyer Jingzhan Wang here below takes you to deep into the difference of criminal fraud and civil fraud according to the legal practice of China

Firstly, whether the perpetrator has the ability to fulfill the contract.

The performance ability of the actor at the time of signing the contract is an important factor in evaluating their subjective purpose. If they do not have the performance ability stipulated in the contract, it can usually be inferred that they have the purpose of illegal possession. The determination of whether the actor has exceeded their ability to perform mainly depends on whether the key elements of the contract can be fulfilled. If the perpetrator has agreed that they clearly do not have the ability or conditions to provide goods or services, if the agreed payment amount clearly exceeds their ability, if the agreed payment time is not feasible in reality, or if they only prepare a small amount of funds or goods to lure the other party to perform the contract, they can be deemed to have no ability to perform. In practice, there are still cases where individuals who lack the ability to perform intentionally create or arbitrarily assume that the other party has breached the contract, in order to obtain security deposits and liquidated damages. Attention should be paid to discernment. It should be noted that those who have the ability to perform the contract artificially increase the success rate of signing. Although they exaggerate most of the facts when signing the contract, they do not fabricate the relevant facts of the main terms of the contract. As there are no substantial obstacles to fulfilling the contract, it is generally difficult to determine that they have the purpose of illegal possession.

Secondly, whether the actor has performed the contract or not. In contract fraud cases, the perpetrator usually does not have the behavior of fulfilling the contract.

Even if there is partial performance, it is only used as bait to deceive the victim, and it can be inferred that the perpetrator has the purpose of illegal possession. On the contrary, if the perpetrator actively fulfills the contract, it can generally be ruled out that they have the purpose of illegal possession. If the actor actively prepares goods, raises funds, and strives to meet the contractual requirements in terms of personnel, equipment, etc. during the performance of the contract, it can be recognized as actively fulfilling the contract. Although the perpetrator lacked the ability to perform the contract at the time of signing, if they were able to actively create conditions to perform the contract in the future, or if they lost their ability to perform due to unforeseen circumstances, force majeure, or other factors during the performance process, they are generally not considered to have the purpose of illegal possession. In practice, many defendants use the method of “robbing the east wall to make up for the west wall” to carry out a series of frauds. Although some contracts have been fulfilled on the surface, they have not truly fulfilled the overall debt they have undertaken, and it cannot be determined that they have performed their obligations.

Thirdly, the method by which the perpetrator disposes of the property.

The possession and disposal behavior of the perpetrator after obtaining property is an important criterion for determining whether they have the purpose of illegal possession. The following situations usually indicate that the perpetrator has the purpose of illegal possession: 1. The perpetrator uses the defrauded property arbitrarily, squanders it recklessly, and does not use it for production and business activities, or uses the defrauded funds for high-risk investment projects, such as stock trading, futures trading, and other activities. 2. The perpetrator used the fraudulently obtained funds for illegal activities such as gambling, high interest loans, or other criminal activities, resulting in the objective inability to return the funds. 3. After obtaining property through deception, the perpetrator withdraws, transfers funds, conceals assets, or evades return by concealing and destroying accounts, false bankruptcy, false closure, and other means. When determining the relevant facts of property disposal, comprehensive verification should be conducted in conjunction with audit reports, bank or platform statements, payment receipts, and other materials to clarify the direction of funds as much as possible. If the whereabouts cannot be fully identified, but it can be confirmed that most of the funds have been used arbitrarily, it can also be determined that the perpetrator has the purpose of illegal possession.

Fourthly, the post event attitude of the perpetrator.

After the incident, the attitude of the perpetrator towards the damage caused by it can also indirectly reflect whether they have the purpose of illegal possession. If the perpetrator takes proactive remedial measures and assumes liability for breach of contract, it is not appropriate to determine that the perpetrator has the purpose of illegal possession. On the contrary, if the perpetrator shirks responsibility, hides and evades, or uses the method of “robbing the east wall to make up for the west wall” to transfer the loss after the damage results occur, it can generally be considered that they have the purpose of illegal possession.

Finally, it should be noted that when determining the purpose of illegal possession, the defense should be allowed to present counter evidence.

The reason is that subjective facts can only be inferred based on objective behavior, and this inference must be established on the basis of “sufficient evidence and accurate identification of the objective facts of the case”. Therefore, the defense of the defendant and the defense opinions of the defense counsel should be fully valued, especially focusing on examining the defendant’s defense of the authenticity of the guarantee and the use of the money. During the trial, the burden of proof should be reasonably divided between the prosecution and the defense. If the defense raises claims about the whereabouts of the property and the ability to fulfill the contract, relevant evidence should be provided. After review, if there are indeed legitimate reasons and evidence, the purpose of illegal possession can be ruled out.

In short, the determination of the illegal possession purpose of the perpetrator is a comprehensive judgment process according to China legal practice. We cannot make arbitrary judgments based on isolated facts, but should grasp all relevant facts as a whole, and make prudent inferences based on sufficient evaluation and analysis.