Arrested at Work: Illegal Fundraising Risk for Sales Staff in China

A case I handled

Some years ago I took on a legal aid case that has stayed with me.

One of the defendants came from a village in Hebei province. She had finished high school and moved to Beijing hoping for a better life. She found a job advertisement on a recruitment website and joined a company as a salesperson, selling fund and wealth-management products.

She worked hard and within a year or two became a department manager. Then one day, at work, the police arrived and took away the entire sales staff. Only then did she learn that the company had run out of money, and that this large, professional-looking group had no financial license at all. She was placed in criminal detention on suspicion of illegally taking deposits from the public.

When I met her in the detention center, she kept saying that she had no idea the work might be illegal, let alone criminal. Had she known, she would never have worked there, and no one had ever told her.

Her parents told us the family was too poor to repay any of the investors' money.

We joined the case at the trial stage. Before that, at the prosecution review stage, she had already accepted China's guilty-plea procedure (认罪认罚, broadly comparable to a plea agreement), and the procuratorate had recommended a sentence of three years and six months to four years. The court convicted her of illegally taking deposits from the public and imposed the minimum of the recommended range: three years and six months.

Stories like this were common. Asset management and peer-to-peer lending companies multiplied across China. Without any financial license, they raised large sums from the public with promises of high returns. When they could not repay, investors reported them to the police, who often took the staff into custody. These companies did not only disrupt the financial system; many investors lost heavily, and for elderly investors it was often their retirement savings.

What is illegal fundraising?

Illegal fundraising covers two main offenses under China's Criminal Law.

1. Illegally taking deposits from the public (非法吸收公众存款罪, Article 176). This is by far the more common charge. Under Article 1 of the SPC's interpretation on illegal fundraising cases (2022 amendment), raising funds from the public in violation of financial regulations is this offense where all four of the following are present:

• Unlawfulness: the money is raised without the required approval, or under the guise of a lawful business;
• Public promotion: the scheme is advertised publicly, through the internet, media, promotional events, leaflets, text messages or similar channels;
• Promised returns: repayment of principal with interest, or other returns in money, goods or equity, is promised within a set period;
• The general public: money is taken from unspecified members of the public.

Raising money from relatives and friends, or internally within a company from specific people, without public promotion, does not count.

Penalties: up to three years' imprisonment or short-term detention, and/or a fine; three to ten years where the amount is huge or the circumstances serious; and ten years or more where the amount is especially huge or the circumstances especially serious. This top tier was added by Amendment XI to the Criminal Law, in force from March 1, 2021; before that, the maximum was ten years.

2. Fundraising fraud (集资诈骗罪, Article 192). This is illegal fundraising by fraudulent means for the purpose of illegally taking possession of the money (非法占有目的). It is far more serious: three to seven years at the lowest level, and up to life imprisonment. The key difference from the first offense is that purpose. Where the prosecution charges fundraising fraud, whether that purpose existed is usually the central dispute.

When does it become a crime?

Under the 2022 interpretation, illegally taking deposits from the public is prosecuted where any of the following applies:

Level	Amount raised	Number of investors	Direct loss to investors
Prosecution threshold (up to 3 years)	RMB 1 million or more	150 or more	RMB 500,000 or more
"Huge amount" (3 to 10 years)	RMB 5 million or more	500 or more	RMB 2.5 million or more
"Especially huge amount" (10 years or more)	RMB 50 million or more	5,000 or more	RMB 25 million or more

Lower amounts can also be prosecuted: RMB 500,000 or more raised, or RMB 250,000 or more in direct losses, together with an aggravating circumstance, namely a previous criminal prosecution for illegal fundraising, an administrative penalty for it within the past two years, or a seriously harmful social impact or other serious consequences.

Two further rules matter greatly for employees:

• The amount is the full sum raised. For each person, the amount counted is the total they brought in, not their commission.
• Repayment before charges helps. A person who actively returns money or compensates investors before being charged may receive a lighter or reduced sentence (Article 176 of the Criminal Law; Article 6 of the interpretation). Repayment after charges can still be taken into account. Where the money raised was mainly used for normal business operations and is repaid before charges, punishment may be waived.

What kind of company carries this risk?

The test is whether the company's activity fits the definition above. For a company, the first question is whether it holds a financial license. Any company without one that offers wealth-management, investment or peer-to-peer lending products to the public risks being found to be engaged in illegal fundraising.

Court cases show that many of the companies involved had names suggesting investment, such as "investment management" or "asset management." Joining such a company without a license issued by the state financial regulators carries a particularly high risk.

But the law does not limit the offense to any type of company. Any company that meets the definition can commit it. In one case, a mining company in Liaoning province, without approval, had staff hand out leaflets offering high returns and signed loan agreements with members of the public. It raised over RMB 4 million, investors lost RMB 3.99 million, and the defendant was sentenced to six years. Under the current thresholds, the investors' losses alone, being over RMB 2.5 million, would place a case like this in the "huge amount" tier.

Why are ordinary sales staff held criminally liable?

It is natural to ask: isn't illegal fundraising the company's crime? Shouldn't the owner and managers be responsible, not employees who were just doing their jobs?

First, the authorities see sales staff as direct participants. Sales staff make the calls, hand out the leaflets, and persuade investors to put money into the company. Without them, the fundraising could not happen. So they are treated as having directly carried out the offense, and the amount each one brought in is counted as the amount of their crime.

Second, investors know the salespeople. Many investors know nothing about the company or who runs it, but they always know who sold them the product. When they report to the police, they name the salesperson.

Leaving the company does not end the risk. Former sales staff can still be prosecuted for money they brought in while employed. In some cases, after most of the company's people have already been convicted, investors who have not recovered their money keep giving the police the names of salespeople who were not prosecuted, and ask that they be detained, so that their commissions can be recovered.

The risk is not limited to sales. Finance staff, trainers and even software developers at such companies can also face liability.

How can you protect yourself?

Many salespeople prosecuted for illegal fundraising feel deeply wronged: they thought they had an ordinary job with a low base salary and commission, and never imagined the criminal risk. Some practical steps:

1. Be especially careful when joining any investment or wealth-management company. Any unlicensed company selling such products is at risk. Claims of government backing or guarantees mean nothing on the day the company collapses. What the investors will remember is that you persuaded them to put their money in.
2. Watch what the company does once you are there. Is it raising money from the public? Is it selling investment products? Does it hold a financial license or the necessary approval to take funds? Is it compliant? If you are unsure, ask a criminal lawyer. If you find that it is fundraising illegally, leave as early as you can. A salary is not worth this level of risk.
3. Do not become a "recruiting investor." Some companies offer investors bonuses, fees or commissions for bringing in others; the more people and money, the bigger the reward. Investors who do this can be treated as assisting the offense and may themselves be charged with illegally taking deposits from the public.

For foreign nationals working in China: the same rules apply to you. A foreign employee who sells such products, or holds a management, finance or technical role at such a company, can be detained and prosecuted like any Chinese colleague, and cannot leave China while under investigation. Before accepting a role at a Chinese investment or wealth-management business, check whether it holds the relevant license from the financial regulators.

Stay away from illegal fundraising: avoid both losing money to it and becoming, without realizing it, one of the people prosecuted for it.