Elva Chuang and Weke Chen
I. Whether the receipt of “virtual currency” is likely to constitute the offense of illegal absorption of deposits under the Banking Act should be determined by the judicial authorities on a case-by-case basis.
Pursuant to Article 29 of the Banking Act, non-banking entities are prohibited from receiving “deposits” or absorbing “funds” from an unspecified number of people and from agreeing to “return the principal or pay an amount equal to or greater than the principal” for the purpose of receiving deposits. In addition, another act of receiving deposits as mentioned above under the pretext of lending, receipt of investment, recruiting shareholders, or otherwise is also deemed such an offense (see Articles 5-1 and 29-1 of the Banking Act; hereinafter, the “Offense of Illegal Absorption of Deposits”). If an actor commits the aforementioned illegal acts, she/he may be punished by imprisonment of 3 to 10 years and may also be fined NT$10 million to NT$200 million in accordance with Article 125-1 of the Banking Act.
As for the question of whether it is a violation of Article 29 of the Banking Act if an actor receives “virtual currency” directly from an unspecified majority of people and agrees to return the principal or pay dividends or other compensation apparently not commensurate with the principal, the Financial Supervisory Commission believes that this issue is up to the judicial authorities, which should make a determination on a case-by-case basis. (The 107-Jin-Guan-Zheng-Tou-Zi No. 1070303916 Circular of the Financial Supervisory Commission)
II. The Supreme Court of Taiwan has recognized virtual currency with economic value as the “deposits” or “funds” regulated by the Banking Act (Taiwan).
In the past, the Taiwan High Court once held that bitcoin is not the “deposits” or “funds” regulated under the Banking Act (see the 107-Jin-Shang-Su-Zi No.83 Decision of the Taiwan High Court). However, in recent years, the Supreme Court concluded, in its 110-Tai-Shang-Zi No. 3277 Decision, that virtual currency with economic value constitutes the “deposits” or “funds” under the Banking Act. The background facts and reasons for this case are summarized below:
(1) Backgrounds facts of this case: The Defendants created a marketing group and invited investors to buy registered coins (EP) with New Taiwan Dollars first before registering and opening a member’s account with EP to complete the investment rather than to invest directly in New Taiwan Dollars. After becoming a member, an investor would then deliver the funds by cash or remittance, and the payment of compensation such as bonuses or rewards obviously incommensurate with the principal was agreed. For example, the static reward of a “Silver Class Member” could be an annual interest rate of 58.8%, and the rewards for higher level members were even higher.
(2) The reasons why the Supreme Court regarded registered coins (EP), cash coins (CP), and trading coins (TP) issued by the aforementioned Defendants as the funds under the Banking Act are summarized as follows:
1. According to the reasons for the amendment to Article 125, Paragraph 1 of the Banking Act on April 17, 2019, for the Offense of Illegal Absorption of Deposits involving receiving “deposits” or “funds” or agreeing to “return the principal or pay an amount equal to or greater than the principal”, such the flow and deliver of deposits, funds, or principal is not essentially preconditioned by the direct delivery of physical cash. If the model of the indirect flow of funds involves virtual tokens or virtual currency, this is also sufficient to constitute the Offense of Illegal Absorption of Deposits.
2. Although the virtual currency in this case is certainly in the form of virtual computer points rather than domestic or foreign legal tender, regardless of whether it is eventually converted into physical domestic or foreign legal tender, it still has economic value and is a variation of domestic or foreign legal tender, which is referred to as the “deposits” or “funds” under the Banking Act. Therefore, the Defendants in this case constitute the Offense of Illegal Absorption of Deposits under Article 125-1 of the Banking Act.
III. Conclusions and recommendations:
Due to the wide variety of virtual currencies in practice and the continuous development of new technologies, whether the received virtual currency is recognized as “deposits” or “funds” may vary from court to court, depending on the characteristics of each virtual currency, and cannot be generalized. The related businesses should pay close attention to the relevant virtual currency cases handled by the Taiwan courts and adjust their business contents in time to avoid legal violations.
 Note: The registered coins (EP), cash coins (CP), and trading coins (TP) discussed in this decision do not address whether they are decentralized, blockchain-based crypto assets, such as Bitcoin and Ethereum, etc. However, this characteristic should not be involved in the court’s determination of whether they are the deposits under the Banking Act.