How can a criminal complaint for embezzlement be made more effective?

Written by: Liu Zhengyao

Introduction

Criminal Misappropriation of Duties—An Era of High-Frequency Business Crimes Has Arrived

In recent years, with the sustained development of China’s private economy, governance issues within enterprises have become increasingly prominent. Criminal Misappropriation of Duties—criminal acts in which employees of companies, enterprises, or other organizations unlawfully embezzle the property of their own unit by taking advantage of their position—has become one of the economic crime types with the highest case-filing rate in China, and has long ranked among the top categories nationwide among criminal cases in the commercial sector.

From the legislative perspective, the state’s crackdown on the crime of Criminal Misappropriation of Duties has indeed continued to intensify. The Criminal Amendment (XI) to the Criminal Law, effective March 1, 2021, comprehensively upgraded the sentencing provisions for Criminal Misappropriation of Duties: it added a sentencing tier for “especially large amounts,” increased the statutory maximum penalty, and added a fine as an additional punishment, conveying a strong signal of strict punishment for corruption within enterprises. In April 2022, the Provisions on the Filing and Prosecution Standards for Criminal Cases under the Jurisdiction of Public Security Organs (II) substantially lowered the filing and prosecution threshold from 60k yuan to 30k yuan, bringing more acts of Criminal Misappropriation of Duties within the scope of criminal-law crackdown.

From the judicial perspective, in May 2022, the Supreme People’s Procuratorate also specifically issued the Typical Cases on Handling Criminal Misappropriation of Duties by Private Enterprises in Accordance with Law, clearly releasing the judicial guidance of “strictly combating corruption crimes in private enterprises.”

From reality, many private enterprises in China have insufficiently standardized operations and management, unclear attribution of relevant property rights, and loose audit and supervision. Enterprises often have a strong personal and familial color. When internal conflicts arise between shareholders and conflicts of interest emerge among executives, acts of Criminal Misappropriation of Duties begin to quietly take root. For example, financial personnel fabricate expenditures to siphon funds; salespeople divert company receivables; shareholders transfer company property by leveraging their controlling position; and even technical personnel tamper with system data to embezzle收益. Methods of Criminal Misappropriation of Duties are endless, and their concealment has become increasingly stronger.

For this reason, the criminal complaint and defense related to the crime of Criminal Misappropriation of Duties have, in recent years, attracted widespread attention from all sectors of society. For victim enterprises, how to effectively safeguard their rights and interests through criminal complaints, recover assets, and make restitution; and for the parties involved, how to protect their own legitimate rights and interests according to law in complex cases, has become an urgent major question that needs to be answered in practice.

01 Determining Evidence Materials and Standing at the Time of Filing a Complaint

An effective criminal complaint must first be grounded in an accurate understanding of China’s criminal-law standards.

(A) Three Basic Elements for a Complaint to Be Established

First, the subject of the crime must be qualified: the person complained against must be an employee of a company, enterprise, or other unit (excluding state functionaries);

Second, by taking advantage of one’s position: the person complained against must use his or her job power to implement the act of misappropriation by exercising authority related to handling, managing, or overseeing the property of the unit;

Third, the amount must reach the filing and prosecution threshold. Currently, the nationwide uniform standard is more than 30k yuan (but in practice, some provinces and regions still apply the old standard of 60k yuan by reference).

All three elements are indispensable, and the public security investigation and intelligence department will also review complaint materials around the above elements.

(B) Determination of the Complainant’s Standing

The victim subject of the crime of Criminal Misappropriation of Duties is the unit. The complainant is typically the unit’s legal representative, or authorized directors, supervisors, managers, and other management personnel. In practice, a lawyer entrusted by the unit may also act on its behalf to file the complaint. If the actual controller or the legal representative of the company is himself or herself the perpetrator of the misappropriation, or if the company’s will cannot be exercised normally due to shareholder disputes, all or part of the company’s shareholders may also act as complainants and directly file the complaint. In practice, public security authorities generally accept such complaints (the core point is the need to prove that criminal facts have occurred).

© Proof of the Subject Qualification of the Person Complained Against

The identity of the person complained against as a “unit employee” must be evidenced through materials such as labor contracts, appointment and removal documents, salary payment details, social insurance payment receipts, attendance records, and other evidence, and should cover the period during which the alleged criminal conduct occurred.

If some evidence is missing due to non-standardized enterprise management, a written explanation should be issued and testimony from those with knowledge should be collected (for example, relevant colleagues). Special attention should be paid that, in state-owned units, if personnel engaged in official duties commit the same kind of conduct, they should be investigated for the crime of embezzlement, not for the crime of Criminal Misappropriation of Duties; such identification must be carried out before filing the report.

(D) Preparation of Core Evidence Materials

When filing a complaint with the public security authorities, the following eight categories of materials should be systematically prepared and organized:

A report letter/complaint letter;

Proof of the complainant unit’s standing (business license, articles of association, etc.);

Identity materials of the person complained against;

Evidence showing that the person complained against had “convenience arising from the position” (appointment documents, letters of authorization, internal approval documents, etc.);

Direct evidence of the act of misappropriation (fund transaction records, financial statements, invoice documents, contract agreements, accounting vouchers, etc.);

Evidence showing that the misappropriated property belongs to the unit;

Evidence determining the criminal amount. For cases with complex circumstances and large amounts, it is recommended to commission an independent third party to issue a judicial accounting appraisal report or a financial audit report, which can significantly increase the probability of filing a case;

Other supporting evidence, such as surveillance videos, chat records, electronic mail, and other electronic data.

(E) Key Points on Jurisdiction and Procedure for Filing a Complaint

The crime of Criminal Misappropriation of Duties is under the jurisdiction of the public security investigation and intelligence department. The jurisdictional locations include: the place where the suspect works (generally the actual place of operation rather than the place of registration), the place where the criminal conduct occurred, and the place where the suspect resides. In practice, it is recommended to first file a report with the investigation and intelligence department of the unit where the person complained against works. It is also possible to first go to the local police station under the relevant jurisdiction, and have it transfer the matter for investigation and handling by the investigation and intelligence department. After accepting the case, the investigation and intelligence department generally extends the case-filing review period to 30 to 60 days. The complainant should closely track the progress and actively cooperate in supplementing evidence materials. If the public security authority does not file the case, multiple remedies may be pursued in sequence, such as applying for reconsideration, applying to higher-level public security authorities for review, applying to the procuratorate for supervision over case-filing, or even directly filing a private criminal prosecution with the court.

02 In-Depth Analysis of the Main Disputed Focuses in Complaint Practice: Six Major Difficulties

The legal provisions for the crime of Criminal Misappropriation of Duties are not complicated, but as everyone knows, in the ever-changing world of commercial practice, the complaint process often gives rise to a large number of contentious issues. The following six major difficulties are the core disputes that are most frequent in practice and most likely to lead to failure of a complaint.

(A) Can a shareholder become the person complained against for the crime of Criminal Misappropriation of Duties?

This is the primary focus of dispute in shareholder dispute cases. In theory, a shareholder’s status by itself does not equal an employment position, and there is no “convenience arising from the position.” However, if a natural person who merely has shareholder status in appearance actually controls the company’s daily operations, judicial practice may still recognize that such person has “convenience arising from the position,” thereby constituting the subject of the crime of Criminal Misappropriation of Duties. But when filing a complaint against a shareholder, the criminal amount must be calculated based on a comprehensive and detailed record of all fund transfers; it usually requires commissioning a third party to issue an audit report, which is also the biggest difficulty in evidence collection for this type of complaint. It should also be noted that if the company is operated from the outset in a natural-person partnership model, with personality and the company being intertwined, it becomes difficult for shareholders to rely on each other to file cross-complaints under this crime.

(B) How to accurately determine the criminal amount?

The criminal amount refers to the direct loss caused to the company by the perpetrator’s conduct, not the perpetrator’s actual gains. If the misappropriated object is in-kind property, the market value of the item or production cost at the time when the crime is accomplished should be used; typically, it is necessary to commission a price appraisal institution to issue an appraisal opinion. In addition, the loss claimed by the complainant must be a loss for which the company had a “reasonable expectation.” Any gains that cannot be considered as reasonably expected cannot be included in the criminal amount—for example, in a situation where the person complained against uses the victim company’s business opportunity to benefit his or her own related company, it is necessary to analyze whether that business opportunity must belong to the victim company and whether it must have provided the victim company with reasonable, expected direct economic benefits through the person’s agency.

© How to determine the relationship between “convenience arising from the position” and the criminal conduct?

In judicial practice, whether “convenience arising from the duties” was used—or distinguishing the crime of Criminal Misappropriation of Duties from the crimes of theft or fraud—is the key.

We believe that merely using conveniences at work (such as being familiar with the environment or being able to access certain premises), rather than using the power conferred by one’s position itself, does not constitute “convenience arising from the position” for this crime.

A particularly complex situation in practice involves unauthorized agency. For instance: if an employee, without authorization, receives payments from outside that should belong to the company, whether the employee’s conduct constitutes the crime of Criminal Misappropriation of Duties hinges on whether it constitutes apparent agency. If it does constitute apparent agency, the party actually harmed is the company, and the employee may still constitute a triangular fraud-type of Criminal Misappropriation of Duties. If it does not constitute apparent agency, the harmed party is the third party, and the employee may only constitute an ordinary fraud crime.

However, because whether it constitutes apparent agency is a civil determination, public security authorities do not handle such matters consistently (and even, from the defense side’s perspective, the public security authorities have no authority to conclude whether it constitutes apparent agency). This is precisely the core difficulty in such complaints.

(D) Distinction and concurrence between Criminal Misappropriation of Duties and closely related crimes

The core difference between the crime of Criminal Misappropriation of Duties and theft lies in whether “convenience arising from the position” is used, and whether the perpetrator had lawful possession of the property based on the duties before committing the crime. The two crimes can constitute concurrence of statutory provisions; under the principle that the special law prevails over the general law, if a person uses convenience arising from the position to steal property of the unit, the act should be deemed the crime of Criminal Misappropriation of Duties;

The key distinction from the crime of embezzlement is whether the subject is a state functionary and whether the person is engaged in official duties;

The key distinction from the crime of misappropriating funds lies in whether, subjectively, there is an unlawful and permanent possession purpose. In cases involving village officials or management personnel of state-owned or state-controlled enterprises, the boundaries of the crime are particularly blurry, and a comprehensive assessment is required.

(E) Difficulties in proving subjective “knowledge” and the purpose of unlawful appropriation

The crime of Criminal Misappropriation of Duties requires that the actor has the “purpose of unlawfully possessing the property of the unit.” Defendants usually will not admit this purpose, which makes proof quite difficult. Judicial authorities typically infer subjective intent from objective conduct. For example: the actor knows that the property is the company’s property yet still takes methods such as misappropriation, theft, or obtaining by deception; or obtains the property for oneself by concealing, falsifying, or fabricating financial vouchers; or after financial personnel embezzle funds, they make false accounts to conceal them; or they use misappropriated funds for unlawful criminal activities, making restitution impossible. In preparing complaint materials, the complainant should systematically collect objective evidence around the above dimensions to effectively support the determination of subjective intent.

(F) Comprehensive use of filing barriers and relief paths

For cases involving shareholder disputes, relatively small amounts, or initially insufficient evidence, public security authorities often refuse to accept or file the case on the grounds that it “belongs to an economic dispute” or that “evidence is insufficient.”

In response, the complainant should develop a multi-pronged relief mindset: at the reporting stage, priority should be given to the most evidentially complete acts of misappropriation as the entry point, following the strategy of “file the case first, then supplement.” Once a case is not filed, promptly apply for reconsideration and review, and timely request case-filing supervision from the procuratorate. If necessary, consider strategic adjustments such as changing the jurisdiction, changing the facts underlying the complaint, or changing the crime charged. After exhausting all possible avenues, a criminal private prosecution may be brought before the court as a last resort.

If the case involves compensation negotiations, it is not advisable to issue a letter of understanding before receiving the full compensation amount. If the parties agree to pay in installments, the agreement should clearly state that if the amounts have not been fully received, it will be deemed a withdrawal of the letter of understanding.

03 Conclusion

Criminal complaints regarding the crime of Criminal Misappropriation of Duties are in no way as simple as directly submitting a set of materials to the public security authorities. From comprehensive collection and systematic organization of evidence, to precise analysis of complex legal relationships; from early-stage planning of complaint strategy, to full-process tracking and pushing after case-filing—every step tests a lawyer’s professional capability and practical experience.

The author has been deeply engaged in the criminal law field for many years. In addition to providing Web3-related legal services, the author has also accumulated extensive hands-on experience in the criminal complaint and defense for commercial crimes by companies. By successfully pushing through multiple Criminal Misappropriation of Duties cases that initially faced difficulties in case-filing, these cases were ultimately accepted and filed, helping victim enterprises effectively recover assets and seek compensation. In defense matters, Attorney Liu also has several classic cases in which defense for Criminal Misappropriation of Duties was successful. Through multiple defense paths—such as denying the existence of “convenience arising from the position,” challenging the determination of the criminal amount, and presenting and explaining that subjectively there is no unlawful appropriation purpose—the attorney successfully obtained favorable outcomes for the parties, including non-prosecution, lighter punishment, or reduced punishment.

The healthy development of an enterprise depends on strong deterrence against internal corruption, and the legitimate rights and interests of the parties also require professional and responsible legal protection. If your enterprise is currently facing commercial-crime troubles such as Criminal Misappropriation of Duties or misappropriation of funds, or if you personally are involved in related criminal cases, you are welcome to consult the author of this article to obtain professional, timely, and effective legal support.