Chinese legal expert Shao Shiwei examines the legal implications of the ‘overseas entity + domestic employment’ model commonly used by Web3 companies and cryptocurrency exchanges operating in China. With virtual currency-related businesses classified as illegal financial activities in China, many Web3 entrepreneurs have relocated their entities overseas. However, Chinese teams continue to prefer domestic recruitment for technical and operational roles due to founder backgrounds, user demographics, and cost considerations. Recruitment typically occurs through direct job postings on domestic platforms or partnerships with Chinese companies that handle employment contracts and social security contributions. Employees generally work remotely or transition to overseas assignments after initial domestic employment. ADMINISTRATIVE RISKS: CROSS-BORDER EMPLOYMENT QUALIFICATIONS According to China’s Regulations on the Administration of Foreign Labor Cooperation, companies organizing personnel for overseas work must obtain approval from provincial or municipal commerce authorities and secure foreign labor cooperation operation certificates. The regulations explicitly prohibit foreign entities from directly recruiting Chinese personnel for overseas work. While administrative law primarily governs domestic entities, enforcement actions typically target Chinese companies collaborating with overseas entities. For instance, Shandong-based talent cooperation companies have faced administrative penalties for providing overseas employment services without proper certification. Remote work arrangements present regulatory gray areas. Although not explicitly covered by foreign labor regulations, authorities may interpret ‘remote-first, overseas-later’ arrangements as falling under foreign labor cooperation requirements if the ultimate intent involves overseas deployment. CRIMINAL RISKS: POTENTIAL LEGAL VIOLATIONS Criminal exposure arises from two primary sources: the company’s operational model and risks associated with Web3 partners. Operation-related risks include: – Organizing Illegal Border Crossing: Arranging non-work visas for overseas employment may constitute criminal offenses under judicial interpretations – Illegal Business Operations: Uncertified foreign labor services could potentially trigger illegal business charges Partner-related risks involve: – Complicity in Gambling Operations: Recruiting for cryptocurrency exchanges potentially classified as gambling platforms – Fraud Accomplice Liability: Unwitting recruitment for fraudulent Web3 projects LABOR LAW RISKS: EMPLOYMENT RELATIONSHIP DETERMINATION Chinese courts typically invalidate direct employment contracts between workers and overseas entities, holding domestic companies liable for employment obligations. Judicial precedents establish that domestic entities facilitating overseas employment assume full employer responsibilities, including workplace injury compensation, wage disputes, and termination issues. CONCLUSION While current enforcement focuses primarily on virtual currency exchanges and fraudulent projects rather than recruitment intermediaries, companies should maintain vigilance given the evolving regulatory landscape. The inherent lag in Web3 legal risk manifestation requires proactive risk assessment beyond historical enforcement patterns.
