China Is Planning ICO Crackdown, Threatens Life In Prison For Crypto Fund Fraud

Earlier this year, Chinese digital currency exchanges temporarily halted customer withdrawals to upgrade their AML controls at the behest of financial regulators. The halt, which lasted for months, caused a temporary chill in the local bitcoin market, causing China to forfeit its position as the world’s largest bitcoin market. Now, Chinese regulators have signaled that they intend to stage a similar crackdown on initial coin offerings, the latest blockchain-related investing craze.

According to CoinDesk, draft legislation meant to curb so-called "illegal fundraising" includes a provision that targets ICOs.

Here’s more from CoinDesk (translation theirs).

"If the department overseeing illegal fundraising activities found a fundraising without proper permission, or a fundraising that violates the relevant provisions of the State, and if one of the following circumstances is found, the department shall launch an administrative investigation. Other relevant departments shall cooperate with the investigation.
…
(2) to raise funds in the name of issuing or transferring equity, raising funds, selling insurance, or engaging in asset management activities, virtual currency, leasing, credit cooperation and mutual funds..."
According to CoinDesk, the draft would require the government to establish an interdepartmental committee to combat illegal fundraising. It also clarified that participants of illegal fundraising would be responsible for their own losses. The release of the draft legislation follows widespread outrage directed at cryptocurrency-related scams. Last month, several college graduates in Tianjin, China were found dead after being imprisoned and assaulted by members of a pyramid-selling organization.

Two Chinese laws presently govern how criminal courts handle unlawful fundraising. According to CoinTelegraph, the crime of illegally absorbing public deposits carries a maximum penalty of 10 years of imprisonment. The crime of fund fraud, meanwhile, carries a maximum sentence of life in prison.

Now the question is, if such heavy-handed penalties are tied to the law currently under consideration, will the law have a chilling effect on the ICO market? Or will it successfully eliminate fraud and abuse?