Crypto Remains Unregulated in Russia — Lots of Talk but No Action

At the end of November, news surfaced that Russian cryptocurrency users, who have been operating in a regulatory gray zone, could soon be at risk as the nation’s financial authorities reportedly join forces to outlaw the use of digital assets as a payment instrument. 

Shortly after, the country’s interior ministry confirmed rumors that it was on track to developing a legal framework for confiscating digital assets, which could come into effect as soon as 2021. Finally, the head of Russia’s main financial intelligence agency, the Federal Financial Monitoring Service, has also spoken unfavorably before parliament about the prospects of legalizing crypto use.

Do these moves signify a wider government clampdown on digital finance, and does the Russian crypto community perceive them as a threat?

Not legal tender

Local publication Izvestia, citing an anonymous source, reported on Nov. 29 that the Central Bank of Russia and the Federal Financial Monitoring Service were drafting legislation to ban the use of crypto assets for the purchase of goods and services. No details were disclosed with regard to potential enforcement mechanisms or punishment for violators.

The central bank’s response to Cointelegraph’s inquiry largely echoes its sentiments published by Izvestia, detailing its stance on cryptos and willingness to support initiatives seeking to ban their use:

“The ruble is the only legal tender in Russia. We remain convinced that cryptocurrencies pose significant risks, including laundering of illegally gained funds, financing of terrorism, and extreme volatility of exchange rates. We believe that private cryptocurrencies cannot be equated to fiat money nor considered legal tender. Should there emerge a legislative initiative to ban cryptocurrencies as means of payment, we deem it appropriate to support it.”

The Federal Financial Monitoring Service and the Ministry of Finance have not yet responded to Cointelegraph’s request for comment.

As in many other jurisdictions, Russian legislators have been struggling to define the legal status of digital assets since at least 2017, when the first bill to that end was drafted. As Izvestia notes, several trade associations have petitioned for crypto legislation, making various attempts to appeal to state interests by proposing a tax on legal crypto transactions. The push has seen little success so far, as draft bills keep coming back for revision.

As of now, the Russian government does not appear to have an official stance on crypto mining, allowing enormous data centers — like the hydro-powered one Cointelegraph reported about at the end of November — to thrive on the cold Siberian climate and cheap electricity. However, those who take up illegal forms of mining by using state hardware are being pursued and put behind bars.  

Related: Safe Space: A Guide to Special Economic Zones for Crypto, From China to Switzerland

There are multiple indications of Russian financial regulators’ conservative approach to handling the emergent crypto markets. The latest came on Dec. 11, when Yuri Chikhanchin, head of the Federal Financial Monitoring Service, spent some time breaking down his views on cryptocurrency regulations during the government’s question time at the State Duma.

According to Nezavisimaya Gazeta, Chikhanchin enumerated the many risks inherent to the legalization of crypto payments — including Russians’ history with falling for Ponzi schemes — that suggest proactive digital money innovations could play out badly for the nation. 

The financial watchdog head said that he would prefer not to rush it and let others experiment while adopting international best practices. Some observers interpreted this speech as an admission that Russia has no plans to move forward with a central bank digital currency any time soon, either.  

Confiscating the undefined

The lack of foundational definitions and market regulations does not seem to be a major issue for some other branches of the Russian government. According to state news service Tass, the Ministry of Internal Affairs confirmed that work is underway to establish legal grounds for confiscating digital assets as part of judicial proceedings.

The report came almost a month after first anonymous accounts of the development emerged in Russian media. Other parties privy to drafting the legislation include the Office of the Prosecutor General, the Investigative Committee and the Ministry of Justice.

This disconnect between the financial regulators and bodies of government responsible for law enforcement is not surprising. Traditionally, security agencies and ministries are seen as very distinct, if not antagonistic, to the government’s economic and financial bloc. Regardless of the financial authorities’ treatment of cryptocurrencies, uniformed agencies will seek to carve out their own tangible powers to deal with what they deem a security threat.

While the Ministry of Internal Affairs said it…

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