Cryptocurrencies in Russia are Under Threat
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Cryptocurrencies in Russia are under threat due to the new draft law on currency control
The owners of cryptocurrency wallets and accounts on bitcoin exchanges could potentially find themselves under the control of the Federal Tax Service of the Russian Federation (FTS) due to the proposed changes to the law “On Currency Regulation and Currency Control.”
About the Bill
On November 3, a bill was introduced to the State Duma of the Russian Federation, obliging citizens to report to the Federal Tax Service on the use of foreign electronic wallets if the annual volume of transactions on them exceeds 600,000 rubles.
In an explanatory note, the authors of the document report that the norm is aimed at minimizing risks in the areas of information security, combating money laundering, and terrorist financing.
The current version of the bill extends the regulation to “electronic means of payment” and “foreign payment service providers” and does not explicitly mention digital assets.
What cryptocurrencies in Russia will this affect?
Dmitry Kirillov, the senior lawyer in the Russian tax practice at Bryan Cave Leighton Paisner LLP and lecturer at Moscow Digital School, suggests that the vague wording will allow the amendments to be further extended to cryptocurrency wallets and investment accounts on crypto exchanges.
Decentralized cryptocurrencies, such as Bitcoin or Ethereum, will probably not be affected by the bill, says Anatoly Knyazev, co-founder of Exante:
«Formally, Bitcoin and Ethereum do not belong here, since they are not tied either to states or to supplier companies. Centralized crypto projects such as USDT and XRP could theoretically suffer».
The expert noted that, if desired, the bill will be directed against all cryptocurrencies, if their developers are declared “suppliers”.
“In this case, there will be an absurd division of currencies for the crypto world by nationality, permission for Russian developments, a ban on foreign ones, and an unclear situation with international teams,” – explains Knyazev.
Foreign e-wallets and digital currencies are now undergoing a splicing process. Given the position of the Russian authorities to cryptocurrencies, lawmakers are trying to cover the movements of cryptocurrencies and users of cryptocurrencies as much as possible, says Sergey Troshin, head of the Six Nines data center.
In his opinion, special software will monitor the activity of foreign wallet owners. Penalties can also work automatically.
“The problem with digital currencies is the need to convert and withdraw assets into national currencies. Presumably, it is at this stage that the system will penalize,” – suggests Troshin.
However, given the complexity and high cost of launching such a system, there is a chance that the idea cannot be put into practice, the expert adds:
«The severity of the law will remain on paper, and they will be fined in especially egregious cases when it comes to large inputs/outputs and where there is suspicion of receiving proceeds from criminal activity».
Law “On digital financial assets”
This is not the first attempt by the state to establish control over the circulation of digital cash, recalls Moscow Digital School expert Efim Kazantsev. A similar norm is contained in the amendments of the Ministry of Finance of the Russian Federation to the law “On digital financial assets”, which comes into force on January 1, 2021.
They oblige Russians to notify the tax authorities about the use of any electronic means of transferring digital currency, including domestic developments. The Finance Ministry’s proposal is still under discussion.
“Sooner or later, Russian citizens who carry out transactions with digital currency will have to come out of the shadows and report to the tax authorities,” – concludes Kazantsev.
Now the violation of currency legislation in terms of failure to submit reports on transactions on accounts in foreign banks provides for fines of up to 10,000 rubles ($ 130) for individuals and up to 600,000 rubles ($ 7800) for organizations. Responsibility for the owners of foreign electronic wallets will be additionally prescribed in the Administrative Code.
“Fines for individuals are not catastrophic, but unpleasant, so crypto investors should consider submitting reports to tax authorities in advance,” – notes Dmitry Kirillov.
The experts expressed the hope that the document will be thoroughly finalized before consideration begins.
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