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Cryptocurrency regulations in Russia are harsh. Really harsh.

In fact, many states that the legislation at present is representative of a total ban on cryptocurrencies and digital assets. This is because of significant updates made to Russia’s ‘On Digital Financial Assets’ bill made earlier this year.

The changes have yet to be officially implemented, as they are currently being pushed back on the recommendation of one of the country’s ministries.

So just how strict is the cryptocurrency law in Russia and why? What do the recently proposed changes to legislation mean for businesses in the country, in addition to traders of digital currencies? How have pundits and Russian politicians reacted to these recent changes?

‘On Digital Financial Assets’ Bill

The ‘On Digital Financial Assets’ bill was originally introduced and passed in its draft form back in 2018 by the State Duma, however, it was changed after a setback in December that year when it’s status was temporarily retracted due to its lack of relevance concerning cryptocurrencies or digital tokens.

Since the first bill was proposed and adopted, however, a lot has changed in the world of blockchain and cryptocurrency. To address this, the State Duma revealed a ‘second reading’ version of the bill.

This bill is not without its critics though, especially in its current incarnation.

Russian business channel RBK has reported on the severity of the new punishments for crypto-associated criminal violations that had been introduced in May’s adjustments to the ‘On Digital Financial Assets’ bill. 

RBK highlighted the State Duma’s decision to propose fines of up to 2 million rubles (approximately $28,120) and a maximum seven-year sentence “for trafficking in digital financial assets and currencies”.

This sparked a large number of complaints from those in the media and crypto-business, with some in the latter category threatening to move operations out of the country in response

Pushback from the Ministry

Russia’s ‘Ministry of Economic Development’ delivered its strong opposition to the bill in a letter addressed to the State Duma on June 10, 2020. According to Russian newspaper Kommersant, the letter contained concerns regarding many aspects of the bill, specifically that it aims to implement:

“a complete ban on the issuance and circulation of existing types of cryptocurrencies in Russia, criminalization of the activities of legal entities and individual entrepreneurs related to the issue and circulation of cryptocurrency assets.”

If implemented the Ministry believes that such bans would lead to the possibility of an “uncontrolled black market”, so the letter also features suggestions for amendments to the bill. 

These include changes to definitions recommending that lawmakers adjust the meaning of a ‘package of bills’ to allow for "the creation of mechanisms for the controlled circulation of cryptocurrencies".

It is understandable to see the country seeking to implement stricter rules and harsher punishments for cryptocurrency crime, with fraudulent activities and money laundering being a huge risk if unchecked.

Despite this, banning almost all use of cryptocurrency would be a big mistake for a number of reasons…

• It criminalises many of the Russian citizens who currently use existing forms of cryptocurrency, with Russia being the second top country in BTC Trading volume on the LocalBitcoins over-the-counter (OTC) fiat exchange platform.
• It stunts crypto-focused industries which can deliver a considerable tax boon to the government if handled correctly and existing commerce which can be enhanced through contactless crypto as a means of payment for goods and services.
• It may enable other countries to advance far quicker and potentially outpace Russia in both cryptocurrency and token-based blockchain technology development and innovation.

Pushback from the Ministry offers a small glimmer of hope for legal cryptocurrency usage in the country, showing that there is some pushback against the so-called ‘cryptocurrency ban’ introduced with the second reading as introduced in March.
 

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