Russian Regulation of Cryptocurrency

Countries around the world are being forced to decide what role, if any, cryptocurrencies and initial coin offerings (“ICOs”) will play in the future of their financial markets. Russia is no exception. Russian officials’ initial actions included proposals that would prohibit private investors from investing, ban cryptocurrencies altogether, and even imprison users (Maria Prusakova, Medium). Recently, however, changes appear to be on the horizon as Russian President Vladimir Putin began pushing for legislation addressing cryptocurrencies, crypto mining, and ICOs. While the official drafts are still working their way through Parliament, the proposed regulations will allow for some form of ICOs and digital asset trading. (Id).

Russia’s main bill was initially drafted in January 2018, and lawmakers hoped to have it passed by July. This deadline was missed due to divergent opinions and the overall complexity of the matter. The bill has now undergone three major revisions, as Russian authorities attempt to reconcile the Russian Central Bank’s desire for heavy regulation and the business friendly approach being sought by the Ministry of Economic Development (Molly Jane Zuckerman, CoinTelegraph). Considering ICOs to be “risky ventures,” the initial bill sought to protect investors and mitigate the risk posed by any given ICO. The bill sought to accomplish this by limiting the amount of funds an ICO could raise to 1 billion rubles (approximately $16 million USD) and prohibiting individuals from investing more than 50,000 rubles (approximately $800 USD) in any one ICO. Recent drafts have removed the limitation placed on individual investors and replaced it with a provision granting the Russian Central Bank authority to determine what an appropriate cap would be (Jaroslaw Adamowski, Cyrptonews).

Despite the decentralized nature of blockchain technology, the current proposal also seeks to heavily regulate ICOs and cryptocurrencies, which would leave a vast amount of control in the hands of the government. If enacted in its current form, the new bill will only allow crypto trading through Russian operated exchanges, which the Russian Central Bank would directly supervise (Maria Prusakova, Medium). The most recent proposal also removed all references to digital currency and instead seeks to classify and regulate cryptocurrencies as digital rights; meaning they would not qualify as a legal method of payment (Bitcoin Exchange Guide News Team, Bitcoin Exchange Guide).

In an effort to eliminate anonymity and better track and monitor digital assets, the proposed legislation will subject Russian exchanges and ICOs to extensive anti-money laundering (AML) and know-your-customer (KYC) requirements, many of which mirror those imposed on U.S. exchanges. Mandatory currency exchange regulations will also be applied to any transaction where 600,000 or more rubles (approximately $9,500 in USD) are exchanged for official currency (Molly Jane Zuckerman, CoinTelegraph). To help control the flow of cryptocurrencies, and to particularly prevent their use in criminal activities and terrorist financing, Russia’s Financial Monitor Service (FMS) is actively petitioning the 36-nation Financial Action Task Force (FATF) to also establish global licensing and registration parameters (Yaha Gola, CCN).

Similar to Russia, many countries throughout Eastern Europe are open to exploring Blockchain technology, specifically as it relates to cryptocurrencies. Currently, however, Belarus is one of the few to have a firm policy already in place. In fact, Belarus has gone so far as to legalize all activity related to tokens and cryptocurrencies (Stephen O’Neal, CoinTelegraph). While Russia appears to be taking a more conservative approach to crypto regulations, its policies and regulations remain a grey area as the proposed legislation continues to change while it works its way through the approval process.