Russian Digital Currency Bill Lacks Crypto Terms

Oct 28, 2018   |   by Marianne White   |   Current Events

The Story

A new Russian bill on digital currency regulation has taken out the definition of crypto mining which means that tax issues will not be cleared up for cryptocurrency miners. According to the chairman of the Duma Committee on Financial Markets, Anatoly Aksakov, if the bill defines mining, then it would need to define cryptocurrencies. He even went on to say that it was senseless to include a definition of mining in a regulation bill proposed by the government. He said mining should only be under tax watchdog jurisdiction if needed. It is also still unclear if other definitions for crypto terms were taken out such as tokens, ICOs, and exchanges which were in the first draft. The current draft will then proceed to the second of the three readings in the Duma.

A History of the Bill

Russia’s relationship with crypto has seemed rocky at best. They have been trying to pass this “Digital Technologies” bill - centered around cryptocurrency - since January of this year. It was scheduled to be enacted in early July by the wishes of President Putin, but now with all of these edits, it is most likely in a holding pattern until the second Duma session this month.

The issues between the country and crypto started long before the bill. Russia’s Central Bank took a much more conservative stance on the subject, while the Ministry of Economic Development was completely willing to accept the new technologies afforded to their country. Other countries’ willingness to do business with Russia has also been on uneasy footing and stepping into the crypto space would help to foster new connections and business opportunities.

Trying to get these new technologies under regulation was one of the first goals for Russia this year. However, the first edit of the bill was immediately opposed by the Bank of Russia as they were against the rules on transactions between cryptocurrency, rubles, and foreign money. The Ministry of Finance - who opposed the bank’s stance - noted that if they banned crypto transactions it would ultimately create the perfect conditions for illegal use of the digital currencies.

Then at the end of February, only one month after the first bill was drafted, President Putin made a public announcement that crypto regulation will become law by July 1st of this year. At that time, the bank still wanted to make ICOs investments illegal while the Ministry of Finance was fighting to keep the simple regulation. This move from the president only added stress and a timeclock to the already highly debated subject of crypto.

In March, a second edit was introduced which defined cryptocurrencies/tokens as mere digital assets (defined as property) with trade only allowed by authorized crypto exchanges and included harsh regulations for ICOs (individual limits on ICO investments to a max of 50,000 rubles or $800). Because digital assets are property, they do not fall under legitimate forms of payment in the Russian Federation. Instead, the Ministry of Finance, the Central Bank, and Ministry of Economic Development will create their own guidelines and these currencies can only be used in “controlled quantities.” They also updated the exchange requirements to reflect those of the U.S. such as verification of accounts for anti-money laundering and counter terrorist financing purposes.

According to Igor Sudets, an expert on the digital economy and blockchain panel for Duma, the cap on ICO investments would actually only deter people from conducting business with Russian ICOs. He said, “I very much hope that [ICO investment specifications] will be substantially finalized for the second reading. Because otherwise, nobody will want to conduct ICOs in Russian jurisdiction, since the main goal - to raise money - will be unattainable.” It seems there are two different stances with regards to Russia and cryptocurrency. People want to see their country thrive and grow economically. With so many countries finding success with the digital currencies, it would be foolish to ignore it. But, a certain amount of control needs to be conceded in order for it to be a success, and Russia does not seem like the cutting loose type.

The bill was approved by State Duma in the first reading in May with 410 votes for and only 1 against. The triumph did not last long as in September, edits were made to the bill once again. The definition of cryptocurrency was taken out and mining was redefined as “release of tokens to attract investment in capital.” Which is not entirely true, but the definition of mining in the bill before was simply, “the extraction of cryptocurrencies.” And now it is learned that the mining definition has been taken out all together in the latest edits. For a country trying to regulate cryptocurrency, it is difficult to do that when everything in the crypto space is redefined or stricken from the bill all together.

A Silver Lining?

The real hero of this story might be coming in the form of business. The Russian Union of Industrialists and Entrepreneurs (RSPP) announced in September, that they too were drafting an alternative bill on crypto regulations which would aim to clarify all of the contradictions throughout the existing bill. The bill is currently being written by a group of businessmen including two of the wealthiest in the country, Vladimir Potanin (of Nornickel - nickel and palladium mining and smelting) and Viktor Vekselberg (of innovation fund Skolkovo). If this version is accepted by RSPP, then the bill can be presented to Russian officials at the end of this month.

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Marianne White