Swan, cancer and pike – why Russia delays cryptocurrency regulation

By June 2018 , the Russian Finance Ministry, together with the Central Bank of the Russian Federation, was to develop a procedure for regulating cryptocurrency and conducting ICOs, as well as determining the status of such concepts as “distributed registry technology”, “digital letter of credit”, “digital mortgage”, “cryptocurrency”, "Token" and "smart contract".

On May 22, the draft laws “On digital financial assets (CFA)”, “On introducing amendments to the first, second and fourth parts of the Civil Code (GC) of the Russian Federation”, “On alternative ways of attracting investments (crowdfunding)” were approved in the first reading by the deputies of the State Duma of the Russian Federation .

It should be noted that the draft law “On the CFA” does not regulate transactions with cryptocurrencies and does not provide for their legalization, and it focuses on transactions with tokens described through the term “digital rights”. The draft edition prepared for the second reading also lacks the definition of mining and turnover of existing cryptocurrencies. At the same time, in November, the Presidential Council for the Codification and Improvement of Civil Legislation under the President of the Russian Federation, due to the numerous shortcomings of the draft law, proposed to return it to the first reading stage . The next consideration of the package of bills was postponed to the spring of 2019 .

How competently are drafts of laws and what consequences for the economy of the Russian Federation can a delay in the adoption of cryptoregulation in the country have? These questions specifically for BlockchainJournal were answered by Nikolai Nemchinov, Head of Information Support for Projects of the Russian Association of Cryptoindustry and Blockchain (RACIB), Chairperson of the Interdepartmental Working Group of the State Duma on Regulating the Risk of Turning Cryptocurrency, and Blockchain Lawyers Supplementary Education Teachers: Partner of the Law Firm “ Zartsyn, Yankovsky and partners ”Roman Yankovsky and lawyer of the company“ Lemchik, Krupsky and Partners ”Veronika Vovk.

BlockchainJournal: Can I call the “About the CFA” document complete?

Nikolay Nemchinov: According to the estimates of RAKIB, the draft law version adopted in the first reading by the State Duma of the Russian Federation practically excludes the possibility of effective development of the cryptoindustry in our country. In our opinion, the law should define the concepts of cryptocurrency and mining, which are well established in the market and used in international business relations. RACIB considers it appropriate to recognize cryptocurrency as a means of payment.

The law should take into account the peculiarities of taxation of profits arising from transactions with cryptocurrency / tokens. When conducting trading operations, the UKRIB proposes to carry out a taxation procedure at the point of conversion of cryptocurrency to fiat. Also, the legislation should introduce a description of the KYC / AML procedures. The law should not restrict the execution of transactions directly between the owners of tokens and cryptocurrencies to the creation of a specialized operator.

Roman Yankovsky: The question of “usefulness” is exactly what the cryptocurrency legislation should describe. On the one hand, there is a fight against the laundering of criminal money. On the other hand, the protection of inexperienced investors and the fight against fraudsters at the ICO. The state considers these risks significant enough and tries to reduce it. But the status of the cryptocurrency itself does not yet pose any serious risks, and therefore the efforts associated with their settlement are not needed by the state. In general, this, in my opinion, is a sound and adequate approach that complies with political and legal principles: first, to resolve the most problematic issues, then, as necessary, the rest.

BlockchainJournal: On what date is the next review of this and other bills scheduled?

Nikolay Nemchinov: The State Duma, according to the official current schedule, plans to consider bills before the end of January 2019. According to our information, the laws will be reviewed until the end of the spring session.

BlockchainJournal: Will all three bills (“On the CFA”, “On Amendments to the Civil Code of the Russian Federation”, “On Crowd Funding”) remain in the package, or will something be excluded or supplemented?

Nikolay Nemchinov: At the moment, parliamentarians are planning to consider all three bills. Given the fragmented nature of the bills, the exclusion of the list of at least one draft law practically makes all the work on the preparation of a legislative framework aimed at regulating the entire market, and not its individual segments, meaningless.

Roman Yankovsky: Most likely, the bills will be unified one way or another, first of all, the bills “On digital financial assets” and “On changes in the Civil Code of the Russian Federation”. However, changes to the Civil Code in any case will have to be made by a separate law – this is expressly prescribed by paragraph 2.1 of the article. 3 of the Civil Code. Therefore, there will be several laws.

BlockchainJournal: Will the cryptographic bearish mood reflect at the speed of making bills?

Nikolay Nemchinov: No, these are two unrelated processes. The adjustment of the cryptocurrency rate at the end of 2018 largely led to a decrease in risks for investors. Now it is possible to plan your investments not only on a speculative horizon, but also on a strategic perspective. Investors with long-term plans remain on the market, they are interested in passing laws.

Veronika Vovk: I think that it is not necessary to make decisions on the legal regulation of cryptocurrencies with an eye to the high market volatility. In addition to cryptocurrency, there are also areas of smart contracts, ICO, which also need legal certainty. Part of a package of bills solves these issues. However, the longer bills remain under consideration, the less stable the situation for all players of the crypto market. In the end, it may seem that the legislator has lost interest in this area. And this in the future will negatively affect the mood of the whole crypto community.

BlockchainJournal: How will the delay in the adoption of bills affect business, investment, Russian traders?

Nikolay Nemchinov: The President of the Russian Federation instructed the Government and the Central Bank to ensure amendments to the legislation aimed at regulating the cryptocurrency industry and digital technologies before June 1, 2018. However, no laws have been adopted so far. Moreover, in the event of the approval of draft laws in the proposed wording, the adopted laws will not contribute to attracting investment capital to Russian start-ups, small and medium businesses. The adoption of laws in this form will lead to the migration of Russian market participants to other, more loyal in terms of legislation, jurisdiction.

Since the president’s instructions, the Russian economy, according to expert estimates of RACIB, has lost about $ 2 billion. Only because of the outflow of funds from Russian miners abroad, including payments to foreign intermediaries (commissions), the budget of the Russian Federation is losing more than $ 300 million in year.

Veronika Vovk: Russia is one of the promising markets for cryptobusiness. But in order to attract investments and large investors to our territory, political and legal stability in the cryptosphere is important. It must be remembered that if there is a delay in a legislative initiative, capital may be transferred to another jurisdiction with softer rules.

BlockchainJournal: Why did the State Duma of the Russian Federation face a problem with the issue of cryptoregulation?

Elina Sidorenko: The only reason is the lack of a unified conceptual vision of this problem at the state level. Each ministry is trying to solve their problems, and they do not coincide. The central bank seeks to maximally limit the cryptocurrency due to the impossibility of monitoring it, Rosfinmonitoring, in principle, sees the possibility of turnover, provided users are identified, and the market is interested in developing this. And these three completely different directions lead to the fact that different concepts are being developed – there are already more than seven of them – and now they are being considered by the executive authorities. Until we come to the solution of fundamental questions: what is a cryptocurrency, how can we control it, and are we ready to control all cryptocurrency flows – we will not move from the point.

BlockchainJournal: In September, the Center for CEFI MGIMO, VEB and the Russian Union of Industrialists and Entrepreneurs (RSPP) prepared an alternative bill on digital financial assets, which, in particular, implies the division of the CFA into digital securities, cryptocurrency and digital signs. What is the situation with its consideration?

Elina Sidorenko: He is on the discussion of several expert councils of the State Duma of the Russian Federation and is considered as an alternative option to the draft law “On the CFA”. In addition, the head of the Russian Union of Industrialists and Entrepreneurs, Alexander Shokhin, sent a letter to Prime Minister Dmitry Medvedev, after which the document was also submitted to the government.

BlockchainJournal: In your opinion, what role can it play in this legislative uncertainty?

Elina Sidorenko: Our bill is a kind of middle ground between diametrically opposed positions. On the one hand, it gives a definition of cryptocurrency and the main participants, on the other hand, it determines the identification of users within reasonable limits. And we hope that at the time of the crossroads this bill will be able to occupy a worthy place in the framework of the existing discussions.

But in any case, there are already FATF recommendations, according to which every country during 2019 should introduce legislation regulating the cryptocurrency turnover, and this turnover should be close to the turnover of cash or payment instruments. That is why in October 2018, the FATF issued a statement that, in the absence of special legislation, the traditional FATF recommendations regarding control over financial flows should be taken into account. This is a very important indicator, indicating that the cryptocurrency is getting closer to the money, and if there is regulation, it will be such.

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