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Experts commented on the situation with the amendments on the confiscation of cryptocurrencies in the Russian Federation

On July 7, the Prosecutor General of the Russian Federation Igor Krasnov announced that Russia would develop amendments to the legislation on the confiscation of digital assets that became sources of proceeds from crime. According to Krasnov, cryptocurrencies have become more often used for bribes and for laundering stolen budget funds, writes RBC Crypto.

What will change?

The federal law on digital financial assets has already recognized cryptocurrency as property for the purposes of enforcement proceedings in a separate article. CFA is already a property as an object of civil law and can be foreclosed in the course of enforcement proceedings, explained Dmitry Kirillov, senior lawyer of tax practice at Bryan Cave Leighton Paisner (Russia) LLP.

The collection of a fine and confiscation of property as a criminal law measure are also provided for by the law on enforcement proceedings, but it describes in detail the procedures for the collection of traditional types of property – for example, funds from bank accounts, securities from financial market organizations, seizure of any other property directly from the debtor. In this case, the recovery of the debtor’s property from financial institutions is ensured by the administrative or criminal liability of officials of these institutions for failure to comply with judicial acts or executive documents.

At the same time, there is no procedure for levying execution on digital currency and digital currency in the legislation on enforcement proceedings, and in this part it requires improvement, Kirillov explained. According to him, it is advisable to recognize these assets as property for the purposes of criminal law and criminal procedure; this will further simplify, for example, the initiation and investigation of criminal cases on the theft of crypto assets.

The institution of confiscation itself is applicable to digital assets even in the current version of the criminal law. There is now an open list of what can be confiscated. Some cases do not even require finding out who the owner is, for example, if the cryptocurrency was the subject of a crime in the form of a bribe, commercial bribery, etc., added Alexander Guskov, partner of Guskov & Associates.

He noted that the actual execution of the relevant judicial act and the confiscation mechanism look vague. In 2018, in one of the bankruptcy cases (А40-124668 / 2017), the Ninth Arbitration Court of Appeal agreed with the arguments of the financial manager that the cryptocurrency should be included in the property estate of the citizen. Then the debtor was obliged to transfer access to the crypto wallet to the manager (transfer the password). Nevertheless, based on information in open sources, the decision was never executed.

 

“The main signal of the news can be considered the fact that law enforcement agencies have designated their active vector of movement in relation to the search and seizure of cryptoassets associated with the commission of crimes,” Guskov emphasized.

 

Who may be affected by the new rules

Bona fide persons who will store digital currencies on exchanges or regulated depositories may suffer from the introduction of the law – their digital currencies can theoretically be withdrawn through these regulated participants, the partner Guskov & Associates warned. In his opinion, most likely the criminal turnover will take place without regulated intermediaries, for example, using hardware wallets.

The problem and a possible way to solve it

If we talk about the direct foreclosure of crypto assets, not only gaps in legislation, but also the technical features of such assets can become an obstacle. If the debtor’s cryptocurrency is in the wallet of a cryptoexchange, it is still possible to imagine a situation where Russian law enforcement officers in some way (for example, within the framework of legal aid agreements) will force the exchange to transfer coins. However, if the cryptocurrency is stored in the wallet of the debtor himself, due to the decentralization of its blockchain, there will be no one to coerce except the debtor himself (for example, by charging him a performance fee), Kirillov explained.

You cannot access hardware storage without a password and recovery phrases. The confiscation mechanism in this case is incomprehensible: there is no single issuer in cryptocurrencies, there are no registrars to come to either, the partner of Guskov & Associates recalled.

He suggested that the authorities should not follow the path of confiscation, but as a first step to create a transparent legal environment for cryptocurrencies. For example, unlike cash, the history of all transactions for each bitcoin is publicly available. So, a special state register can be introduced, which indicates the “coins” that have become sources of income from crimes. All regulated market participants will opt out of receiving payments with this token. Such databases already exist and are used by crypto exchanges.

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