Russia proposes to introduce criminal penalties for cryptocurrencies on non-custodial wallets

Published: 18.04.2022

Article reading time:
3 min.

The Association of Banks of Russia (ADB) has proposed opening criminal cases against citizens who store digital currency using anonymous crypto wallets.

ADB Vice President Anatoly Kozlachkov presented the legal model for foreclosure of cryptocurrencies at the expert council of the State Duma working group “On Legislative Regulation of Cryptocurrencies”. Anatoly Kozlachkov is in charge of the legal department in the association.

The concept proposed by Kozlachkov provides for the creation of a closed circuit of circulation of cryptocurrencies. In his opinion, this approach will allow the state to control the entry of crypto assets to unregulated markets – or regulated, but outside the jurisdiction of Russia. It is required to establish direct criminal liability for the possession of assets on non-custodial crypto-wallets and create an effective system of foreclosure:

“The proposed model is the most logical from a legal point of view and will help remove the contradiction between the approaches of the Bank of Russia and the government.”

The ADB Vice President told Izvestia that there are serious problems with the recovery of debtors’ and criminals’ cryptocurrencies stored on non-custodial wallets. Initially, the concept was developed with the advisory assistance of the Ministry of Internal Affairs and provided for the introduction of criminal liability for the very fact of undeclared storage of cryptocurrency on non-custodial wallets:

“However, the association is now leaning towards a civil law approach, in which criminal liability should not come for the very possession of such wallets, but for refusing to provide keys to authorized bodies.”

Anatoly Kozlachkov said that when identifying links with illegal actions, law enforcement agencies have long resorted to the services of specialized companies that can track transaction chains in the blockchain and thus establish the ownership of crypto assets by specific individuals. The price of one such service fluctuates around $10,000. We will need domestic state analogues of such a search system, the ADB vice-president made it clear.

It is assumed that the search for crypto assets will be undertaken by a special state service with the functions of a cyber police officer. As part of the model proposed by ADB, the cyber bailiff will interact with law enforcement agencies, bailiffs, and citizens looking for property in civil proceedings.

The Association sent its concept for consideration to the Central Bank of the Russian Federation, the Ministry of Finance and Rosfinmonitoring. Rosfinmonitoring told Izvestia that the bankers’ proposal deserves attention, the Ministry of Finance announced its readiness to consider the initiative in the prescribed manner, and the Bank of Russia declined to comment.

Deputies and experts interviewed by Izvestia were skeptical about the idea of ​​the ADB and called it too radical and difficult to implement. According to experts, such initiatives were repeatedly put forward by law enforcement agencies, but never reached the actual implementation due to the technical impossibility of implementation.

“It is possible to introduce criminal liability, but it is unrealistic to track the presence of such wallets among citizens, it is also difficult to hack them, and in many cases it is impossible,” said Roman Yankovsky, Deputy Dean of the Faculty of Law at the Higher School of Economics.

Andrey Lugovoi, deputy head of the State Duma working group, believes that the ADB approach will only hinder the legalization of the cryptocurrency market.

Recently, the Russian government submitted to the State Duma a draft law on the specifics of taxation of transactions with digital financial assets (DFA). The bill is an amendment to the Tax Code, which clarifies the imposition of corporate income tax, value added tax (VAT) and personal income tax (PIT) of all transactions with CFA.