Fines, prison terms and unclear terminology: what Russia’s Finance Ministry proposed for the Bitcoin industry

The Russian Ministry of Finance continues to tighten cryptocurrency regulation. ForkLog has obtained a copy of documents with new amendments to the Criminal Code, Tax Code and several other codes.

In the updated package of documents, they kept the proposals previously presented concerning the issuance and circulation of digital rights and digital currencies. Committing these actions outside the Russian information infrastructure, leading to ‘extracting large income’, is punishable by fines or imprisonment.

The amendments also provide for liability for non-declaration of digital currencies. Both individuals and legal entities will be required to report to the tax authorities if the amount of inflows to a cryptocurrency wallet in a calendar year exceeds 100,000 rubles.

In that case, the tax authorities will need to be informed about the existence of a cryptocurrency wallet, its turnover and its balance.

Failure to declare assets worth more than 1 million rubles per year for individuals is punishable by a fine of up to 300,000 rubles or arrest for up to six months.

If assets of 5 million rubles or more are not declared, the offender may face a fine of up to 500,000 rubles or a prison term of up to three years.

For legal entities, a fine of up to 300,000 rubles or arrest up to six months applies in case of non-declaration of an amount equivalent to 3 million rubles per year, and a fine of up to 2 million rubles or a term of up to three years for undeclared assets worth 15 million rubles.

Failure to declare funds entails a fine of 30% of the amount of crypto assets, but not less than 50,000 rubles.

The Finance Ministry also proposes to require exchanges to report to the tax authorities on transfers of funds and crypto assets involving users from the Russian Federation.

Their identification, the ministry recommends, should be carried out by using the payment details of bank cards and a Russian IP address.

The documents state that the use of cryptocurrencies in committing crimes may be considered an aggravating circumstance.

According to Efim Kazantsev of the Moscow Digital School, the new package of amendments with administrative and criminal liability was expected, but \”the Finance Ministry managed to surprise even those who followed the developments.\”

\”In addition to liability for violating the rules on the issuance and circulation of digital financial assets, it is proposed to introduce administrative and even criminal liability simply for not informing the tax authorities about the existence of a cryptocurrency wallet containing digital money,\” he said in a ForkLog interview.

Antonina Levashenko, a member of the Commission for Legal Support of the Digital Economy of the Moscow Branch of the Russian Bar Association, stressed that the amendments \”establish liability for legal entities, which is a novelty for the Criminal Code, since the concept of their liability as such does not exist.\”

Co-founder Anatoly Knyazev of Exante believes that such severe liability \”appears disproportionate to the amount of violations\”:

\”It is highly likely that lawmakers still cannot determine where to place a comma in the phrase \”to legalize cannot prohibit\”,\” he told ForkLog.

Lawyer Maria Agranovskaya says one of the main problems is the tangled terminology and \”the danger of collisions in the absence of clear rules and understanding of the essence of digital currencies and their distinction from other assets.\”

She also noted \”the complete detachment\” of Russian lawmakers from world experience.

\”The funniest thing is that we are trying to invent something of our own, while in much more successful countries everything has already been allowed and invented. We have completely entangled ourselves,\” Agranovskaya says.

She noted that the use of digital currencies abroad is not yet fully defined:

\”There is no full clarity regarding terminology: how to report foreign assets to tax authorities, how to distinguish foreign utility tokens from cryptocurrencies — the terminological apparatus in Russia differs greatly from what is adopted in practice and regulation, for example, in most EU countries.\”

She noted that the Finance Ministry should work with the expert community to clarify how assets should be reflected in Russia’s reporting.

\”It is obviously impossible to compel foreign organizations to issue documents under Russian rules.\”

Efim Kazantsev says there is some hope that the amendments will not be adopted, but it is \”extremely weak\”.

\”Therefore, if there are no compelling reasons to own cryptocurrency, my advice – just in case, clean out your crypto wallets to avoid trouble with law enforcement,\” he said.

Agranovskaya added that a ban leads only to black and grey markets and the relocation abroad of all operations that could bring tax revenue to Russia, and that \”draconian liability measures in the absence of clear rules of the game infringe citizens’ rights.\”

Recall that the State Duma passed the law \”On Digital Financial Assets\” in July.

It regulates the handling of digital assets and also touches on the turnover of cryptocurrencies.

It is expected that more detailed regulation of cryptocurrencies will be described in a separate bill or addressed through amendments to the enacted Law on Digital Assets (\”On DFA\”).

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