Exchanges outlawed: experts assess new mining bill in Russia

If the Russian mining bill is adopted in its current form, it will lead to the creation of a black market for exchanges and exchangers in the country and the outflow of mined assets abroad. This was stated to ForkLog by experts polled.

Not for sale — income reporting will be required

The main threat, according to experts, is the potential ban on cryptocurrency exchanges and exchangers operating in Russia, regardless of their jurisdiction.

ENCRY Foundation co-founder Roman Nekrasov suggests that authorities, among other measures, will tighten control over bank transfers. At the slightest suspicion of cryptocurrency purchases, banks will freeze accounts and require economic justification for the transactions.

“What’s particularly amusing is the requirement for miners to report to the Federal Tax Service and declare income from selling what, in principle, cannot be sold in Russia. That is, you can’t sell, but you must pay the tax,” Nekrasov said.

He noted that with the law in place, the usual scheme whereby miners sold bitcoins to exchanges and those exchanges then to individuals will be illegal.

Questions also arise about declaring mined coins — it is not described in detail.

“If a miner sells bitcoins on a foreign exchange, should they convert to fiat? Does this imply creating a separate legal entity abroad and, consequently, double reporting to foreign and Russian tax authorities?” Nekrasov enumerated.

Nevertheless, he remains optimistic about the future of the crypto market in Russia, as “laws of no country can paralyze it.”

CEO of Indefibank, Sergey Mendeleev, called the provisions of the document a “ban on the profession.”

P2P deals are not currently restricted by the law, but any public activity related to exchanging and circulating cryptocurrencies will be prohibited.

“Set up an exchange? You fall under the law. Offered software for an exchange? Start greasing. Put on your résumé that you know how to work with crypto? Bend a little. Post an advertisement in the OTC section? Catch a bottle,” the businessman described the prospects.

He also criticized the mining provisions. The bill tasks the government with refining the requirements for miners, into which they may insert “whatever.” The sale of mined cryptocurrencies is also problematic.

“Exchanges will be banned, and mined assets can be traded on foreign exchanges with funds returned to Russia in unclear ways. Or under a deal with an established Experimental Legal Regime (ELR), but first one would need to draft an experimental federal law,” Mendelyev explained.

Threat of monopolisation of the exchange market

Managing Partner of the Grad law firm, Maria Agranovskaya, says the bill is at least four years late and completely ignores the experience of developed countries in regulating the crypto market.

“Why is there a need to effectively push exchange operations into the black market? How is this property different from others? Essentially, a large number of deals are being moved abroad, from which the state could collect taxes,” the lawyer said.

She also pointed out that the document does not specify the “promised” legalization of cross-border cryptocurrency payments for goods and services of Russian companies.

Agranovskaya warned of a potential monopoly on exchanging cryptocurrencies under the ELR (Experimental Legal Regime).

“In principle, all mining funds could move abroad. There are concerns that a single player within the not-yet-created ELR will not cope with the volume of deals, especially under sanctions. Even working with DeFi won’t be straightforward,” she added.

In the lawyer’s view, mining taxation does not require separate norms, and legislators could have relied on clarifications concerning OKVED (All-Russian Classifier of Economic Activities) for miners and the process for confirming foreign exchange operations.

Too early to panic?

The mining bill does not materially change anything for market players, says GMT Legal managing partner Andrey Tugaryin. He notes that the document shows prohibitions that have already been stated in a native form, for example in Bank of Russia’s methodological recommendations.

He is convinced that miners will not face difficulties with tax reporting and will continue to sell cryptocurrencies on foreign exchanges. For now, clear codified rules are needed.

“The bill only hinted that accounting of mined coins would be mandatory; no forms for documents were provided, so it’s difficult to assess the scope of data to be reported,” the lawyer noted.

Since the bill permits mining by individuals, Tugaryin stressed the need to codify the administration of personal income tax (NDFL).

“For now the document is rough and will require many amendments, at least the introduction of ELR, which would allow the creation of a Russian exchange capable of converting mined Bitcoin into rubles,” he said.

The lawyer suggested that with active government work such a project could be launched in a couple of years.

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