Lawyer explains the legality of tracing a debtor’s bitcoin wallets in Russia

\n\n

A link circulated on the web to request form addressed to cryptocurrency exchanges to locate bankrupt individuals’ digital assets. The authors first published the document in the Telegram channel of the Association of Insolvency Practitioners “Egida”.

\n\n

What is this document?

\n\n

It is described as “Sberbank’s instruction for insolvency practitioners on working with crypto exchanges and directing requests for debtors”.

\n\n

According to the document, requests are prepared on the basis of a decision by the Arbitration Appellate Court and a ruling on the procedure for realising a debtor’s property.

\n\n

The authors cite the Federal Law “On Insolvency (Bankruptcy)”, under which an insolvency administrator has the right to receive information about a debtor’s property, as well as about their accounts and deposits, including the number of bank cards and the balance of electronic money. The recipient of the request is obliged to provide the required information within seven days.

\n\n

The information requested includes:

\n\n

\n
• the full name of the individual;

\n

• the wallet registration date;

\n

• the wallet address;

\n

• the list of crypto assets held.

\n

\n\n

The document also contains a list of 31 items naming various crypto exchanges, P2P platforms, and non-custodial wallets.

\n\n

\n\n

Lawyer’s comment

\n\n

Such requests by insolvency practitioners to crypto exchanges are legitimate provided there is a court decision, because for the purposes of the Law On Insolvency (Bankruptcy) in Russia, cryptocurrency is recognised as property, explains Andrey Tugarin, founder of GMT Legal.

\n\n

\n

“It is interesting that the instruction does not reference the Law on Digital Financial Assets, which is the main regulation governing relations with digital currency. In particular, it is this law that recognises digital currency as property for the purposes of the Bankruptcy Law,” the lawyer noted.

\n

\n\n

At the same time, according to Tugarin, there is no guarantee that crypto exchanges and crypto-asset platforms will satisfy such requests:

\n\n

\n

“The obligation to provide information about the debtor’s assets in the context of bankruptcy will depend on where the exchange is registered and its internal regulations. If the jurisdiction where the exchange is registered does not have an international information exchange agreement with Russia, such a request is not mandatory to comply with. At the same time, if the platform seeks transparency and full compliance with the laws, it may provide the requested information even in the absence of such an agreement.”

\n

\n\n

The lawyer did not forecast the success of exchanges sharing information with insolvency practitioners, but suggested that the number of bankruptcy cases in which crypto-assets of the debtor are investigated would grow.

\n\n

Crypto community reaction

\n\n

Since the authorship of the document is attached to Sber, ForkLog requested comments from the bank. As of publication, we have not received a response.

\n\n

Indefibank CEO Sergey Mendeleev, for his part, is convinced of the document’s authenticity in the sense that it contains “a correct instruction and the right references that can be used.”

\n\n

The expert noted that the process of transmitting such information has long been arranged “through cooperation at the level of the general prosecutors of different countries, the Minsk and Hague conventions.”

\n\n

\n

“But in the crypto world, this all does not work, as the account can be blocked in minutes. For example, Binance can block any account for seven days for any reason, during which time it allows presenting more weighty arguments in the form of documents and requests,” explained Mendeleev.

\n

\n\n

He stressed that the proposed mechanism could be yet another instrument of pressure on citizens.

\n\n

\n

“It is impossible to determine whether such a request is aimed at a real search for a criminal or if it is a veiled persecution of an opposition figure or a free journalist. Undoubtedly, we will need to develop a unified approach to responding to such things,” concluded Mendeleev.

\n

\n\n

In 2018, courts refused to seize cryptocurrency to satisfy a bankrupt debtor’s debt.

\n\n

Earlier, ForkLog reported that Russian banks began testing bitcoin transaction tracking.

\n\n

In April, more than 60% of BitOK users in Russia reported interest by the tax authorities in their bitcoin transactions.

“