Alexander Zhuravlev, managing partner of the Efficient Business Resources (EBR) law firm, chairman of the commission for the legal support of the digital economy in the Moscow branch of the Russian bar association, and cofounder of the additional education program at the Russian organization of BCL, or Blockchain Lawyers (via Alexander Zhuravlev).

‘If legislation does not exist, is everything permitted?’: An in-depth look at Russia’s long path to crypto legislation

Russia has been struggling to pass comprehensive cryptocurrency reform for over two years. With the bill on crowdfunding finally set to go into effect in 2020, what’s going on with the arguably more crypto-related bill on digital financial assets?

Russia’s path to cryptocurrency legislation been long and complex, but that’s nothing out of the ordinary for a country seems to do a lot of things the hard way.

Russia has been trying to pass crypto legislation since January 2018, with various government agencies and the central bank working on several different bills—most importantly the law on digital financial assets and the law on crowdfunding—often without consulting one another. While the law on crowdfunding passed this August and is set to go into effect on Jan. 1, 2020, the law on digital financial assets has been fought over until the term “cryptocurrency” was removed from the bill in September 2018, making the bill’s scope in terms of regulating cryptocurrencies themselves unclear and nebulous. 

Russian Prime Minister Dmitry Medvedev addressing the Russian Duma in May, 2018. President Vladimir Putin (back, right) is behind him (via Wiki commons).

Russian Prime Minister Dmitry Medvedev set the newest deadline for the bill on digital financial assets for the unrealistic Nov. 1, 2019, which means that the Ministry of Finance (MinFin) and the State Duma—in particular Anatoly Aksakov, head of the State Duma Committee on the Financial Market—have about a week to correct a bill about cryptocurrency that no longer has the terms “cryptocurrency,” “token,” or “smart contact.” The bill has the advantage that it was already adopted in its first reading in May 2018 (back when it still contained those key terms, plus a definition of smart contracts) and again in March 2019, but its previous approvals may not be enough to move it forward now.

According to Alexander Zhuravlev, managing partner of the EBR law firm and chairman of the commission for the legal support of the digital economy in the Moscow branch of the Russian bar association, the fact that cryptocurrency is not directly specified in the law on digital financial assets is not necessarily a bad thing.

“But it is not prohibited, and if it is not prohibited, then according to the general principle of building legislation, it is possible,” Zhuravlev said to Modern Consensus. 

He believes that the terms were deleted for “political” reasons, citing the ongoing legal concerns over Facebook’с Libra and Telegram’s Ton:

“Central banks and regulators in many countries are quite jealous of projects that can replace money in the classical sense we have now, money that mimics the state […] they most likely regard the digital currency that currently exists as a competitor. It is from this point of view, in terms of possible competition and the use of private money, that perhaps many central banks are not ready to legalize such digital money, including tokens, today.”

The latest version of the law does contain the concept of “digital operating symbols,” a confusing term that is defined as a set of electronic data or digital code for the purpose of organizing the circulation of the digital financial assets (without being digital financial assets themselves) and their use and release needs to be determined by the Bank of Russia.

Zhuravlev noted that the law will only be related to tokens or crypto assets that are issued on private blockchains. He added:

“If we proceed from this postulate, there will be practically no coin market cap in circulation in Russia, because, as we know, most of the classic crypto assets are issued on a public blockchain on non-centralized systems.”

The law specifies that the operator of digital financial assets and their exchanges have particular requirements, but they are not specified and will require further acts to explain them—which has the potential to take years, based on the speed on the passing of this bill on digital financial assets.

Anatoly Aksakov, head of the State Duma Committee on the Financial Market (via Wiki commons).

In early October, Aksakov stated that he will not have enough time to make the digital financial assets bill acceptable to enough people to be approved by Nov. 1. However, he spoke of the possibility for compromise:

“A compromise, in my opinion, is to get the same opportunity [to use cryptocurrencies in Russia] and the key to the central bank. Such a phenomenon could exist, but with the permission of the Bank of Russia, which is categorically against it.”

Zhuravlev also believes that there is a way to overcome the current disagreements between government departments, “but in fact, these disagreements boil down to what properties cryptocurrency laws should have,” again underlining the central bank’s resistance to introducing cryptocurrencies to law and giving them payment properties.

Even though a lot has changed in the crypto world since 2017, Zhuravlev said that the over-two-year period of the bill’s passing in Russia was not actually that long when compared with the United States, which he noted still has yet to pass comprehensive federal cryptocurrency legislation:

“This also does not happen quickly, because you understand the speed of passage of any law.”

How a bill aimed at regulating cryptocurrency turned into a relative mess

According to Zhuravlev, who is also the cofounder of the additional education program at the Russian organization of BCL, or Blockchain Lawyers, the bill on digital assets and the bill on crowdfunding (developed by MinFin and the central bank respectively) were originally supposed to be adopted into one package.

Zhuravlev remarked that the initiative for the bills came from Russian president Vladimir Putin himself at the end of 2017, when he instructed his government to legally regulate tokens, smart contracts, mining, and initial coin offerings (ICOs).

Zhuravlev’s work on issues concerning digital assets and blockchain consists of working in the aforementioned commission on questions of taxation, criminal law, and issues with the nature of virtual and civil assets, with reports sent to the Duma, the central bank, and the Ministry of Internal Affairs. They also attend public hearings of the related bills as part of their aim to “convince the authorities that these tools should be legalized.” 

According to Zhuravlev, the going opinion in the Russian government in 2016 and 2017—before the regulatory process was put into motion—was that Bitcoin and other cryptocurrencies have no value, as they are only used to buy drugs and weapons on the darknet. He said that “only when it [crypto] became widespread, including in Russia, people began to study this issue in sufficient detail.”

Russia’s Justice Minister Alexander Konovalov (via Wiki commons).

In May 2018, Russia’s Ninth Arbitration Court of Appeals recognized cryptocurrency as valuable property as part of a bankruptcy case, and later that month, Russia’s Justice Minister Alexander Konovalov said that cryptocurrency couldn’t be seen as anything other than the category of “other property.” Also in May 2018, MinFin officially stated that Russians needed to pay taxes if they received income from the sale of cryptocurrencies. More recently, the rather unusual idea of taxing cryptocurrencies as literally found treasure surfaced in Russia, since mining could hypothetically be compared to simply “finding” money.

In 2019, a Russian Supreme Court plenum became the first time that cryptocurrencies were officially documented. Unfortunately, Zhuralov notes, it was a plenum on money laundering, but he expressed optimism that the concept of crypto was finally documented in some legal way.

In March of this year, a bill amending Article 128 of the Russian Civil Code was passed in the third reading, which introduced the concept of digital rights as a type of property rights. A previous draft had contained a provision for digital currency, but that had been removed before its passing. Article 309 of the Civil Code also now includes the stipulation that smart contracts can be used in specific circumstances.

As well, there was the introduction of an agreement for the basis of the use of big data, introduced in March in Article 141.1 of the Civil Code, which defined digital rights. The article specifies how digital rights can be used and transferred, and creates rules for digital transactions and contracts. 

Vyachaslev Volodin, chairman of the State Duma (via Wiki commons).

According to a press release, State Duma Chairman Vyachaslev Volodin said at the time that “new technologies are actively introduced in economic life both in our country and abroad, but the issues of legal protection had remained unresolved. After the adoption of this law, citizens and legal entities will receive guarantees that will allow them to more actively participate in the development of the economy of the future.” However, Zhuravlev noted that Article 141.1 is more relevant to tokens than to cryptocurrencies.

Reappearance of the once-discussed crypto ruble?

The analog version of the Russian ruble (via Wiki commons).

While Russian legislative processes have dragged on concerning the legalization and regulation of already-existing digital currencies, the idea of Russia creating their own crypto ruble had been previously discussed with significantly more enthusiasm.

Zhuravlev was able to give some insight into the fate of this cryptocurrency ruble—which had been feared by the global community as a potential way for Russia to avoid sanctions. Zhuravlev noted that Chairman of the Central Bank Elvira Nabiullina had spoke cautiously about the release of a digital currency in Russia during a forum in Sochi as recently as September. Even though this idea has not been discussed publicly in a long time, her statements prove that the central bank has not yet given up on the idea, Zhuravlev said.

Russia may be taking its cue from other countries internationally, as Zhuravlev noted that there is a “trend” where many states have announced that they plan to issue their own e-national currency. Specifically, Zhuravlev pointed to China, which recently announced plans to create an electronic yuan:

“China’s behavior is very interesting because it has long promoted prohibitive policies for all crypto assets, with the exception of Hong Kong, because there is a special economic zone.”

How Russia-adjacent countries been dealing with cryptocurrencies

In his work, Zhuravlev also provides services to business to work in Russia or Belarus with digital assets. Belarus is known as a hub for cryptocurrencies, since its government has created a special high tech park that has favorable legislation to attract crypto- and blockchain-related companies. 

Belarussian crypto entrepreneur Viktor Prokopenya (via Wiki commons).

A Reuters interview in July with Belarussian crypto entrepreneur Viktor Prokopenya highlights the country’s openness towards the crypto industry. He described a three-hour-long conversation in 2017 with the nation’s president, Alexander Lukashenko, that concluded with a request to develop the country’s tech sector. What emerged was the strong but open crypto guidelines that exist in the country today.

Across another border to Ukraine, one also finds a completely different approach to cryptocurrency regulation than Russia’s. Dmitiry Budorin, the cofounder of Ukrainian cybersecurity service Hacken, told Modern Consensus that the crypto space itself in Ukraine is self-regulated amid the ongoing governmental debates about how to legislate. The key difference here is the almost extreme openness of the Ukrainian legislators—Budorin shared an open Google Doc that the Ukrainian government had recently released for comments on blockchain laws to the crypto community.

He noted:

“Right now, we have disputes inside the community about the legislation, about the taxation. More and more people, they want to set up fair and understandable rules. It’s kind of cool that the best questions are not even discussed, but they are, I would say, ‘agreed.’ The people from parliament, all of Ukraine, the people that [are] newly elected and that they work in ministries, they come to us and ask our advice, our approval, our comments for new laws that are going to be implemented. That’s kind of cool.”

Within Russian itself, a sort of Silicon Valley-esque innovation hub does exist, called the Skolkovo Innovation Center. The Kick Ecosystem, a blockchain project with a presence in Russia, was recently accepted into the hub this month, making it one of the first crypto- or blockchain-related companies to be there. 

Speaking with Anti Danilevski, Kick Ecosystem co-founder and CEO, he said that the process of applying was relatively difficult: it required more than 100 pages of documentation and it took them five attempts over eight months before they were accepted by a committee of experts to join the hub. In Danilevski’s opinion, their work at Skolkovo, particularly in terms of crowdfunding with the expected Jan. 1, 2020 adoption of the law, will help the Russian tech startup field enormously due to the current lack of any venture capital in the country. Today in Russia, initial coin offerings also cannot legally be carried out with cryptocurrency, leaving crowdfunding as an appealing, soon-to-be legal option for tech companies.

Danilevski opined that even if the bill on digital assets is not accepted by Nov. 1—which he says is unlikely—the more important crowdfunding bill has been passed. And if the digital assets bill is pushed back even further, then they will work with fiat instead of crypto, and nothing will change, he added.

What Russian cryptophiles should be looking out for now

Since Aksakov, the man in charge of the bill on digital assets, has publicly said that the Nov. 1 deadline is unrealistic for the bill’s passing, the Russian crypto community should not expect any sort of definitive digital asset law this fall. Even if the bill were to be passed in the form it now takes, the Russian crypto community would likely be unaffected, either for good or bad, by a digital asset bill that doesn’t mention cryptocurrencies by name.

However, it is unlikely that the issue will die out. The original order for the crypto bill came from Putin and was followed up with similar deadlines by Medvedev, with Putin even pointedly mentioning cryptocurrencies directly during his famous yearly livestream with the Russian public in 2018.

The importance of creating digital asset legislation in Russia therefore cannot be overlooked. As Zhuravlev noted:

“[In Russia] as awareness increases, attitudes are changed for the better, because the new technologies that are now being introduced into circulation require special knowledge that not everyone has. Not everyone knows how the blockchain works, not everyone knows what properties it has, what types of blockchain there are, and so on. And the more time that has passed, the more understanding comes, and the more understanding, the easier it can already be to come to a right decision. This process is taking place in Russia.”

With a degree of certainty that belies the evidence of the past two years of legislative difficulties, Zhuravlev optimistically hopes that legislation will be passed by the end of this year or the first quarter of 2020. As for whether this Russian cryptocurrency legislation will ever actually contain the word “cryptocurrency,” only time will tell.

The interviews with Alexander Zhuravlev and Anti Danilevski in this piece have been translated from Russian by Molly Jane Zuckerman.

 You May Also Like

Molly Jane Zuckerman is a freelance journalist covering crypto and blockchain news. Disclosures: Zuckerman does not own enough enough bitcoin (BTC) to buy a Birkin bag (<$5,000) and not enough ether (ETH) to buy a quarter of a Birkin bag (<$1,000).