The Russian government has officially provided a response to the bill that seeks to outline the legal framework for cryptocurrencies. Many flaws and inadequacies were pointed out including unjustified restrictions on Russian residents and foreign investors.
Response to Crypto Bill
The Russian government published its official response on Saturday to the draft federal law no. 419059-7 “On Digital Financial Assets” which aims to regulate cryptocurrencies, crypto mining, as well as initial coin offerings (ICOs).
In its response, the government outlined numerous concerns and suggested some amendments to the bill. The first change suggests relates to Article 2 of the bill which defines digital financial assets including cryptocurrencies.
Citing the definition of a digital financial asset as “a property in electronic form created using cryptographic means,” the government says this definition does not distinguish crypto-assets from “other objects created using means of cryptographic protection of information, such as certificates of enhanced qualified electronic signature, session keys generated in the process of establishing connections during the implementation of information exchange protocols in information and telecommunications networks.”
In addition, the response states:
The draft law does not contain the regulation of legal relations arising in connection with the circulation of cryptocurrencies, which may entail difficulties in law enforcement practice.
Furthermore, the government finds “it necessary to regulate accounting issues” of crypto-assets as well as “introduce corresponding changes in the legislation of the Russian Federation on taxes and fees” in order to tax crypto transactions.
No Mechanism to Identify Miners
The definition of mining also needs additional work. The document suggests expanding the list of criteria to qualify as a crypto miner “since the energy consumption indicator does not provide an unambiguous basis for such a conclusion.”
Some Russian ministries previously said that they were confident miners could be tracked and identified using electricity consumption. However, the government contradicted this belief in its response to the bill, noting:
The government believes that activities aimed at creating a cryptocurrency may not be directly related to the formation of a transaction register, but rather to provide energy, technical capacities, including areas where the equipment necessary for mining is located, and therefore this activity cannot be attributed to mining. In view of the foregoing, the government considers it necessary to clarify the definition of the proposed concept of ‘mining’.
For both cryptocurrencies and ICOs, the government commented, “from the provisions of the bill it is impossible to establish how their primary emission is regulated,” elaborating:
The provisions of the draft law, as well as an explanatory note to it, do not contain a justification for introducing a number of restrictions imposed on residents of the Russian Federation.
Citing Article 3 of the draft law as an example, the government interpreted, “residents of the Russian Federation cannot invest in digital financial assets in foreign jurisdictions.” However, “such a restriction is not justified.”
Russian residents will not be the only group restricted by this bill; foreigners will also face unnecessary restrictions. The document points out that the bill says a crypto wallet is opened by an exchange “only after passing the procedures for identifying its owner in accordance with the federal law on countering the legalization (laundering) of criminally obtained incomes and the financing of terrorism.” However this will “significantly” hamper the participation of foreign investors as well as local residents, the government declared, adding:
The government proposes to envisage in the bill the possibility for the operator of the exchange of digital financial assets to simplify identification by remote means.
The rights of foreign investors also need to be adjusted in the bill since “the government considers it expedient to further regulate the issue related to the rights of foreign investors to transfer cryptocurrencies to the issuer’s wallet in exchange for Russian issuer tokens.” It says “such a measure will increase the investment attractiveness of Russian projects.”
Trade Control and Identifying Crypto Owners
One proposal the government explicitly supports is ensuring control over the exchange of cryptocurrencies for Russian rubles or other foreign currencies above a certain size. The document conveyed:
It seems necessary to provide for mandatory control over the operations on the exchange of cryptocurrency for the currency of the Russian Federation or for foreign currency in an amount equal to or exceeding 600,000 rubles [~US$9,776] or the equivalent in foreign currency.
Nonetheless, the government is still concerned about “the absence of a mechanism for establishing the owners of digital financial assets and persons responsible for the operation of digital financial asset systems.” It says the bill as written “will not allow countering the criminalization of this sphere and the use of the said assets for illegal purposes, as well as ensuring the protection of the corresponding property rights,” noting “the definitions of the concepts used in the draft law should be adjusted from a technical point of view.”
Lastly, the government sees the need to correlate the provisions of other relevant bills: draft law no. 424632-7 “On amending part one, second and fourth of the Civil Code of the Russian Federation” and draft law no. 419090-7 “On alternative ways to attract investment (crowdfunding).” The response also calls for a “further study of the provisions of the draft law, taking into account the inexpediency of excessive regulation of civil and legal relations,” before concluding:
The government of the Russian Federation supports the bill provided it is finalized for the second reading in accordance with the said observations.
What do you think of the Russian government’s response and concerns? Let us know in the comments section below.
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Author: Kevin Helms