Russia Is About to Drop the Crypto ‘Iron Curtain,’ Industry Warns

Russia's crypto community is pushing back against a set of bills that could impose onerous restrictions on startups and individuals in the country.

AccessTimeIconMay 29, 2020 at 4:29 p.m. UTC
Updated Sep 14, 2021 at 8:46 a.m. UTC
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Russia's crypto industry is pushing back against a set of bills that would make it more difficult to operate in the Eurasian country.

Russian lawmakers introduced a set of draft bills regulating digital assets earlier this month, which would effectively ban any transactions using crypto within the country's borders. In response, the crypto community has filed a number of protest letters.

If the proposed regulation is passed, the Russian economy could lose up to $10 billion in taxes annually, which the crypto industry would otherwise be able to pay if it could operate legally, says a letter by crypto lobbying group RAKIB to the bills' sponsor, Anatoly Aksakov. A copy of the letter was also sent to Maxim Reshetnikov, head of the Ministry of Economic Development. 

Aksakov, a member of the Russian parliament (the State Duma), previously told news agency Interfax that Russians would be able to purchase cryptocurrencies on exchanges registered abroad but not in Russia, and they will have to report their crypto for tax purposes at home.

RAKIB's letter says one of the bills introduced prohibits the issuance of cryptocurrencies using servers located in Russia and web domains registered in the country, which means local crypto businesses will have to leave for other jurisdictions. 

In addition, Russia will lose the opportunity to maintain technological leadership and “build a new Iron Curtain” cutting it off from the global tech infrastructure and force young tech talent to work abroad. 

The Chamber of Commerce and Industry, an advocacy group for companies in various industries in Russia, sent its own letter to the parliament. This letter was referenced in the Telegram channel of Elina Sidorenko, the head of the Working Group on Estimated Risk of Cryptocurrency Turnover in the Duma. 

The letter points out the ban on any economic activities with crypto contradicts Russia’s policy on the digitization of the economy, which was announced by President Vladimir Putin in 2017. Plus, the suggested regulation “contradicts the main international rules for regulating the digital assets,” the letter says. 

The Duma’s own expert council for digital economy and blockchain, in turn, sent a letter to Putin’s counsel for protecting the rights of entrepreneurs, Boris Titov. The group warned the new regulation would endanger the constitutional rights of Russians and provoke abuse of power by law enforcement agencies. This letter has been also shared by Sidorenko.

The draconian sanctions for merely facilitating crypto transactions and providing information about them, including in the mass media, will freeze digital economy growth in Russia and scare away potential foreign investors, this letter says.

"In the crisis time in particular, such measures are inappropriate,” the document reads. 

Another crypto advocacy group, the International Digital Economy Organization, sent a letter to the parliament suggesting that instead of a ban, crypto-related enterprises should be recognized as a legitimate kind of business and the government should only ban transactions related to money laundering and the financing of crimes, with the threshold for suspicious transactions above 200 million rubles (about $283,000). Mining and exchanging crypto for fiat should be taxed at a 4% rate, the letter says. 

Sidorenko believes the reactions reflect thinking in the industry at the moment the proposed regulation is not yet ready to be adopted. One of the issues with the draft package is the ban on crypto has been introduced to the parliament as an addition to an earlier bill on digital securities, which has already passed through a first hearing in Duma.

This means all the new bills will go straight to a second hearing, speeding up the legislative process. If the lawmakers agree with the feedback provided by the Russian crypto community, they will have to push the entire legislative package back a step to a first hearing, Sidorenko said. In that event, the new regulation would not be considered before autumn because the Duma is about to break for the summer.

Another government official, Dmitry Marinichev, the president's counsel for the protection of entrepreneurs' rights in the Internet, believes the draft should simply be rejected.

"The state should not be afraid of the future and prohibit the innovation, it should be ready to change and help people feel comfortable in the new digital world," he wrote on his Facebook page.

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