On May 22, 2018, the State Duma of the Russian Federation has adopted the bills "On Digital Rights," "On Digital Financial Assets," and "On Attracting Investments Using Investment Platforms" in the first reading. The decisions were approved almost unanimously as only one MP abstained from voting.
The Russian government has long been trying to take on the crypto industry. Back in December 2017, the State Duma presented to the public a "draft" of the law "On Digital Financial Assets." And already in January, the full text of the bill appeared, which was immediately met by a flurry of criticism. Experts noted that the document is riddled with legal holes. For example, the authors of the law did not say a word about the consequences for noncompliance with the law, or about the instruments of monitoring the exchangers and crypto exchanges. In addition, critics were skeptical about the proposal to register miners as individual entrepreneurs, especially in the light of the miserably failed campaign to legalize the self-employed.
Then the Ministry of Finance decided to send the project for revision, which was headed by 60-year-old deputy Anatoly Aksakov, known for his critical attitude towards Bitcoin. The result was three laws, the main of which was the one "On Financial Assets."
A quick glance at the document makes it clear that it does not differ much from its original version and contains just as many inaccuracies that the authors did not even bother to eliminate. Let us look at it in more detail.
The law introduces a number of new concepts into the Russian legislation. Thus, cryptocurrencies and tokens are united under the name "digital asset,” which means "property in electronic form created using cryptographic means.” In this case, the property rights to it are verified in the "registry of digital transactions.”
It is unclear what this register consists of because the bill gives it a very vague definition. The peculiarities do not end there, however. Further in the text it follows that a certain "validator" is needed to make entries in the register and that someone is "a legal entity or an individual who is a participant in the register of digital transactions and performs activities aimed at the validation of digital records.”
Issuance of Tokens
After reading the third article of the new law, it becomes clear that there will be few people wishing to conduct an ICO in Russia, at least because of the colossal bureaucratization of the process. The issuers of tokens will have to provide a large number of diverse documentation, as well as sign a contract (!) with each investor.
The acquisition of tokens will also be made difficult as the law specifies a limit on the maximum amount set for "unqualified investors.” There are no specific figures for the document, and one can only hope that the legislators will correct this point in the future.
Turnover of Digital Financial Assets
The exchange of tokens for fiat will be possible only through the "operator of the exchange of digital financial assets." To do this, the investor will have to undergo identification in accordance with the "anti-money laundering" law and open an electronic wallet on the operator’s platform.
As for cryptocurrencies, there is not a word about them in the law, as only tokens are mentioned. It remains to be wondered whether this is another oversight by the authors, as they initially did not provide for the possibility of exchanging cryptocurrencies for fiat money.
The State Duma finally realized its long-standing dream to tax the miners. This idea was embodied both in the January and in the current version of the bill.
Fortunately, not everyone will have to pay taxes, only those who exceed the limits for energy consumption set by the government. Such miners will be recognized as entrepreneurs with all the ensuing consequences. Needless to say, the electricity limits have not been established either.
It is interesting that during the discussion of the bill, Anatoly Aksakov proposed to introduce a tax moratorium on mining for 2 to 3 years. According to the deputy, this should push the miners to come out of the shadows.
The good news is that the new law gave an official definition to smart contracts and even allowed them to be used to enter into contracts with investors when conducting an ICO. At the same time, for some unknown reason, the authors left the possibility of signing the contract in paper form.
The Law "On Digital Rights"
This bill is rather short and, in fact, is a set of amendments to the Civil Code introducing new concepts into it, namely "digital rights" and "digital money.” The document introduces into the legislation the necessary legal links that arise in the process of circulation of cryptocurrencies.
The Law "On Attracting Investments Using Investment Platforms"
The provisions of the law "On Attracting Investments Using Investment Platforms" regulates ICOs and crowdfunding, as well as the activities of investment platform operators. In many respects, the text of the document echoes with the law "On Digital Financial Assets,” where restrictions for amateur investors are also prescribed, as well as a long list of requirements for the organizers of ICOs and the operators of crowdfunding platforms.
Unfortunately, we have yet again become witness to how a constructive idea stumbles over dilettantism and conservatism. Judging by the text of the draft law "On Digital Financial Assets", the deputies have completely ignored the advice of experts and the opinion of the crypto community.
Back in April, the Russian Association of Cryptocurrency and Blockchain (RACIB) put forward a number of comments on the new law. Thus, the lawmakers pointed to the following errors:
Lack of answers to market relevant questions. The bill does not contain a word about the interaction of ICOs with other jurisdictions, the acquisition of tokens and cryptocurrencies abroad, as well as other important information.
The transfer of turnover is a guaranteed move of cryptocurrencies into the "gray" area of legislation. The law does not provide for the possibility of turnover of cryptocurrencies, including the purchase of tokens.
The results of the analysis were sent to the State Duma, but, apparently, they were not taken into account.
The experts of RACIB believe that the new laws do not promote regulation and a favorable investment climate. Having entered into force, they will paralyze activities on the crypto market and lead to mass migration of investors, miners, and entrepreneurs.
The Ministry of Finance, however, did not exclude that the turnover of the cryptocurrencies will be allowed in order to circumvent sanctions, although this is not the main purpose of the law. With this statement, Deputy Finance Minister Alexei Moiseyev spoke on air of the Russia24 channel. He noted that in the future, digital financial assets may be exchanged for rubles for conducting financial transactions on the territory of the Russian Federation.
We may only hope that the government will listen to the feedback and recommendations of experts, and will amend the law. Otherwise, the promising industry can be simply razed.