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Overview of the legal proposals to ban the usage of ‘monetary surrogates’ in the Russian Federation

Overview of the legal proposals to ban the usage of ‘monetary surrogates’ (incl. Bitcoin) in the Russian Federation

On the 1st of April, 2014, Russian Ministry of Finance published a legal draft aimed at banning ‘monetary surrogates’, effectively making such virtual or non-conventional currencies as Bitcoin illegal to be used, issued, sold or bought in the Russian Federation.

The choice of regulative action was explained by the lack of proprietary value and anonymity of the monetary surrogates that may lead to fraud, money laundering or terrorist financing.

It is worth noting that the usage of monetary surrogates was banned in Russia a long time ago. However, relevant legal provision did not elaborate on what the monetary surrogates may be. Hence the provisions were not used consistently. The ban dated back to the 1990-s when volatility of the Russian rouble pushed companies and individuals towards other means of payment.

Following consultations with the public and government agencies, the Ministry of Finance published the second edition of the legal draft. According to the Russian regulation, public consultations on the updated text will last from 11th until 20th of March, 2016. The text will then be forwarded to Government and, if no objections follow, introduced into the State Duma (Lower Chamber of the Parliament).

Main provisions of the legal draft officially published on the 11th of March are as follows:

All legal entities, which issue, purchase or distribute monetary surrogates (incl. those in electronic form) will be subject to a fine of 3-5 mln. roubles (approx. 43 000 - 71 500 USD) or an administrative suspension of up to 90 days.

Bonuses, points, miles, etc. that are issued as part of the promotional campaigns under specific contracts and for limited purposes will not be considered ‘monetary surrogates’ and, thus will not be banned;

Websites containing information facilitating the usage or exchange of the monetary surrogates will be banned on the Russian territory. Russian Central Bank will have powers to designate such websites, Central Bank requests will be forwarded to all Internet providers in the country which will be obliged to block access to them. The same procedure currently applies to extremist materials, information about drugs, terrorism, etc.

The Ministry of Finance has also officially notified that it is preparing amendments to the Criminal Code, thus proposing criminal penalties for the issuing or usage of the monetary surrogates. Yet, the wording of these amendments is yet unknown and will be published within next weeks.