A draft of a new Administrative Violations Code was submitted to the State Duma, the Russian Parliament, in December 2015. The bill is an extensive document covering a wide range of issues including tough regulation of ‘money surrogates’. But what might it mean for bitcoin and other digital currencies?

Vladimir Pligin, head of the State Duma’s Constitutional Law and State Building Committee, has indicated the new bill will be considered by the Duma this February.

Still, it is uncertain how this comprehensive document will be considered by the Duma in such a short period of time.

The section on money surrogates in the bill is very specific and brief. In all likelihood, nobody in the Duma is going to pay particular attention to the section on money surrogates, and the bill could be enacted without any major amendment to this section.

The bill defines money surrogates as “objects of property rights including electronic ones intended for use as a medium of payment and/or exchange that are issued in the Russian Federation and are not considered as an official medium of payment in Russia”.

Hence bitcoin should simultaneously meet all these criteria to be qualified as the money surrogate in Russia.

Fuzzy definition

However, this definition is quite vague and it is not clear whether bitcoin will fall under proposed regulation.

First of all, bitcoin is simply a record in a public ledger and not an ‘object of property rights’. Besides an object of property rights is just a doctrinal concept in Russian civil law that implies assessment and transferability of the rights. Strictly speaking, it is impossible to define bitcoins in this way.

Moreover, the proposed definition mentions issuance in Russia as a criterion for money surrogates. The only way to determine the place of bitcoin “issuance” is to find out the IP address of the mining pool. It is unclear how the place of issuance would be determined in case of cloud mining.

Notably, the bill does not prohibit manufacturing and distribution of the mining hardware.

The definition considers money surrogates only as a medium of payment or exchange. Obviously, cryptocurrency is often not only a medium of payment, but also measure and store of value. It is unknown if and how the bill will regulate the mere storage of bitcoins.

In fact, the only criterion of money surrogates that unambiguously covers bitcoin is that the digital currency is not considered an official medium of payment in Russia.

Exemptions

The definition of the money surrogates is not only very vague, but it also has a broad list of exemptions.

For example, if a digital currency is considered as an official medium of payment in the CIS, the EU and in the UK, then it is not viewed as a money surrogate in Russia. There is always the probability of a precedent that will legalise bitcoin as a medium of payment in the UK.

Bearing in mind recent amendments to the Isle of Man legislation and the October 2105 ruling by the European Court of Justice on bitcoin VAT exemption, the likelihood of bitcoin legalisation in the UK or EU does not seem very futuristic.

What’s more, virtual currencies such as currencies in multiplayer online games and loyalty programs are exempt from classification as money surrogates. Exemption of loyalty programs differentiates this bill from a previous Russian Ministry of Finance bill in August 2014, which initially prohibited any kinds of rewards.

There are further differences from the Russian Ministry of Finance bill too:

The earlier bill proposed more complex regulation and amended several Russian laws, whereas the new Administrative Violation Code only suggests that more regulations are about to be introduced.

The Russian Ministry of Finance proposed the Bank of Russia as the enforcement agency, while the Russian police force is suggested as the enforcement authority in the new Administrative Violation Code.

The Ministry of Finance bill bans dissemination of information on the issuance of the money surrogates and the operation with them. The new bill prohibits only dissemination of information that is necessary and sufficient to the issuance of the money surrogates. There may turn out to be different perspectives on what kind of information will be eventually targeted, and perhaps wallet apps and mining clients will not be banned.

Regulation to come?

The Ministry of Finance bill was extensively discussed in Russia, and amended, yet it has not been submitted to the Duma. However, the clauses about money surrogate in the new Administrative Violation Code have stirred up very little local discussion.

There are, though, strong indicators in the bill that further regulation of money surrogates is on its way.

On the one hand, the clause “Malevolent issuance of money surrogates” penalises only the issuance of money surrogates that are not allowed by Russian laws or issuance in violation of the Russian law. Moreover, the bill allows the use of money surrogates when a person is identified in accordance with Russian law.

These clauses suggest that issuance of money surrogates is soon to be regulated.

On the other hand, the bill also implies criminal punishment for the issuance and the circulation of money surrogates.

In general, the proposed bill looks more like a ‘legislation imitation’ without a real intent to prohibit digital currencies in Russia. Not only is the definition of money surrogates extremely ill-defined, but the list of exemptions also gives an opportunity to argue that cryptocurrencies do not fall within its scope.

The bill could have specifically outlawed digital currencies in Russia without unnecessary looseness in the definition. And it is unclear how the proposed bill would be enforced. There is always the chance that the authorities will apply these clauses without proper legal analysis simply because bitcoins are not an official medium of payment.

Russian Duma building image via Nikolay Sachkov / Shutterstock.com