The long-uncertain legal environment for bitcoin in Russia took a step forward toward clarity this December as lawmakers submitted a new draft bill to the Duma – Russia’s legislative assembly – that would effectively ban the use of digital currencies like bitcoin domestically.

The development may not be surprising to industry observers, as talks of a bitcoin ban in Russia have been rife in the news for over a year amid broader concerns of capital flight. However, the latest bill is perhaps the most concrete step taken by government officials to date to crack down on the emerging technology’s expansion.

The Russian Ministry of Finance, which oversees policy and legislation for the industry, has repeatedly indicated its opposition against allowing the use of digital currencies as an alternative to government-issued money, although they have clarified that blockchain applications of the technology are not viewed so harshly.

Still, the latest draft appears to make good on the finance ministry’s threats, including language that would effectively ban the issue and exchange of “money surrogates”, a definition under which digital currencies are captured, should it be passed.

The action follows the Finance Ministry’s release of a draft bill in early 2015 that did not make it as far as the Duma. Like that initiative, the latest outlined proposed prohibition, if approved, would likely see those who break the new laws end up in jail.

The situation has effectively put the nation’s bitcoin industry in a state of limbo, with some companies fleeing abroad to more favourable regulatory regimes, even as more tech-forward payments firms like Qiwi and Yandex have sought to push the discussion about the benefits of exploring the technology.

Notably, however, the severity of the penalties have been lessened, though an analysis of bill suggests most use cases for digital currency would be criminalised should the law be enacted.

Fine-based deterrent

A translation of the new Russian-language draft provided to CoinDesk by local news service Forklog includes several clauses that would effectively make many uses of digital currencies liable for severe “administrative penalties”.

These would range from 20,000 rubles ($265 at press time) to a maximum of 5 million rubles ($66,264), along with confiscation of the items responsible for the violation.

The level of fine would depend on the type of violation and the status of the party responsible, increasing through individual, entrepreneur, Russian official and legal entity.

Money surrogates in the text are defined as “objects of property rights, including those electronic, intended for usage as exchange and/or payment means issued in the Russian Federation, not considered as official payment means in the legislation of the Russian Federation”.

The draft also makes clear that even such “objects” that are considered legal elsewhere will not be allowed within Russia – presumably taking into account their potential official acceptance in other countries.

A clause titled “Malevolent issuance of money surrogates” infers the law would penalise those who disseminate surrogate money (potentially including miners) who deal with either Russian individuals or with international customers over the Internet.

It states that an “individual or entity issuing money surrogates … in case such activity incorporates no criminally punishable acts” would invoke an administrative penalty.

The clause covers issuance of money surrogates “performed with application of information and telecommunication networks, or committed within more than one subject of the Russian Federation”.

Exchanges, some software targeted

Elsewhere in the text, in a section titled “Circulation of money surrogates”, a number of other important potential areas of digital currency use are identified. For example, penalties would be handed out to those who pay for goods with money surrogates rather than an approved, government-issued currency.

Acting as an exchange that trades money surrogates with fiat currencies is ruled out, as the text states that the “purchase and sale of money surrogates for the currency of the Russian Federation or a foreign currency” is prohibited.

What’s more, even giving digital currency away would not be permitted, according to the text.

The clause “Assistance in money surrogates circulation” would seek to ban the creation or distribution software that facilitates the issuance of money surrogates. It states that “manufacturing for distribution purposes, or release of software, sufficient and necessary for issuance of money surrogates” would result in financial penalties.

Mining clients and wallet apps could, in theory, fall under this definition.

Furthermore, it seems even merely promoting digital currencies or advertising related services in the general media and online could draw scrutiny, as one clause cites the “intended distribution of information sufficient and necessary for issuance of money surrogates in media and information and communication networks”.

However, in a small reprieve, distribution of information at “dedicated events and in dedicated publications” would not be not deemed an administrative violation, allowing at least, for the production of digital currency conferences or dedicated media within Russia.

Impact unknown

As for the bill’s implications for Russia’s cryptocurrency communities, the local consensus on measure is not clear.

As detailed in CoinDesk, some startups have taken a “wait-and-see” approach to regulation, citing the Central Bank’s positive statements about the technology, as well as statements indicating that Russia’s Interior Ministry and President Vladimir Putin intend for this agency to play a role in determining policy on the matter.

As yet, a consensus on the probability that the law will pass could not be determined.

Local payments companies, financial industry groups and law firms engaged with the technology have so far been unresponsive to requests for further clarity on their view of the bill.

Duma image via Shutterstock