Russia Formally Recognizes Legality of Bitcoin and Other Cryptocurrencies

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On November 29, 2016, Russian authorities released a document taking a long-awaited formal position on the use of Bitcoin and related transactions. The document, released by the Federal Tax Service, states explicitly that there is no legal prohibition on such use of cryptocurrencies.

The document puts nearly three years of legal ambiguity to rest; those who dealt in the currencies were unsure of whether Bitcoin and the like were banned, authorized, and what the penalties were. It also follows several months’ worth of rumors that the Russian authorities were leaning toward this decision.

At one point, a finance minister for the Russian government proposed four years’ incarceration for Bitcoin use, though it was never formalized. It was also determined previously that dealers of Bitcoin who were banking officials would receive seven years’ incarceration and specific bans on what finance positions they could later hold. (That decision was since rescinded and a new law is to be drafted.)

Regarding the treatment of Bitcoin as a foreign currency, in the new tax document Russia has indicated that any cryptocurrency trade operations will be considered “foreign” or “external” securities; in effect, treating those operations as monetary transactions. Interestingly, and perhaps surprisingly, per the new regulations, the transfers are not required to be subject to financial reporting, which appears to be less stringent than United States IRS treatment and subsequent investigations of Bitcoin and related transactions.

The decision and corresponding documentation contain caveats, however. It states that Russian authorities may launch an investigation into anyone using Bitcoin or other cryptocurrencies as a potential money laundering or terrorism operation. This may call for enhanced due diligence (colloquially known as KYC: ‘Know Your Customer’ regulations) and anti-money laundering (AML) efforts to be required from exchanges going forward; however, these elements have not yet been formally clarified from the government.

Additional interpretations from Russia’s Federal Tax Service are pending.