Russia Prepares To Criminalize Cryptocurrency In New Legislation

The Russian government is preparing to introduce new legislation that will add "cryptocurrency" and related terms to the country's criminal code. This move is aimed at facilitating the confiscation of digital assets during police investigations. According to sources close to the Government Commission on Legislative Activity, the Ministry of Justice has drafted a bill that has already been approved by the commission and is expected to be sent to the State Duma in the near future.

Currently, the Criminal Code and the Criminal Procedure Code do not define crypto-related terms, which has made it difficult for law enforcement agencies to handle cases involving digital currencies. In 2020, lawmakers approved a bill that allowed courts to recognize crypto as intangible property in bankruptcy cases. However, in more general criminal cases, crypto has no legal status, and storage platforms and tools like crypto wallets also lack legal definitions. This has further complicated matters for Russian police and prosecutors, who have complained about the difficulties in confiscating digital assets.

Vladimir Gruzdev, Chairman of the Board at the Association of Lawyers of Russia, explained that the current process for confiscating crypto is extremely complicated. Coins can only be seized with the help of a specialist who can guarantee the correct handling of such specific property. While physical hardware wallets can be seized, confiscating crypto held in "hot" online wallets requires transferring coins to a special address-identifier to ensure their safety.

The proposed bill aims to recognize cryptoassets as items subject to confiscation and establish procedures for these actions. This should bring clarity to the current legislation, which has lacked clarity in issues related to the legislative regulation of crimes involving cryptoassets. While some lawyers have welcomed the move, others have raised questions about the legal mechanisms used by courts to seize cryptocurrency in the past.

Maria Bakakina, an adviser to the criminal law practice at Sokolov, Trusov, and Partners, pointed out that there is a need to verify the "technical readiness" of Russian law enforcement agencies before approving the bill. Daniil Markhiyev, managing partner at Daniil Markhiyev and Partners, emphasized the importance of guarantees to protect the rights of law-abiding individuals in crypto cases, ensuring that third parties not associated with criminal activity do not suffer as a result.

Earlier this month, Dmitry Aristov, the head of the Russian Federal Bailiff Service, announced that his agency had developed new methods to convert Bitcoin seized in criminal cases into cash for the Treasury. This development underscores the government's efforts to integrate digital assets into the legal and financial framework, addressing the challenges posed by the evolving landscape of cryptocurrencies.