For more than two years, Russian authorities have been trying to develop a single position on bitcoin. CoinFox tiptoes its way through a cobweb of polarised opinions and confusing official statements.

January 2014. The first official comment on digital currencies is published in Russia, and it is not bursting with enthusiasm. In the statement, the Bank of Russia, the central regulator, introduces the concept of “surrogate money”, which turned out to be an umbrella term for any locally issued non-fiat currencies and money equivalents, bitcoin included. In other words, for anything that is not ruble. The central bank warns against using these surrogates as highly dubious and potentially risky. The statement was later echoed by the Prosecutor General’s Office of Russia, emphasising that the issuance of “surrogate money” is illegal.

August 2014. The Ministry of Finance comes to play. In an announcement, it informs that the work has been commenced on a draft law prohibiting the issuance and usage of “virtual money” in Russia. The fines up to 1 million rubles are suggested for any operations with such surrogates and even for distribution of related information. The law was expected to pass the State Duma by spring 2015.

December 2014. It looked like a crack in the monolith of official contempt for cryptocurrencies when the Ministry of Economic Development came up with harsh criticism of the MinFin’s initiative. It denounced the limitations imposed by the draft law as “excessive” and “leading to unreasonable budgetary expense.” In particular, the term “surrogate money” the way it was defined by the document would put under threat all kinds of marketing bonuses and reward points, air miles, gift cards and the like.

February 2015. Consequently, an amended version of the “bitcoin ban bill” (albeit not naming bitcoin directly) is up for public discussion, with an added clause exempting from the definition of surrogate money “the objects of proprietary rights created as a result of parties fulfilling their obligations under civil contracts and used for promotion of goods, works and services,” i.e. green light for air miles. As for the rest, the emission and use of non-official currencies, of software that can be utilised for their emission, or provision of information that makes their emission or use possible would entail a penalty of up to 20,000 rubles (around $300) for individuals and up to 1,000,000 roubles (around $15,000) for organisations. The tough stance was reinforced by a representative of the Ministry of Internal Affairs who reminded the public in an interview how risky and dangerous unregulated cryptocurrencies are.

March 2015. The public consultation is closed, the feedback being mostly sceptical, and the new law banning cryptocurrencies is promised by 2016. It was later noted that, out of the total 81 comments submitted through the official web portal, admittedly only one suggestion was taken into account by the financial authorities. Industry experts commented on the generally insufficient understanding of cryptocurrencies by the officials, their superficial approach and reluctance to learn more about the subject.

June 2015. Another swing of the pendulum. The Bank of Russia for the first time is explicit about its relaxed, almost positive attitude towards cryptocurrencies. Its governor Elvira Nabiullina noted that the bank’s experts were closely watching the development of the bitcoin market (now naming names) and, despite the risks, admitted “certain attractions in the bitcoin's mobility, expediency, low cost.” She assured the central bank was ready to regulate it, “if necessary.”

July 2015. Ta-dah! Putin talks bitcoin. During a live Q&A session at a youth forum, President answers a question concerning the perspectives of “electronic money” in Russia. Speaking about “some ‘coins’ or whatever they call it”, Putin says their main problem being that “they are not backed by anything.” However, he admits that electronic money can be used as an “accounting unit” and in this quality is getting widespread. He mentioned a recent talk on the subject with the head of the central bank and praised Nabiullina’s “professional and calm attitude”. After the event, Putin’s press secretary rushed to explain that the president did not refer to bitcoin specifically. Yeah, sure.

September 2015. The Ministry of Finance strikes back. Just when one of the largest Russian payment providers QIWI announced the plan to introduce the first national cryptocurrency “bitruble”, the official body made its move aiming to criminalise the use of cryptocurrencies whatsoever. Encouraged by the recommendation of the Russian government under Dmitry Medvedev to introduce criminal penalty for the “emission of surrogate money, including cryptocurrencies, creation and distribution of software for its emission, as well as for transactions using surrogate money,” the Ministry comes up with a new version of the “bitcoin ban bill”. Now, those who make “surrogate money”, buy them with a goal of resale or sell them, could be fined 300,000 rubles (around $5,000) or sentenced to a year of corrective works. If committed by an organised group, it is to be punished by the fine of 500,000 rubles (about $7,600) or up to 480 hours of compulsory works or corrective works for a period of two years.

October 2015. “Izvestiya”, one of the top Russian newspapers, publishes yet unconfirmed report that the Ministry of Finance is going to demand imprisonment for up to 4 years for bitcoin miners and users. This time, the proposal was admittedly backed by the Ministry of Economic Development (what a twist!). Some Duma MPs eagerly come out with claims that bitcoin is a threat to Russian sovereignty. 

November 2015. In an interview with CoinDesk, Deputy Finance Minister Alexey Moiseev says that Russian financial authorities closely follow other countries’ experience of bitcoin regulation, especially the measures undertaken by the European Union to control illegal money operations. He assures that Russia has built “a serious system of protection against money laundering and financing terrorism through conventional banking infrastructure.” Therefore, if they permitted “free convertibility of bitcoins into rubles and vice versa,” new risks would arise. 

December 2015. Another sudden twist gives hope that the Bitcoin Ban Menace is over. A new draft Code of Administrative Violations introduced to the State Duma de facto exempts bitcoin from the definition of “surrogate money”. At least, it clearly specifies that only those alternative currencies are illegal that are created within Russia. Therefore, as long as it is mined abroad, cryptocurrency does not violate the law. Moreover, the draft excluded from the definition “any digital money” compliant to the laws of the CIS countries, the EU and UK, meaning that a currency legal in one of those jurisdictions is not banned in Russia. 

January 2016. Deputy Finance Minister of Russia Alexey Moiseev in an interview with CoinFox denounces the MPs’ attempt to introduce the new draft Administrative Code. Most of their initiatives fail in the first reading, he says adding that the Ministry has completed yet another version of the ban bill and is ready to present it to the government. And again, there are supportive voices for MinFin’s firm stance.  The head of Russia’s Investigative Committee and a former coursemate of Vladimir Putin declares in an interview that bitcoin, if allowed to circulate, would devaluate and displace the ruble as the principal currency, therefore, it should be banned. Moreover, its anonymity makes it attractive for criminals, including those who buy oil and gas from the ISIL.

February 2016. The State Duma held a roundtable discussion “Regulating the issuance and circulation of cryptocurrency.” The Bank of Russia and representatives of the Security and Anti-Corruption Committee voted against the legalisation of cryptocurrencies in Russia. A representative of the Federal Drug Control Service announced that over the last two years, Russian drug dealers have increased bitcoin usage twenty times. In opposition to that, Deputy Chairman of the State Duma on Security and Anti-Corruption noted that it would not do much harm if the Central Bank legalised some operations with bitcoins.  A few days later, the Ministry of Finance (drum roll please!) announced it prepared yet another version of the draft law defining any exchange operations between the national currency and bitcoin as a crime and was ready to introduce it to the State Duma. This time, the proposed punishment was up to 5 years of imprisonment.

March 2016. The new draft law comes out even more dreadful than expected: up to 7 years in jail or fines of up to 2.5 million rubles for senior managers of banks and other financial institutions involved in the issuing of cryptocurrency. For private individuals caught mining cryptocurrency – up to 4 years behind bars or 500 thousand rubles in fines. For organised groups – up to 6 years in prison or fines of 500,000 to 1 million rubles. The Deputy Minister of Finance, ever lavish of promises, suggested the law would enter the State Duma before 6 August.

April 2016. The introduction of the harshest version of the bitcoin ban bill is postponed due to criticism. Following the comments received from other governmental agencies, numerous additions and corrections are made to what has been presented as the final document. However, its basic guideline remains the same: up to 7 years in prison for issuance and exchange operations with cryptocurrency. Meanwhile, Putin’s coursemate and head of the Investigative Committee is here again with a lengthy article in “Kommersant”, this time declaring that bitcoin is used to finance “the information war against Russia.”  

May 2016. Media reports claim that the Interior Ministry, the Ministry of Justice and the Prosecutor General’s Office disapproved the bitcoin ban bill. According to internal sources, some officials in the Ministry of Justice demanded additional grounds for the criminalisation of cryptocurrencies because so far the idea that they pose any danger to the society “seems dubious.” The Interior Ministry, in its turn, finds it unreasonable to overburden the police with additional duties of monitoring the activity around cryptocurrencies. Speaking about the possible bitcoin ban, Herman Gref, the head of Sberbank, who earlier admitted owning some bitcoins, said that if such a law was implemented, it would provoke a brain drain in the country resulting in “all the progress leaving the territory of the Russian Federation.”

July 2016. The Deputy Minister of Finance Alexey Moiseev suddenly noted in an interview that, while forbidding the issuance of cryptocurrency in the country because it contradicts the Constitution, the Ministry would allow its purchase. It means that the legal status of cryptocurrency would be hardly different from that of any foreign currency allowed for trade but banned from circulation. The reason provided is that the total ban would impede the development of the blockchain technology, which has attracted the favourable attention of many Russian official institutions, including the central bank. 

“The blockchain works in such a way that bitcoins always appear as side products of its use. It is obvious that in this case, we need to exclude operators from liability for its emission, for them to avoid any risks of prosecution,” said the official, incidentally showing that for him "bitcoin" is a synonym of cryptocurrency in general.

The final twist in the plot?

Alexey Tereshchenko, Svetlana Nosova