Russia’s Investigative Committee Proposes New Crypto Legislation: Bitcoin as Property

Russia’s digital crime rate has surged by 10% in 2024, prompting new legislative measures to tackle crypto-related offenses. The country’s Investigative Committee, led by Alexander Bastrykin, has proposed classifying Bitcoin and other digital assets as property. This move aims to streamline legal processes, especially in criminal cases, and could reshape how cryptocurrencies are handled in transactions involving third parties.

• Russia proposes classifying crypto as property
• Criminal liability for transferring digital wallets
• Impact on “droppers” and digital crime

The proposal comes as digital crimes in Russia have increased, with nearly one in five offenses committed by minors. Cryptocurrencies, often used in such illegal activities, are at the forefront of this legislative push. Under the new proposal, cryptocurrencies would be recognized as property, a status they already hold under Russian civil and tax law, but with specific attention to criminal cases.

A key aspect of the legislation is the introduction of criminal liability for transferring digital wallets to third parties, particularly targeting the practice known as “droppers.” Droppers are individuals who allow others to use their bank accounts for cryptocurrency transactions, often for a fee. This practice is common among those whose bank accounts are blocked under Federal Law 115-FL, which restricts frequent crypto transactions.

Vladimir Sobinsky, a legal expert at the law firm DRC, explained the rationale behind this practice:

“In most cases, this is due to the fact that when frequently conducting crypto buy or sell transactions, users’ bank cards are blocked under Federal Law 115-FL, and they are forced to close their accounts. As a result, an individual who frequently buys and sells cryptocurrency is forced to ‘buy access’ to a third party’s banking app in order to conduct transactions through their account, effectively using the services of a dropper for their own purposes.”

However, not all legal experts agree on the classification of cryptocurrencies as digital wallets. Ruslan Gafurov, a partner at Nevsky IP Law, provided his perspective:

“In terms of crypto, digital wallets include both digital and hardware wallets. The initiative to criminalize the transfer of such digital wallets to nominee parties is understandable. In the case of bank cards, law enforcement, regulatory authorities, and banks themselves know who is making the transaction. With cryptocurrencies, however, the wallet is often known, but not the specific individual.”

Gafurov also highlighted the existing legal recognition of cryptocurrencies as property:

“Courts have previously dealt with questions about whether cryptocurrency is considered property in bankruptcy and divorce cases. It was then that it was first confirmed in Russia that, under the meaning of Article 128 of the Civil Code, cryptocurrency is indeed considered property.”

The proposed legislation aims to address the challenges faced by Russian law enforcement in tracking and recovering stolen cryptocurrencies. Sobinsky emphasized the importance of these regulations:

“If cryptocurrency is tracked down, found in a custodial wallet, and its movement is stopped, the question arises of how to recover it. The development of regulations in this area is very important and should primarily focus on increasing the number of solved crimes in this field.”

This legislative push aligns with broader economic motivations, as Russia’s crypto mining industry has been gaining legitimacy and is supported by major state companies like Gazprom Neft and Sberbank. Russia’s position as the world’s second-largest crypto miner reflects its potential as an economic growth driver. Additionally, Russia’s exploration of cryptocurrencies to navigate Western sanctions adds a geopolitical dimension to the proposed laws.

While the proposal to recognize cryptocurrencies as property and impose criminal liability on certain transactions is seen as a step towards clearer regulation, it also raises questions about the impact on everyday users and the broader crypto ecosystem. The ongoing debate among legal experts about the classification of cryptocurrencies as digital wallets suggests that there may be challenges in implementing these laws effectively.

Despite these uncertainties, the move towards clearer regulations is a positive development for a country grappling with the complexities of digital assets. It reflects a broader global trend of governments seeking to integrate cryptocurrencies into their legal frameworks, while also highlighting the unique challenges faced by a nation like Russia, where the crypto sector is intertwined with both economic growth and geopolitical strategy.

The Rise of Digital Crime

Digital crimes in Russia have seen a significant increase, with a reported 10% rise in 2024. This surge has prompted the government to take action, focusing on the role of cryptocurrencies in these illegal activities. Nearly one in five digital crimes are committed by minors, adding urgency to the need for clearer regulations.

The Role of ‘Droppers’

The practice of “droppers” has become a focal point of the proposed legislation. Droppers are individuals who allow others to use their bank accounts for cryptocurrency transactions, often to circumvent restrictions imposed by Federal Law 115-FL. This law blocks bank accounts with frequent crypto transactions, forcing users to seek alternative means of trading.

Legal Perspectives

Legal experts in Russia have mixed opinions on the proposed legislation. While some, like Vladimir Sobinsky, see it as a necessary step to combat digital crime, others, such as Ruslan Gafurov, highlight the challenges of classifying cryptocurrencies as digital wallets. The ongoing debate underscores the complexity of integrating cryptocurrencies into existing legal frameworks.

Economic and Geopolitical Context

Russia’s crypto mining industry has been gaining legitimacy, supported by major state companies. The country’s second-largest position in global crypto mining reflects its potential as an economic growth driver. Additionally, Russia’s exploration of cryptocurrencies to navigate Western sanctions adds a geopolitical dimension to the proposed laws.

Key Questions and Takeaways

• What does the proposed Russian legislation aim to achieve?

  The proposed legislation aims to legally recognize cryptocurrency as property and introduce criminal liability for transferring digital wallets to third parties, particularly addressing the use of “droppers” in cryptocurrency transactions.

• How might the new laws impact cryptocurrency transactions in Russia?

  The new laws could criminalize the use of “droppers,” potentially affecting how individuals buy and sell cryptocurrencies. This could lead to increased scrutiny and regulation of crypto transactions, making it more difficult to use third-party accounts.

• Why are “droppers” significant in the context of cryptocurrency transactions in Russia?

  “Droppers” are significant because they are used by individuals whose bank accounts are blocked under Russian banking laws, allowing them to continue trading cryptocurrencies through third-party accounts. The proposed legislation aims to curb this practice due to its association with illegal activities.

• What challenges does Russian law enforcement face with cryptocurrencies?

  Russian law enforcement faces challenges in tracking, seizing, and recovering stolen cryptocurrencies. The proposed legislation seeks to address these issues by providing clearer guidelines on how cryptocurrencies can be treated as evidence in criminal cases.

• Is cryptocurrency already recognized as property in Russia?

  Yes, cryptocurrency is already recognized as property under Russian civil and tax law, particularly in cases involving bankruptcy and divorce. However, the proposed amendments aim to clarify its treatment in criminal investigations.