Russia has always been the one to make the headlines.

When it comes to new legislation, the European nations are typically left puzzled, repeating Churchill’s famous saying: “Russia is a riddle wrapped in a mystery inside an enigma.” Although there always seems to be a reason behind controversial new laws, at least according to government officials, the laws that govern this enigmatic land are often puzzling at first sight.

If you have any heart, you have been following #sochupuppies from the beginning, sometimes asked yourself whether there was any truth to allegations of hacker attacks on Trump administration, and wondered if you should go and visit (but how to protect yourself from all those bears running in the streets?)

To the West, the new legislation that allows government officials to not declare their income is also a bit of a joke. Is the Russian government giving away cryptocurrency like Elon Musk? (By the way, he’s not.) So what is that actually about, who came up with the idea and who is going to pay?

So first of all, what is the government saying? The reason is simple: since the bill for regulating cryptocurrency and all that is related is still being worked on, there is nothing to declare.

“At present, approaches to the definition and regulation of cryptocurrencies in the Russian Federation at the legislative level are not defined.”

Simple enough? You can’t declare virtual assets. Of course, if the currency is spent and money is earned it has to be declared.

“Cryptocurrency is not a means of payment, it cannot be spent. If they [government workers] sell it and get real income, then it will need to be declared, so the risks are minimal.”

The Russian officials, may we remind you, are required by law to also declare the goods, gifts and monetary presents from friends thanks to incidents in the past when…you know. Just…incidents. Given Russia’s eventful history when it comes to public service workers declaring their income, the regulation in place currently is quite strict. Since 2009 Russian government workers are required by law to declare all the income they have. Still, it seems strong virtual currency in any amount is not prohibited or necessary to declare – and neither is selling it abroad.

This controversial move, of course, gave rise to speculations. Russia has been under fire from the global community in connection with US sanctions and Ukraine, and the fact that now there is pretty much a legalized way of bribing government officials isn’t helping, some sources would say.

Still, we like to believe every power can be used for good or for bad, and the fact that the opportunity is there doesn’t mean that it will be used – just like the fact that a country has an army doesn’t mean it is going to invade anyone. We have known countries who existed peacefully for decades without war hile having fantastical armies and weapons. In the same way, the fact that Russian government officials now have niches to store unlimited undeclared financial reserves it doesn’t mean necessarily that corruption and tax evasion is to follow

Olga S Belomyttseva from the Department of Finance and Accounting, Faculty of Economics, National Research Tomsk State University in her study of the implications of cryptocurrency usage across the globe, including Russia, titled “Conceptual Framework for the Definition and Regulation of Virtual Currencies: International and Russian Practices” points out:

“At present, no international consensus exists on virtual currencies either on the part of regulators or the leading representatives of economic and legal sciences. The approaches to defining virtual currency are rather diverse. They vary from considering the concept synonymous with a pyramid scheme to identifying virtual currency with a commodity or gold equivalent.”

Accordingly, the uses to which Bitcoins can be put are also diverse, meaning the invisible transactions can be used for good or for bad (which will not mean necessarily they will be used for bad).

“In a letter dated January 27, 2014, the Bank of Russia warned citizens and businesses against using various virtual currencies, including Bitcoin. Yet Bitcoin transactions in Russia is not prohibited. Moreover, there has been no liability (either criminal or administrative) for transactional activities with Bitcoin. The letter identified five features of Bitcoins that should cause concern among regulators (Bank of Russia, 2014):

  • Bitcoin is an unsecured instrument;
  • No entity is responsible for Bitcoin (issuer);
  • Operations with Bitcoins are of a speculative nature;
  • Bitcoin domain  and  payments  have  an  anonymous nature; and
  • Bitcoin could possibly be used for illegal activities, even involuntarily.

The Ministry of Finance of the Russian Federation later pointed out the issues related to Bitcoin, such as the lack of a single issuance regulator and possible violations of the rights of the owners due to the lack of protection in judicial and administrative proceedings.

In our opinion, the biggest concerns for regulators are the lack of a responsible entity and the anonymous nature of Bitcoin domain and payments. Marian (2015, p. 67) expressed the same opinion and decoupled virtual currencies into two unique components: anonymity and decentralization. The other three points made by the Bank of Russia are inherent to many world currencies and financial instruments and were listed in the letter for purely notational reasons. Belomyttseva (2014, p. 27) considered the outlined issues in detail.”

With these considerations in mind, as Olga points out, one of the biggest concerns is not having a third-party regulator. We hope that with time either the government will attain that position by learning to cooperate with Bitcoin holders or there will be a third-party independent regulator that would ensure integrity and see-thorough-ness of business deals of all sorts (also on the government level).

 

Image courtesy of atozforex.com, Shutterstock.

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