Maxim Ali analysed changes in digital asset regulation for RBC+ Petersburg

The Law on Digital Financial Assets came into force in Russia in 2021, introducing the concept of digital currency and describing the key characteristics of the asset. Maxim Ali, Head of Intellectual Property and Information Technologies practice at Maxima Legal, spoke specifically for RBC+ Petersburg about changes in the regulation of the crypto-assets market.

First of all, Maxim Ali drew RBC+ Petersburg’s attention to the fact that undeclared digital currency in Russia is not subject to judicial protection, which is a unique situation. “There is no such thing in relation to traditional assets – money, real estate. The possibility of protecting such an asset is not made dependent on whether or not you pay taxes on it,” the expert said.

In terms of taxes, according to Maxim, questions remain about VAT. “Given the specifics of the circulation of cryptocurrency via the internet, it is usually extremely difficult to determine whether it is the place of sale in Russia. The answer to this question largely determines the subsequent conclusions about the application of the tax,” the expert explained.

Analyzing the law “On Digital Financial Assets”, Maxim highlighted the fact that Russia did not plan to participate in the race for the most convenient cryptojurisdiction. “When creating the regulation, the authorities could have made it liberal and increased the attractiveness of the Russian jurisdiction. This would have retained some compatriots in the country or even attracted some from abroad. However, the priority was given to fighting the risks that cryptocurrency entails. Some people have been deterred from cryptocurrencies by strict regulation, but a significant part of projects and investors have gone into the shadows – or to other countries,” the expert shared.

Speaking about crediting funds from the sale of cryptocurrencies at banks, Maxim pointed out that this issue is not always resolved in favour of its owner. For example, if a bank has doubts about the legality of a transaction, it may block the account, citing anti-money laundering legislation (Law No. 115-FZ). At the same time, even if the bank requests additional documents before blocking the account, it will not always be able to provide them, as the user may only have a screenshot of an online exchange.

“It cannot be said that the situation with banks in Europe is much better. Even in digital currency-loyal countries like Malta, a bank can block an account for cryptocurrency transactions. And the UK’s HSBC, for example, has banned money transfers to or from cryptocurrency exchanges altogether,” the specialist added.

Also, according to Maxim Ali, the issue of enforcing blockchain-related decisions remains unsettled. As a rule, only the wallet owner himself can make a cryptocurrency transfer, as a result, some court decisions related to cryptocurrencies will remain on paper, as they cannot be enforced.

In general, according to the expert, Russian regulation in this area is now extremely strict and unfriendly to new players. For example, the scope of requirements for all sorts of tokens, which do not include cryptocurrency, is extremely extensive. It includes requirements for share capital and net asset size, jurisdiction of the organisation, members and officers of the organisation, their education, experience, lack of criminal record, etc. In addition, additional requirements may be set by the Central Bank of the Russian Federation.

“I would not hope that the restrictions will stop citizens from reckless transactions with cryptocurrency: it is still technically possible to work with it. The threat of being deprived of judicial protection is a rather strange and not very fair incentive. And it cannot work with low confidence in the courts,” Maxim Ali emphasised.

According to Maxim, in the future, the authorities should consider options to liberalize legislation and make life easier for crypto-projects and investors. The expert cited Belarus as an example. Now the country has tax incentives for operations with cryptocurrency. Ukraine, too, is preparing a legislative framework to become an attractive jurisdiction for crypto projects.

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