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Russian lawmakers prepare legal amendment to confiscate crypto

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The Prosecutor General of the Russian Federation Igor Krasnov said that Russia will develop amendments to the legislation on the confiscation of crypto assets that have become sources of proceeds from crime. According to Krasnov, cryptocurrencies have become more often used for bribes and for laundering stolen budget funds.

Note that the Ministry of Internal Affairs of Russia has been developing a system for confiscating virtual money since 2019. It should be ready by 2022.

What will change?

The federal law on digital financial assets (DFA) has already recognized crypto as property for the purposes of enforcement proceedings. DFA are already property as an object of civil law. So, they can be foreclosed in the course of enforcement proceedings.

The collection of a fine and confiscation of property as a measure of criminal law are also provided for by the law on enforcement proceedings. But it describes in detail the procedures for the collection of traditional types of property. For example, funds from bank accounts, securities from financial market organizations, seizure of any other property directly from the debtor. At the same time, the recovery of the debtor’s property from financial institutions ensured by the administrative or criminal liability of officials of these institutions for failure to comply with judicial acts or executive documents.

At the same time, there is no procedure for levying execution on digital currency and DFA in the legislation on enforcement proceedings. And in this part it requires improvement, experts explain. According to them, it is advisable to recognize these assets as property for the purposes of criminal law and criminal procedure; this will additionally simplify, for example, the initiation and investigation of criminal cases on the theft of crypto assets.

The institution of confiscation itself is applicable to digital assets even in the current version of the criminal law. There is now an open list of what is subject to confiscation. Some cases don’t even require finding out who the owner is. For example, if the cryptocurrency was the subject of a crime in the form of a bribe, commercial bribery, etc.

However, the actual execution of the relevant judicial act and the confiscation mechanism look vague.

Who may be affected by the new rules?

Bona fide persons who hold crypto on exchanges or regulated depositories may suffer from the introduction of the law. Their digital currencies can theoretically be withdrawn through these regulated participants. The crime will most likely take place without regulated intermediaries, such as using hardware wallets.

The problem of implementing the confiscation of crypto assets

If we talk about the direct foreclosure of crypto assets, not only gaps in the legislation, but also the technical features of such assets can become an obstacle. If the debtor’s cryptocurrency is in the wallet of a crypto exchange, it is still possible to imagine a situation where Russian law enforcement officers in some way (for example, within the framework of legal aid agreements) will force the exchange to transfer coins. However, if the cryptocurrency stored in the wallet of the debtor himself, due to the decentralization of its blockchain, there will be no one to coerce except the debtor himself (for example, by charging him a performance fee).

You cannot access hardware storage without a password and recovery phrases. The confiscation mechanism in this case is incomprehensible. There is no single issuer in cryptocurrencies, and there are no registrars to come to either.

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