Storing cryptocurrencies in non-custodial wallets may be criminalized in Russia if authorities accept a proposal from the trade association, which represents Russian banks. While financial regulators think the idea deserves attention, lawmakers and experts doubt such a measure can be implemented.

Russian banks are moving to curb the use of private cryptocurrency wallets

Challenges in foreclosure and confiscation of crypto-assets held by debtors and criminals have prompted the Association of Banks of Russia (ABR) to propose introducing criminal liability for storing coins in non-custodial wallets, the said Vice-president of the organization, Anatoly Kozlachkov, told Izvestia this week.

ABR’s initial proposal, made with the advisory support of Russia’s Interior Ministry, was to criminalize undeclared cryptocurrency storage in such wallets. The association is now tending to target refusals to provide the wallet keys when requested by authorized bodies, Kozlachkov said.

The ABR notes that it does not refer to digital assets in wallets provided by crypto exchanges, which are de facto controlled by those platforms in a similar way to bank deposits, but to wallets directly controlled by users.

For example, if the relevant authorities establish a link between a debtor and a cryptocurrency wallet, the person may have the choice of either sharing their keys or risking penalties for hiding property in the form of digital assets.

In addition to preventing capital outflow from crypto, the bankers say their approach would help create “a closed loop for the circulation of cryptocurrencies” in Russia. According to ABR, this would be impossible without an effective foreclosure mechanism for non-custodial cryptocurrencies.

In mid-April, the ABR sent its regulatory concept to the Russian central bank, the Ministry of Finance and Rosfinmonitoring, Russia’s financial regulator. Rosfinmonitoring informed Izvestia that this deserves attention and the Ministry of Finance is ready to look into it. The Bank of Russia declined to comment.

Meanwhile, the idea has met with criticism from lawmakers and crypto industry officials in the Expert Council of the parliamentary working group tasked with developing comprehensive crypto regulations. Andrey Lugovoy, the group’s vice chairman, said he understood ABR’s concerns but warned that the move would hamper the legalization of the crypto market.

Experts interviewed by Izvestia were also skeptical. According to Roman Yankovsky, associate dean of the law faculty at the Higher School of Economics, a leading Russian university, identifying the unguarded wallets of ordinary citizens is unrealistic and seizing them would be difficult, if not impossible.

Andrey Gusev, managing partner at Nordic Star law firm, believes that introducing criminal liability for owning such wallets is unnecessary, saying that tax incentives and administrative penalties should be enough to dissuade Russian crypto holders from using or hiding them.

Criminalizing non-custodial wallets is “fundamentally wrong,” says Maxim Bashkatov, head of the Legal Development Department of the Center for Strategic Research. He points out that it is currently unsafe for Russians to store cryptocurrencies on exchanges due to the risk of asset freezes due to Western sanctions over the war in Ukraine.

tags in this story

Association, Bankers, Banks, Concept, Criminal Liability, Criminalization, Crypto, Crypto Assets, Crypto Wallets, Cryptocurrencies, Cryptocurrency, Idea, Non Custodial, Non-Custodial Wallets, Proposal, Regulation, Regulations, Russia, Russian, Wallets

Do you think Russia will criminalize holding crypto assets in wallets without custody? Share your expectations in the comments section below.

Lubomir Tassev

Lubomir Tassev is a journalist from tech-savvy Eastern Europe who likes Hitchen’s quote: “Being a writer is what I am, not what I do.” Along with crypto, blockchain and fintech, international politics and business are two other sources of inspiration.

photo credit: Shutterstock, Pixabay, WikiCommons

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