This day in history: January 27, 2014 – Bank of Russia outlaws Bitcoin

Maria Nikolova

Provision of Bitcoin exchange services is a suspicious activity and is treated as violation of state AML laws, the Bank of Russia stated three years ago.

The evolution of virtual currencies, and Bitcoin, in particular, in Russia has been extensive. Exactly three years ago – on January 27, 2014, the Central Bank of Russia published an announcement entitled “On the use of virtual currencies, and Bitcoin, in particular, when conducting transactions”.

  • The announcement

In the announcement, the Bank of Russia noted the growing popularity of virtual currencies across the globe and warned of high risk of losses associated with operations involving them. The regulator alerted the public against using virtual currencies for exchange purposes.

The regulator referred to Article 27 of the law “On the Central Bank of the Russian Federation”, which prohibits the issue of money surrogates in the Russian Federation.

Finally, the Bank of Russia stated that the provision of virtual currency exchange services by business entities will be considered as involvement in suspicious activities. These actions are treated as violations of the laws on anti-money laundering and terrorism funding.

  • And then MTGOX collapsed

One month after the Russian “Megaregulator” outlawed Bitcoin transactions, MtGox Co., Ltd. submitted an application for the start of a procedure of civil rehabilitation at the Tokyo District Court.

The administrators reported back then that MtGox had liabilities of about JPY 6.5 billion and JPY 3.84 billion in assets. At that point, the administrators found that approximately 750,000 bitcoins deposited by users and approximately 100,000 bitcoins belonging to the exchange had disappeared.

  • The law

In tune with the harsh stance of the Bank of Russia towards Bitcoin and other virtual currencies, Russia’s Ministry of Finance has started work on a legislative piece that would impose severe penalties on individuals and business entities involved in Bitcoin issue and transactions.

In March 2016, the Finance Ministry announced the latest amendments, which envisage a maximum penalty of seven years of imprisonment for Bitcoin-related activities. This penalty will apply to senior managers of banks and financial services providers engaged in activities such as Bitcoin mining, buying/selling, “issuing”. The list of proposed penalties includes a ban from taking certain roles in the financial services sector, along with monetary penalties of up to RUB 2.5 million.

  • The softer stance

In February 2016, the Bank of Russia exhibited the first signs of warming up to novel technologies associated with virtual currencies by announcing the establishment of a group that would analyse the innovations and promising technologies in the financial market. Amid the priority questions for the group are the new developments in the mobile and payment areas, as well as the study of distributed ledger technologies (like blockchain).

Even Russia’s Finance Ministry seems to be slowing down its push for introducing severe punishments for Bitcoin-related activities. Earlier this month, Deputy Finance Minister Alexei Moiseyev said that Russia’s Central Bank and the Federal Financial Monitoring Service did not see any threats from the use of crypto-currencies. At that point, the implementation of the “anti-Bitcoin law” is on hold.

  • BitRuble

Whereas the authorities mull how to regulate the “realm” of virtual currencies, the business has its own view on the matter. In September 2015, Russian media reported of plans by payment services provider Qiwi PLC (NASDAQ:QIWI) to launch its own crypto currency, set to bear the name BitRuble. The new currency was said to be based on the blockchain technology.

All plans to launch the “Russian Bitcoin”, however, will have to be co-ordinated with the Bank of Russia.

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