Russia is toughening its tone against crypto market players who operate outside of any legal framework. Moscow has just submitted a bill to parliament which provides for heavy criminal penalties for any unauthorized cryptocurrency service. A regulatory offensive which is part of a broader strategy to take control of a sector which today escapes state control.
In brief
- The Russian government has submitted a bill to the State Duma to criminalize unregistered crypto services.
- Violators face up to 4 years in prison and a $4,000 fine individually.
- In the event of organized activity, the penalties can increase up to 7 years of imprisonment.
- The Russian Supreme Court considers the measure premature, pending a framework law planned for July.
A bill with tough sanctions
This is a major turning point in Russian crypto policy. Last Friday, the Russian government transmitted to the State Duma, the lower house of parliament, a bill aimed at introducing criminal sanctions against any entity offering services related to cryptocurrencies without authorization from the Bank of Russia.
Concretely, the text targets actors “carrying out activities related to the organization of the circulation of digital currency” outside the regulatory framework. The penalties incurred are severe:
- Up to 4 years in prison and a $4,000 fine for an isolated individual.
- Up to 7 years of imprisonment or 5 years of forced labor in case of organized group or large-scale illicit income.
The penalties increase considerably when collective activity is involved. An organized group, or any large-scale income-generating operation, exposes its members to forced labor or a sentence of up to seven years in prison. The text also provides for a fine of up to 1 million rubles, or approximately $13,100.
This text continues a legislative offensive begun last March, which then targeted cryptocurrency miners operating illegally. The new version considerably broadens the spectrum: it is now all unregistered digital asset services that are in the sights of the authorities.
A notable reservation, however, tempers the legislator's enthusiasm. The Russian Supreme Court considers the project insufficiently justified to merit criminal sanctions, and considers the measure premature. His reasoning: first wait for the law on “digital currency and digital rights” to come into force, expected in July, before initiating any criminal proceedings.
Crypto regulation that responds to massive capital flight
This bill does not come out of nowhere. It comes in an alarming context for the Russian authorities: according to government estimates, $129 billion in cryptos escape state control each year. The daily trading volume reaches 50 billion rubles, or more than 10,000 billion over the year, all operating in a total gray zone.
Worse still, a large part of these flows benefit foreign or offshore platforms. The fees paid by Russian traders to these entities are around $15 billion per year, while the Moscow Stock Exchange itself only generates $1 billion in annual profits.
The regulatory logic is therefore twofold: regain control of uncontrollable flows, and repatriate wealth that is evaporating abroad. The Bank of Russia and the government are working in parallel on a legal framework that would allow traditional brokers and exchanges to integrate crypto without additional licenses, a pragmatic approach to avoid strangling a market already well established in the habits of Russian citizens.
In short, Russia finds itself at a crossroads. Criminalizing without supervision risks accentuating the escape towards underground circuits. But doing nothing means leaving hundreds of billions of dollars beyond the reach of the taxman. The real test will be the consistency between this bill and the overall regulations expected this summer.
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