For the first time in four years, the number of cryptocurrency transactions on darknet markets–including illegal drug and weapons trade, remittance and transfer of illicit funds–has doubled, a new study reports. So Russia has been updating its cryptocurrency bribery and Anti-Money Laundering laws to support its emerging digital economy.
Bitcoin (BTC) hit the headlines in Russia after it appeared that the Russian Federal Security Service, or FSB— the Soviet KGB’s successor agency — had been attempting to collect a $1 million BTC bribe from a media entrepreneur last year.
At the end of 2019, the Russian Supreme Court made it clear that “digital freedoms”— a phrase used in the country’s law to denote cryptocurrencies — can be used in the same way as fiat money, properties, and other valuable assets to encourage illicit activities such as bribes. The Court claimed that at the time of the bribe, experts should be valuing these cryptocurrency bribes.
Nevertheless, Russian government officials and members of their families will only need to report their illegal income from cryptocurrency when traded for conventional money as “other revenue,” according to a 2018 guidance provided by the Russian Ministry of Labor.
Cryptocurrency theft, hacking and money laundering
The FSB has also reportedly been involved in the disappearance of $450 million in Wex cryptocurrency, one of the largest online exchanges in the world. Wex was an offshoot of BTC-e, a crypto-currency exchange located in Bulgaria that allegedly managed Bitcoin tracing back to a hacking unit of Russian military intelligence.
BTC-e was finally shut down in 2017 by the United States Treasury Department Financial Crimes Monitoring Network in a first-of-its-kind multi-jurisdictional coordinated law enforcement effort to launder $4 billion in cryptocurrencies.
Likewise, a Russian hacker virus was detected on employee computers at the Coincheck exchange in Tokyo, which was hacked in January 2018, resulting in the loss of 500 million NEM tokens worth around $530 million, the largest ever theft from a cryptocurrency exchange.
The Russian Supreme Court ruled theft of cryptocurrencies as a criminal offence last year, paving the way for new legislation. The court also ordered Russia’s Central Bank to make changes to the AML laws that would protect cryptocurrencies.
The latest amendments were released on 17 February 2020. The regulatory update explicitly categorises any cryptocurrency-linked transaction as a possible risk of money laundering, and these accounts may fall into the “dubious transaction” category.
Additionally, and perhaps most significantly, the new amendments include crypto-assets in the account freezing criteria.
The central bank and the FSB both banned the use of cryptocurrencies as a form of payment. The law provides for cryptocurrency-to-ruble transactions at financial institutions in an attempt to de-anonymize all crypto-currency users.
Russia has been updating its cryptocurrencies regulations in a coordinated manner with the Eurasian Economic Union and BRICS nations to put the brakes on promoting cryptocurrencies-linked financial services while continuing to explore ways to build a fintech strategy to promote innovation in cloud-based mobile digital payment solutions.