Russia is planning to punish users of cryptocurrencies such as bitcoin, saying anonymous, difficult to trace transactions help kidnappers and money launderers.
The Finance Ministry in Moscow plans to submit legislation next month that would punish those who use digital currencies with fines as high as 2.5 million rubles ($38,000) and jail sentences of up to seven years.
As opponents criticize such regulations as futile in the face of the growing popularity of bitcoin, Russia joins countries including Bolivia, Iceland and Vietnam in taking steps to criminalize it.
“Bitcoin can be used to finance the shadow economy and crimes, and this risk we cannot allow in the Russia’s financial system, which we are striving to make transparent and healthy,” the press service of the central bank said in an e-mail.
Russia has struggled since the fall of the Soviet Union to build confidence in the ruble and curb the once-common practice of Russians demanding payment in U.S. dollars and other foreign currencies. A decade ago, the government dropped capital controls limiting cash outflows, and in 2014, the Bank of Russia began to allow the ruble’s value to be set almost entirely by the market. Last year, the central bank revoked the licenses of 34 lenders for reasons such as allegedly violating the laws prohibiting money laundering or financing terrorism.
The Finance Ministry’s proposal would prohibit the issuance of all cryptocurrencies or their use in exchange for goods and services in Russia. Penalties would start at four years in prison and a fine of 500,000 rubles for individuals, with the harshest reserved for those in the management of financial firms.
“We can see how swiftly, pretty much over the course of the year, this became a reality of our economic life,” Deputy Finance Minister Alexey Moiseev said in an interview. Bitcoin “in its essence is a money surrogate, so ultimately that leads to the central bank losing control over the money supply.”
Digital currencies like bitcoin are not controlled by any government or central bank, and can allow users to protect their savings against declines in national currencies and move money across borders without the participation of banks.
Bitcoin has provided a haven for citizens of countries like Venezuela, where access to the official exchange rate of 10 bolivars per dollar is severely limited, creating a black market where the local currency’s 98 percent plunge in the past three years means $1 costs about 1,100 bolivars.