Over One Hot Orwellian Summer, Russian Banking Privacy Is Destroyed
The Russian Ministry of Finance has declared they are considering taxing crypto traders. Also, citizens’ transactions must be checked by local banks, with freelance and crypto-related accounts (often the same thing) to be frozen. In addition, the Russian Central Bank has sent instructions to all banks reminding them to fight money laundering and requiring them to pin device IDs to everyone sending money online.
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Crypto Trading, Freelancers Taxed
Despite the Russian law stating that in “uncertain business” cases a citizen may not pay any taxes, gaining crypto profits is to be considered “economic activity,” so if anyone has traded for profit or owns a large mining farm, they must pay taxes. The new applicable regulations have applied since June 4th of this year.
Russian tax agents can now look over freelancers’ accounts and freeze transactions not related to cryptocurrency. That law starts July 1st, making it almost impossible to work with foreign clients or employers because of the difficulties explaining the sources of transactions. The result of the latter law appears to encourage violations of the former — increasing the rate of acceptance of bitcoin among freelancers hoping to evade excessive tax burdens. Except — given the former law — those freelancers will be less likely to use traditional banking services at all.
Banks Will Confiscate Bitcoin-related Cash
While unusual on the surface, it appears the Russian government is more interested in confiscating crypto-generated fiat than taxing it. In June, all Russian banks acquired new rights. Previously, only banks that issued payments were obliged to follow anti-money laundering regulations. Now, even receiving banks are being asked to spy on clients’ incoming transactions.
If anyone is suspected of trading cryptocurrencies, their account can be frozen until they explain the source of their income. It is important to note that the right to withdraw money at a bank branch has effectively been invalidated. From June 1st, all incoming transactions are subject to potential seizure by the bank, on behalf of the government.
On the ground in Russia, this means — in practice — that many people will simply lose their money or fight for it through a lengthy judicial process.
CBR Allows All Banks to Pin IDs to User Devices
Since June 21st, Russian AML authorities have been afforded new tools for spying. The Central Bank of Russia is now permitted to analyze the specific and unique settings and parameters of devices that clients use to send cash and pin an ID to them.
It is widely believed that some Russian banks, like VTB, have collected similar data for years. Now, all banks will be following suit without due reference to their own internal rules and their duty to safeguard their customers’ privacy.
So Where Will This Lead?
The Russian government clearly wants to make bitcoin transactions completely transparent, and are using the banks to do so. There is a real risk that the mere suspicion of the use of cryptocurrencies can render funds frozen arbitrarily. The use of peer-to-peer services like LocalBitcoins presents risks, as successfully receiving an otherwise unaccounted-for transaction exposes account holders to suspicions of trading cryptocurrencies.
Moscow is yet to comment on the extent of bitcoin tax avoidance nor the apparent emergency of the situation that the rash nature of the new laws might suggest. Furthermore, the ID pinning system means that if a banking customer inadvertently transacts with a criminal, they can be tarred with the same brush of criminality despite being completely innocent.
When in Russia, Do As the Russians Do
There are a range of measures crypto traders and users can take to protect themselves. Using peer-to-peer services and making in-person cash handovers is one such measure, though it obviously comes with personal safety risks.
Reducing transaction size is also a way to remain under the radar, as is the use of foreign-issued bank accounts, which many Russians are opening in countries like the Ukraine, Belarus, and Moldova. The use of Localbitcoins, ShapeShift, or Rates.Guru to convert cryptocurrencies into legal online money accepted in Russia (QIWI RUB, Yandex Money, WebMoney, etc.) is another way to clean cryptos.
Life for crypto enthusiasts is about to get a lot more difficult for Russians, who are facing highly sophisticated espionage techniques used by their banks at the behest of their government.
How can Russian crypto enthusiasts remain financially anonymous? Sound off in the comments section below.
Images via Pixabay, Jeff Hawkes