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Russian Government to Legalize Bitcoin by 2018 to Prevent Money Laundering

Russian Government to Legalize Bitcoin by 2018 to Prevent Money Laundering

Russian Government to Legalize Bitcoin by 2018 to Prevent Money Laundering

​The Russian government is planning on legalizing Bitcoin by at least the end of 2018 by providing various regulatory frameworks for users, businesses and organizations.

According to Deputy Finance Minister Alexey Moiseev, who also operates as a Member of Supervisory Council and Chairman of the Strategy and Corporate Governance Committee at VTB Bank, Russian authorities are concerned over the usage of bitcoin as a potential money laundering tool. To ensure that its citizens and residents utilize bitcoin for non-fraudulent activities, the Russian government and its financial regulators are preparing a set of policies for bitcoin.

The introduction of policies for bitcoin in 2018 will signal the official legalization of bitcoin in Russia. Because the markets of online banking and fintech are dominated by existing multi-billion dollar corporations including Yandex, Russia presents a large market for bitcoin to penetrate.

In an interview, Moiseev stated:

“The state needs to know who at every moment of time stands on both sides of the financial chain. If there’s a transaction, the people who facilitate it should understand from whom they bought and to whom they were selling, just like with bank operations.”

Although bitcoin is transparent and its transactions are recorded in its public blockchain, for the central bank and regulators of Russia to track down the transactions initiated through exchanges or third party service providers, a strict anti-money laundering (AML) and Know Your Customer (KYC) policies must be set in place.

For instance, Chinese regulators halted withdrawals of two major bitcoin exchanges in Huobi and OKCoin to overhaul their previous AML and KYC systems. Newly updated requirements included a face-to-face interview with users, video verification, identity-proving documents such as passport, driving license and proof of residential address, and scan of bank account history.

Since 2014, the legality of bitcoin remained unclear within Russia. Users as well as businesses did not have any regulatory understanding of the digital currency in the country. Therefore, the clarification of Moiseev on the legality of bitcoin is an important step toward growing the bitcoin industry in Russia.

Various sources and market data demonstrate a substantially high bitcoin usage in Russia. Particularly, peer to peer trading platform LocalBitcoins show that the weekly trading volume of bitcoin users in Russia has significantly increased since early 2016.

Many investors and high profile traders perceive bitcoin as a digital gold. It is a reliable safe haven asset and its portability allows it to operate as an independent settlement network. Thus, in times of economic instability and financial uncertainty, bitcoin demand rises in regions such as Russia.

According to several sources, Russia’s dominant fintech companies including Yandex Money have experienced a massive growth in terms of user base and annual revenue. This can be perceived a direct result of the disconnection between banks and millennials. The new generation of consumers have started to lose trust in banks due to decades of dishonest and fraudulent activities.

However, bitcoin was not able to penetrate the market dominated by companies like Yandex because of the uncertainty in the legality of Bitcoin. The image of bitcoin worsened in Russia when the country’s central bank implied that bitcoin users could face jail time for transacting with the digital currency.

“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 representatives of the Central Bank of Russia said.

Upon the legalization of bitcoin in 2018, it is likely that the local bitcoin industry will grow at an exponential rate.

Author : Joseph Young

Joseph Young is a finance and tech journalist based in Hong Kong. He has worked with leading media and news agencies in the technology and finance industries, offering exclusive content, interviews, insights and analysis of cryptocurrencies, innovative and futuristic technologies.

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