Tatiana Usatenko on bitcoins and money substitutes

20 February 2014

Is it possible to consider bitcoins a money substitute and what liability may be at stake for the use of the cryptocurrency in Russia: St. Petersburg.RU has asked the expert We talked about bitcoins and substitutes with the advocate of S&K Vertical law offices Tatiana Usatenko.


In the end of January 2014 the Bank of Russia issued the informational notice warning individuals and legal entities against using “virtual currencies” including bitcoins. The Bank stated that the issuance of money substitutes in Russia is prohibited, and Russian entities offering services of exchanging the “virtual currencies” into Rubles or foreign currencies or goods will be considered to be involved in suspicious operations under the law on combating money laundering and financing of terrorism. In the beginning of 2014 the General Prosecutor’s Office held a meeting devoted to the legality of the use of anonymous payment systems and cryptocurrencies. As a result of the meeting it was concluded, according to the official web-site of the Office, that “anonymous payment systems and cryptocurrencies, including the most popular one – the bitcoin – constitute money substitutes and may not be used by individuals and legal entities”. After this publication a number of exchange houses stopped operations with bitcoins and the companies who accepted bitcoins as a method of payment have declared that they suspended the said method. .


The Central Bank’s notice.

- Bitcoin represents an absolutely new concept, which is not similar to anything that has been before. The fears of the state are therefore understandable. The Central Bank’s notice lies within the current regulatory trend aimed at combating terrorism. On 15 January 2014 the State Duma filed a package of bills envisaging the strengthening of the anti-terrorist measures, and last summer it adopted the Law “On the changes in various legislative acts of the Russian Federation as to combating unlawful financial operations”. The main aim of this regulatory activity is to broaden the powers of banks, and now it is within their competence to require you to provide any documents whatsoever and hold operations if you do not provide them. In the Central Bank’s notice there two paragraphs: the first relates to money substitutes and second is on the possible use of bitcoins for unlawful financial operations. The main one is, I think, the latter – it is the warning that the Central Bank will consider cryptocurrency as a potential involvement in suspicious operations.

On money substitutes

- The category of a money substitute, albeit it is applied by the legislator, does not have a legal definition. In other words, the law does not include the term “money substitute”. When there is no legal definition, one usually has recourse to the doctrine, that is to the established system of academic knowledge. In the Russian doctrine in different periods considered the term “money substitute” as including promissory notes and paychecks and even meal vouchers. There was a time, when the taxes were paid by animal leathers, which were nothing else but a money substitute. A substitute is a thing that functions as money. Money is a medium to exchange, to value, to circulate, to save, and there is also such a function of money as capability to be world money, that is recognized in international turnover. I suppose that money substitute is in the first place a thing that may be used as a payment medium. In the Russian Federation the only lawful payment medium is cash Ruble. You can close a money obligation only by payment in money, but you cannot refuse to take Rubles, and at the same time you can refuse to take a promissory note, a paycheck, any object or service as payment medium. Ruble is a medium that a counterparty must accept.

On recognition of bitcoins as money substitutes

- Anything can be considered as a money substitute: paychecks, promissory notes, animal leathers, vouchers. The only way to determine precisely what is meant to be a money substitute within the meaning of Article 27 of the RF Law on Central Bank of the Russian Federation is to obtain a direct statement from the state. But the Central Bank’s notice does not contain a statement that virtual currency is a money substitute. What it only has is a vague phrase that under Article 27 of the RF Law on Central Bank the issuance of money substitutes is prohibited. The Central Bank thus did not take a responsibility to stipulate that virtual currency is a money substitute. The notice does establish a rule and does not make any legal qualification of bitcoins. In a sense they just warn you that if you use virtual currency they will apply higher scrutiny in your respect. There would be no court to use this information to conclude: “the Central Bank clarified that the issuance of bitcoins is prohibited”.

On sanctions

The law imposes a prohibition on issuance of money substitutes, and we would note, not on the circulation but only on the issuance. But the sanction for the issuance is absent. For example, in soviet time there was a sanction of imprisonment in the Criminal Code and not only for issuance but also for acceptance of payments with money substitutes. What if you issue substitutes in violation of the ban? One of the variants is to apply a court injunction each time and its violation will entail sanctions. And the most serious use of the notice would be to present it as evidence of guilt that a person knew that bitcoins may be used for unlawful operations.

On civilism

The hysteria that started out in the press as a result of the prohibition of bitcoin is not really adequate. Nothing is banned. But the turnover will be more cautious. Will they still be used – I think yes. History knows many examples when not only the Central Bank but also the tax service amused us by issuing some informational notices to clarify something or to show something else. And until the Tax Code has finally undergone amendments, everyone had been thinking what was the nature of those notices. It is normal that the businessmen react on these clarifications so fiercely, but we must bear in mind the distinction between non-binding clarifications and rules of law. If you are able to evaluate critically, then you may evade them.

On Yandex.Money

- Yandex.Money are easy for me. It is a money claim. I gave you a hundred Rubles and you owe me a hundred Rubles, I have a money claim to you for a hundred Rubles. Yandex.Money is the same. I am transferring to a money operator a hundred Rubles and it owes me a hundred Rubles, and then I’m telling: “No, you will return a hundred Rubles not to me but to that guy”. This is how pecuniary interests are circulating. Yandex.Money is an electronic medium of payment which follows directly from the Federal Law On National Payment System and constitutes a money claim. Any Yandex.Money owner has a right guaranteed by the government to approach the operator of electronic money and say “My friend, please give me back my hundred Rubles” and the government will protect him and will return his hundred Rubles.

On bitcoins

- What is bitcoin? This is unclear to me, because as of now, under current law, it is impossible to say what bitcoin is within Civil Law. This unit cannot have a corresponding interest or claim and it has nothing that would be an object of any civil right. We can discuss whether the bitcoin can be an object of a civil right, but it definitely cannot be an object of pecuniary interest, since there is no opposing subject, i.e. nobody is owing anything to you.

On clouds

- The state is unable to regulate something that it does not understand. It cannot sense it, it cannot define it and it therefore cannot regulate. One of the elements of objects of a civil right is discreetness. Why there are no law provisions as to circulation of clouds in the sky? Because we cannot somehow extract them from the nature and understand their circulation, we would need physical or countable definiteness and separateness from other object. It seems to me that bitcoins is a similar problem for the state so far. Yandex.Money is more or less clear; it is regulated through the operator, so we have found a tangible party. But here we have no author, no person issuing bitcoins. Americans and Europeans do not control bitcoins, they only control the exchange of bitcoins against dollars and euros and thus regulate the things that they understand by using the notion of “public interest”

On monopoly

Non-regulated circulation of unlawful payment mediums will create chaos. It seems to me that the money circulation is not the sphere that may live one the basis of self-regulation. It is not the system that may regulate itself. I understand that bitcoin’s aim is to show the opposite; self-regulation is one of the ideas reflected in bitcoin. It was created as a counterforce to the official money system; so it is my position that a money system cannot regulate itself, every market needs external regulation. The future will depend on whether the state will be ready to regulate cryptocurrencies. Now there are many shouts that we need freedom; it is true and I support freedom and democracy. But money sphere requires state involvement. I am absolutely sure that in the closest forty years bitcoins will not substitute national currencies.


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