[MOSCOW] 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 (S$51,700) 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 US 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 per cent plunge in the past three years means US$1 costs about 1,100 bolivars. In Russia, the ruble has fallen about 44 per cent against the US dollar since Russia annexed Crimea from Ukraine two years ago.
While cryptocurrencies are stoking a multi-billion dollar underworld economy because they're easy to transmit and largely untraceable, the technology underlying them is also being embraced by Wall Street and even the Bank of England as a potential game changer in securities trading and settlement, making cross-border payments, and regulating financial transactions with more transparency.
Russia also has a favorable view of blockchain, Mr Moiseev said, calling the technology "promising," with "a great future." Hackers are increasingly demanding ransom payments in bitcoin, according to Internet security firm Kaspersky Lab, which also has found that the three top origins of attacks by hackers are China, Russia and the US.
"There is a wave going of so-called ransomware when a virus enters a person's computer and encrypts all files and there is no way to decrypt," said Sergey Lozhkin, a senior researcher at Kaspersky Lab.
"Cybercriminals at that moment start extorting money to decrypt files on the computer and they ask for ransom in bitcoins." Bitcoin accounts for more than 40 per cent of criminal-to-criminal payments in the European Union, Jan Op Gen Oorth, a spokesman for EU law-enforcement agency Europol said in an e- mail.
According to Mr Lozhkin and other experts, however, efforts to ban bitcoin by Russian or any other country won't work.
"A ban would be impossible to enforce because it is a peer- to-peer technology, it is a file sharing technology, and all people need to do to get around the ban is to have computers with an Internet connection,"said Jon Matonis, a founding director of the Bitcoin Foundation, a Washington group that promotes the cryptocurrency.
"This perspective is out of step with the rest of the world. It's like worrying about gravity, what can you do?"