Security forces want to confiscate cryptocurrency. To do this they will have to legalize it

The Russian security forces decided to develop a mechanism for the arrest of cryptocurrencies, RBC writes . However, in order to withdraw virtual assets, they must first be legalized (which the Central Bank strongly opposes) or at least defined, which is also not easy.

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Until the end of 2021, law enforcement and regulatory agencies (the Ministry of Internal Affairs, Rosfinmonitoring, the Prosecutor General's Office, the Investigative Committee, the Ministry of Justice, the FSB, the Federal Customs Service and the Federal Bailiff Service with the participation of the Supreme Court) must propose a method for withdrawing virtual funds. First of all, we are talking about cryptocurrencies.
The mechanism is theoretically imprisoned against hackers who hack into the computers of users and companies, and then demand a ransom in cryptocurrency, explained Alena Zelenovskaya, head of the criminal and administrative law practice at NUS Amulex.

What does this mean. So far, it is difficult to arrest cryptocurrencies: in order to confiscate them, they must be recognized at the legislative level as either a commodity or a cash equivalent, Konstantin Golikov, CEO of the Dailyrich.ru platform, said. According to him, even the discussion of confiscation at the official level launches the mechanism for the legalization of cryptocurrency in Russia.

In international practice, there are precedents for the confiscation of cryptocurrencies by court order, even in the absence of regulation. But the systemic withdrawal mechanism is another matter. It can be built on international agreements on the control of circulation and emission of cryptocurrencies, the expert suggests.

How it works. Most likely, the same departments that deal with real assets will arrest cryptocurrencies: the Investigative Committee, the Ministry of Internal Affairs and the FSB. But government agencies are waiting for difficulties with access to virtual funds: if they are on a crypto wallet, the security forces will need to prove that it belongs to a specific person and somehow find out the digital key. If the funds are on a crypto-exchange, the authorities will have to write an official request to it demanding to block the funds of a certain client, explains Nikita Kulikov, founder of ANO PravoRobotov.

Most crypto exchanges are likely to ignore the security forces' request, especially if they are not subject to Russian jurisdiction. An exception may be the Belarusian crypto exchange of Mikhail Gutseriev. The issue of crediting confiscated funds is also unclear: it turns out that Russian government agencies should have their own crypto-accounts or even a state crypto-exchange with a cryptoruble to control the volatility of virtual funds and store them, says Kulikov.

Context. Despite the lack of legalization and prescribed mechanisms for the work of government agencies with cryptocurrency, there is already practice on this topic. So, in February 2019, the plenum of the Supreme Court decided that the punishment for money laundering should also apply to cryptocurrency. Prior to this, in May 2018, the Ninth Arbitration Court of Appeal, when considering a case on the sale of property in the event of a personal bankruptcy of the debtor, ordered him to give the bankruptcy trustee access to the contents of the crypto wallet to include it in the bankruptcy estate and thereby recognized the cryptocurrency as property.