Written by: Liu Honglin and Zhang Zihao, Mankiw LLP
On July 30, 2024, the State Duma, the Russian legislative body, passed the third reading of the 237585-8 legislative amendment bill, which aims to provide a clear legal system for the regulation of cryptocurrency transactions and mining in Russia. According to Russian federal law, the bill needs to be approved by the Federation Council and signed by the President before it can take effect. If the bill is passed, cryptocurrency mining will be officially legalized in Russia from November 1, 2024.
Attorney Mankiw compiled the portion of the bill regarding cryptocurrency mining regulation in an effort to provide guidance to miners around the world seeking to set up mining companies.
Crypto Mining Bill Overview
In this bill, the regulation of crypto mining is mainly established by amending three existing laws, namely the Federal Electricity Industry Act ("Electricity Act"), the Decision on Amending and Repealing Certain Acts Due to the Particularities of the Electricity Industry and Due to the Adoption of the Federal Electricity Industry Act ("Decision on Amending the Electricity Act"), and the Decision on Digital Financial Assets, Cryptocurrencies and Amendments to Certain Laws and Regulations ("Decision on Amending Cryptocurrency Laws").
In general, after the bill comes into effect, the main impacts on Russia’s crypto mining industry are as follows:
Crypto mining is legalized, and the crypto mining industry can be allowed to set up and operate in Russia;
Citizens of the Russian Federation may engage in cryptocurrency mining, provided that they do not exceed the electricity consumption limits;
Legal entities and individual businesses under the laws of the Russian Federation may carry out cryptocurrency mining-related activities in regions where cryptocurrency mining is permitted, after obtaining relevant licenses and being included in the Register of Cryptocurrency Mining Individuals and Mining Infrastructure Operators;
Entities that have obtained the license are allowed to operate cryptocurrency mining, mining infrastructure operators, and organizations that operate mining pools;
If you do not apply for a license or engage in related cryptocurrency mining activities in areas prohibited by Russian federal law, you may be supervised and punished by the authorities;
The legislation also stipulates that any entity is prohibited from combining cryptocurrency mining with power transmission activities, power industry operation and dispatch management activities, and power production or purchase and sale activities.
Amendments to the Electricity Act, etc.
Article 26 of the Russian Electricity Law stipulates the procedures for power generation facilities and power consumption facilities to access the power grid. The first paragraph of this article stipulates that the power grid operator shall not refuse any individual technical access to the power grid without reason. This bill adds exceptions to the refusal of access to the power grid:
The eighth paragraph of the revised article stipulates that the grid operator may adopt access restriction measures based on the particularity of the applicant's electricity-using equipment, including mining machines used for cryptocurrency mining, especially those planned to be deployed in some areas where the government prohibits cryptocurrency mining. In addition, for electricity consumers who are not included in the list of individuals engaged in cryptocurrency mining or the list of crypto mining infrastructure operators, the above restrictions also apply to their related businesses.
Add a ninth paragraph. If an electricity consumer engages in cryptocurrency mining in an area where mining is prohibited, or conducts related activities without being included in the list of cryptocurrency mining individuals or the list of crypto mining infrastructure operators, the court shall order the technical disconnection of the above-mentioned equipment from the power grid and the technical connection fees for such equipment shall not be refunded.
The fifth paragraph of Article 28 "Regulation of the reliability, safety and quality of electricity in the power industry" is amended to provide that miners and mining infrastructure operators who have obtained technical access to the power grid before the entry into force of this amendment shall change their previous power supply conditions if the relevant activities are carried out in prohibited areas or if they have not obtained relevant qualifications after the entry into force of this amendment. ";
Article 38 of the Russian Federation Electricity Law, "Measures to Ensure the Reliability of Electricity Supply to Consumers", paragraph 8 stipulates that in the event of a power shortage that may threaten the stability of Russia's unified power system, the relevant authorities may implement full or partial restrictions on electricity consumption. The amendment adds full or partial restrictions on electricity consumption of cryptocurrency miners to this paragraph, including indefinite full restrictions on mining and mining infrastructure operations in prohibited areas or without a license.
The amendment to the "Decision on Amending the Electricity Law" adds the following content: Legal persons and individual entrepreneurs are prohibited from combining cryptocurrency mining with power transmission activities, power industry operation and dispatching management activities, and power production or purchase and sales activities.
Amendments to the Decision on Amending the Cryptocurrency Law
To the first part of the bill, “Definitions”, interpretations of concepts related to cryptocurrency mining have been added, including cryptocurrency mining, mining pools, mining pool organizers, mining infrastructure, mining infrastructure operators, and address identifiers.
Three paragraphs related to mining are added to Article 14 "Circulation of Cryptocurrency". In short, they include giving the Russian federal government the power to regulate entities that operate mining pools, giving the Russian federal government the power to ban cryptocurrency mining activities in some regions under certain circumstances, and giving relevant agencies responsible for AML/CFT, relevant agencies responsible for ensuring national security, and relevant agencies responsible for supervising taxation the power to perform their duties in accordance with relevant laws.
It is worth noting that the newly added Article 142 "Maintaining a Register of Cryptocurrency Mining Individuals and Mining Infrastructure Operators" introduces two crypto mining license systems, namely the cryptocurrency miner license and the mining infrastructure operator license. Part of the content is as follows:
Natural persons registered as individual entrepreneurs under Federal Law No. 129-FZ of August 8, 2001 "On the Registration of Legal Entities and Individual Business Owners", as well as legal persons under Russian legislation, have the right to engage in cryptocurrency mining (including participation in mining pools) from the date of their inclusion in the list of cryptocurrency miners.
Legal persons under Russian law and natural persons registered as self-employed persons in accordance with Federal Law No. 129-FZ of August 8, 2001 "On the Registration of Legal Entities and Self-employed Persons" may engage in the activities of mining infrastructure operators after being included in the list of mining infrastructure operators.
At the same time, exemptions are stipulated:
Citizens of the Russian Federation who are not individual entrepreneurs have the right to engage in cryptocurrency mining (including participation in mining pools), and do not need to be included in the list of miners as long as the energy consumed by mining does not exceed the limits set by the Russian government.
Prohibitions:
Certain persons are prohibited from engaging in cryptocurrency mining activities (including participation as members of mining pools): natural persons with an unrevoked or unpaid criminal record of economic crimes, crimes endangering state power, or moderately serious, serious, or extremely serious intentional crimes; organizations and individuals on lists of suspected involvement in extremist or terrorist activities; organizations and individuals whose funds or other assets have been frozen by the agency responsible for counter-terrorism financing, etc.
And the powers and responsibilities of relevant agencies:
The Government of the Russian Federation sets requirements for the activities of mining infrastructure operators, including the nature and scope of their services.
The Russian Federation Government has established a federal executive body responsible for developing and implementing state policy and regulatory laws in the field of information technology, maintaining a register of cryptocurrency miners and a register of mining infrastructure operators.
Individuals engaged in cryptocurrency mining (including mining pool participants) are obliged to provide information on the receipt of cryptocurrency, including address identification codes, to the authorized body designated by the Government of the Russian Federation when cryptocurrency is obtained in the mining process.
In addition, Article 143 “Entities organizing mining pool activities” (special requirements for mining pool operations) has been added as follows:
The entities that organize mining pool activities can be the following:
A legal entity under Russian law;
A natural person who is registered as an individual entrepreneur in accordance with the State Registration Law No. 129-FZ of August 8, 2001 “On the State Registration of Legal Entities and Individual Entrepreneurs”; and
Citizens of the Russian Federation who are not individual entrepreneurs.
Entities that organize mining pool activities may also simultaneously mine cryptocurrencies.
Attorney Mankiw's Summary
This legislative amendment includes two parts. In addition to promoting the legalization of cryptocurrency mining, it also establishes the process of legalizing cross-border cryptocurrency transactions and exchange transactions. Since the beginning of the Russian-Ukrainian war, the United States and its allies have imposed multiple rounds of economic sanctions on Russia, and Russia's position in the international financial system has been seriously affected. Against this background, promoting cryptocurrency policies is of great significance to Russia.
For crypto mining practitioners, this legislation provides clear regulatory guidance for mining companies to set up mines in Russia, and provides more favorable conditions for miners and related practitioners to settle in. Mankiw Law Firm will pay close attention to changes in global regulatory policies and provide compliance advice and guidance services to crypto industry practitioners.
