Constitutional Court to Rule on State Protection for Cryptocurrency Owners’ Rights
The Core Problem The Constitutional Court of the Russian Federation is set to determine whether judicial protection extends to cryptocurrency transactions that the owner did not report to the state. This stems from a complaint against Article 14 of the law “On Digital Financial Assets” (DFA), which makes such protection conditional upon informing the Federal Tax Service (FTS).
Legal Paradox: The Dual Status of Cryptocurrency Experts point out a contradiction in regulation:
· In criminal law, cryptocurrency is recognized as property—it can be seized and confiscated.
· In civil law, the owner is deprived of judicial protection if they failed to report their assets to the FTS.
The Catalyst Case
· The Dispute: In 2023, Timchenko attempted to reclaim 1,000 USDT tokens through the court, which he had lent under a one-week digital currency management agreement.
· Court Rulings: The Savyolovsky District Court of Moscow and higher courts dismissed the claim, citing that the plaintiff did not notify the FTS about the transaction, as required by the DFA law.
· The Claimant’s Position: Timchenko believes this approach violates the Russian Constitution, discriminating against owners of digital currency and depriving their property of legal protection.
Key Arguments Against the Existing Norm
1. The Norm is Impracticable
o The procedure for informing the FTS about cryptocurrency transactions has still not been legally established. In practice, it is impossible to comply with the law’s requirement.
2. Violation of Constitutional Rights
o The right to judicial protection is fundamental and cannot be restricted, even if the owner has failed to fulfill an obligation (such as declaring an asset).
3. Discriminatory Nature
o No other type of property (e.g., a car) is deprived of legal protection due to failure to comply with registration or reporting procedures.
4. The Scale of the Problem
o The issue affects millions of people: according to various estimates, there are between 10 and 15 million cryptocurrency wallet owners in Russia.
Expert Opinions and Forecasts
· Experts confirm the relevance of the problem, knowing of about a dozen similar court rejections and consider this restriction “far-fetched,” since the legal status of digital currency as property is generally recognized in Russian legislation.
· Also lawyers emphasize that the FTS’s new service for declaring mining income does not cover purchase/sale transactions or transfers of cryptocurrency between private individuals.
· Forecast: Given the current trend towards stricter control of crypto assets in the criminal sphere, the chances of the Constitutional Court completely repealing the existing norm are low. A scenario of “targeted adjustment and legislative fine-tuning” is more likely, where the Court would oblige legislators to specify the notification procedure.
The upcoming decision of the Constitutional Court will be landmark for millions of cryptocurrency owners in Russia. The Court faces a difficult choice: either to uphold the current practice, which leaves investors unprotected due to an impossible requirement, or to oblige legislators to eliminate the legal paradox.
It is predicted that the Court is unlikely to completely repeal the controversial norm. A more probable outcome is a targeted decision that will oblige the state to clearly define how and in what order crypto assets must be reported. In any case, the Court’s verdict will set the vector for the development of digital law in the country and show whether the state is truly ready to integrate cryptocurrency into the legal framework, granting its owners the same guarantees as those afforded to owners of any other property.
