Can a bank block an account for crypto transactions and how to avoid it?

On January 30, a law came into force in Russia, according to which banks can no longer block transfers and customer accounts without giving reasons. However, there are exceptions to this law – a reasonable suspicion of money laundering or terrorist financing, under which, according to the position of the Bank of Russia, transactions with cryptocurrencies also fall.

In light of these regulatory changes, we decided to figure out how they will affect the holders of cryptocurrencies, how they can avoid blocking funds by the bank, and most importantly – what to do if the bank still blocked the account for operations with cryptocurrencies.

Cryptocurrencies are property. Digital assets in Russia are legal. Since January 1, 2021, the Law «On Digital Financial Assets» has been in force, which defines digital currencies (cryptocurrencies) and digital financial assets (tokens).

Thus, the new law states that digital currencies (CV) are a digital code that can be used as a means of payment, savings or investment, but it cannot perform the function of a state currency. And digital financial assets (DFA) are digital rights, the issue, accounting and circulation of which occurs on the basis of a distributed ledger. Also, the CFA assigns monetary obligations to the user and the exercise of rights under them. The main difference in the law of CFA (tokens) from CV (cryptocurrencies) is the presence of a centralized issuer, that is, an organization or person responsible for issuing a digital financial asset.

In simple terms, in Russia you can trade and invest in cryptocurrencies and tokens, but you cannot pay for goods, services and pay for work on the territory of the country (abroad you can).

At the same time, the law refers to a number of bills that relate to the areas of mining, the issuance and circulation of CVs like bitcoin, as well as taxation. These bills were supposed to be adopted during the autumn session of the State Duma in 2020, but so far the officials have not managed to come to a consensus. It is expected that amendments to the law on CFA will be adopted this year.

Nevertheless, the Law on the CFA finally determined the legal status of the cryptocurrency – it is recognized as property, which means that the income from its sale will be taxed with personal income tax and must be declared in order to obtain legal protection. Everything is the same as with real estate or cars. You must indicate the availability of cryptocurrencies and pay taxes on the difference between the sale and purchase price at the standard rate of 13% or an increased rate of 15% if the income is more than 5 million rubles.

The mandatory declaration of income from the sale of cryptocurrencies will begin this year, which means that by April 30, 2022, information will have to be submitted to the tax office. Nevertheless, there are still no clear rules for declaring cryptocurrencies and they are only being developed, which is why now this process raises questions and requires amendments to tax legislation.

Also, according to the bill of the Ministry of Finance on the regulation of the crypto industry, investors will be required to report all transactions with digital assets in the amount of 600,000 rubles or more per year. But so far it is not necessary to comply with it – the bill is only pending in the State Duma.

In more detail about the legal status of cryptocurrencies and tokens in Russia in 2021, we told in separate publications about the Law on the CFA and the digital ruble.

Grounds for blocking an account for operations with cryptocurrencies

Until January 30, 2021, Russian banks had the right to block any transactions and freeze any accounts they deemed suspicious. This was allowed by the Federal Law No. 115-FZ «On Counteracting the Legalization (Laundering) of Criminally Obtained Incomes and the Financing of Terrorism.»

According to No. 115-FZ, banks must monitor all customer transactions for suspicious transactions. How it works? If the bank’s financial monitoring service sees suspicious transactions in the client’s actions (in its opinion), it will ask to document the origin of these funds. If the client cannot provide the necessary documents, then the bank has the right to block the transfer or even the entire account. Also, the bank’s service is obliged to report such information to RosFinMonitoring, an agency that monitors the origin of funds in order to combat money laundering and terrorist financing.

So, if the bank’s service reports data on the client’s suspicious transactions to RosFinMonitoring, then the department, in turn, is obliged to collect, process and analyze the information received. It can also request additional documents from the person being checked. In the event of violations of the law, RosFinMonitoring will hold the bank’s client liable in accordance with Russian legislation. At the same time, his money is blocked in a bank account until the end of the proceedings by the bank or RosFinMonitoring.

The complaint about the unjustified blocking of an account under No. 115-FZ is one of the most popular complaints of Russian entrepreneurs. At the same time, many similar complaints were filed from individuals – earlier banks had the right to freeze funds for large transfers made, for example, through YuMoney (Yandex.Money) or QIWI.

In other words, if the bank did not understand where the client got the money on the account, then it had every right to be reinsured and, just in case, freeze the transfer or account – until the client proves that all the funds were received legally.

With digital currencies, things, of course, have become much more complicated. Indeed, according to the official position of the Bank of Russia, the Ministry of Finance of the Russian Federation, the Federal Tax Service and even the Supreme Court, cryptocurrencies can be used to launder proceeds from crime and to finance terrorism. Therefore, banks must carefully check all transactions associated with all digital assets.

Although, as statistics show, criminals are much more likely to prefer classical methods of transferring funds, including through banks.

Nevertheless, Russian banks will definitely pay attention if they suspect that their client regularly sells cryptocurrencies for large amounts, receiving private transfers to his account. Also, users of foreign trading platforms and exchangers are more likely to fall into the field of view of the bank’s monitoring service – banks know the payment details of trading crypto platforms.

Cryptocurrencies are still a sign of suspicious transactions

However, now Russian banks cannot just freeze funds or block a client’s account for conducting suspicious transactions. So, since January 30, 2021, federal law No. 536-FZ has been in effect in Russia, according to which banks can no longer block accounts and refuse service without giving reasons, even if their clients cannot document the source of the money.

In other words, now, in order to block an operation or freeze an account, banks are obliged to warn the client about the presence of suspicious actions on his part. And the department that identified such actions must separately obtain permission from the bank’s management to suspend the operation and freeze the account.

Money cannot be blocked automatically, but, as we wrote above, there are exceptions – suspicions of money laundering and terrorist financing. And the presence of cryptocurrencies in the transaction, according to the recommendations of a number of departments, is still considered a reason for the bank to consider the transaction as suspicious.

Also in October last year, the Bank of Russia adopted amendments to Regulation No. 375-P, which changed the grounds for freezing an account – there are more of them and they have become stricter. These amendments will enter into force on October 1, 2021.

The document lists more than 100 signs that indicate the suspicious nature of the transaction, which is a reason to check whether it is being used for money laundering and terrorist financing.

Among them:

  • Transactions related to trading digital currencies;
  • Regular large transactions related to token trading;
  • Cash withdrawal from corporate cards;
  • Regular deposits from individuals with subsequent cashing out;
  • Transactions involving people suspected of illegal business or tax evasion;
  • A sharp increase in money in the account and their withdrawal to another bank;
  • Closing the account by the client immediately after clarifying questions about the transfer from the bank.

This is not an exhaustive list – banks can supplement it with their own criteria for assessing transactions as suspicious. Thus, banks can no longer block accounts without giving reasons, but can still block them due to suspicions of money laundering and terrorist financing.

Alas, in fact, nothing will change with regard to cryptocurrencies for banks since October this year. They still view digital asset transactions as a likely sign of suspicious transactions. Only now it is spelled out not in the recommendations of the departments, but in the position of the Bank of Russia.

How to avoid blocking an account for operations with cryptocurrencies?

There are several ways to trade cryptocurrencies in Russia and cash out without attracting the attention of banks. They will be discussed below. It is important to note here that, unfortunately, even strict observance of all points cannot yet guarantee that the bank will not be interested in a specific payment.

Selling coins for cash is an option that certainly won’t get the attention of banks. But this is inconvenient, and the risks are understandable (especially when meeting in person with a party to the transaction you do not know).

Use well-known cryptocurrency exchanges and exchangers. In this case, banks see that you are receiving payment from an organization, not an individual. But here a lot depends on the site itself. So, if we are talking about large regulated exchanges, then the banks, most likely, will not have any questions – they know that you have passed the KYC / AML check there.

But a transfer from a small unregulated exchange that sells illiquid coins and does not interact in any way with government agencies, on the contrary, may attract increased attention of the bank. In any case, it will be useful to check in advance with the platform’s technical support what they indicate in the purpose of payment when withdrawing fiat money.

As for foreign trading platforms, it should also be borne in mind that amounts in foreign currency equivalent to over 200,000 rubles are automatically checked by the bank’s currency control. Therefore, it is better to withdraw money from foreign platforms in smaller transactions.

Russian exchanges and exchangers that carry out transactions in rubles certainly have significant advantages – they are not threatened by currency control. For example, a list of popular Russian exchangers is presented on the Bestchange service website (however, before choosing a platform, be sure to read the reviews about it).

Use P2P exchange on trading platforms – this is one of the most popular services on the crypto market, since it allows you to exchange digital currencies for fiat funds directly between users, without the participation of intermediaries in the form of exchanges, and so on. Therefore, such transfers are less risky, and their connection with cryptocurrencies is much more difficult to suspect and trace. Thus, upon exchange, you will receive a transfer from a private person.

Withdraw money in small amounts – for example, up to 200,000 rubles, since transactions from this amount must be confirmed by an agreement. This also applies to p2p sites.

Withdraw money to different banks. To play it safe, you can withdraw money through accounts in different banks.

Withdraw money less often. Rare transfers from exchanges are one thing, but regular withdrawals of money, especially for large sums, are a reason for a bank to suspect you of illegal business and money laundering.

Do not transfer money from your account to another and do not cash out immediately after receiving the transfer – this is one of the criteria for the suspicious nature of the transaction. Therefore, it is better to keep the money received from the sale of cryptocurrency on an account or withdraw it at least a few days, or better even a few weeks after receiving it.

Withdraw money only to personal accounts. If you have an individual entrepreneur or legal entity, never withdraw money from cryptocurrency trading to them. Make all conclusions to the accounts of an individual – to your personal bank cards.

Record all transactions. Take screenshots of all transactions, correspondence in the bot and actions on the exchange and in the exchanger. This will come in handy if the bank requires you to prove the origin of the money.

Pay your taxes. This will not help to avoid freezing, but if the bank transfers your data to the tax authorities, it will save you money on possible fines.

What if the bank blocked a transaction or account?

The catch with cryptocurrency transactions is that you do not receive any official documents during their execution – at best, these are screenshots of cryptocurrency exchanges and exchangers. Or it may happen that the bank’s financial monitoring service does not accept documents from crypto platforms.

In addition, banks for unblocking, as a rule, ask for documents not only for a specific operation, but for the entire period of maintaining the account. In hindsight, they can find many suspicious transactions – then they will have to confirm that the 10,000 rubles transferred to you three years ago for your old iPhone were exactly what you say, and we are not cashing money.

Moreover, often the documents must be brought in person, and if the evidence provided does not suit RosFinMonitoring, it will be necessary to involve an experienced lawyer or attorney in the case.

Blocking is not a loss of money

After all, it is not prohibited by law to own and trade cryptocurrencies. It is important to prove that the money was received legally and that you did not use your coins for money laundering or terrorist financing.

In case of any questions from the bank, openly cooperate with support and be friendly – you should not make an enemy out of the bank. At this stage, it is also worth asking if it is possible to cancel the operation and unblock the account, for example, if you send money back – perhaps the bank will meet you halfway. Demand from banks an official document with the grounds for blocking the account – now they are obliged to substantiate their decision. If the document is not provided, you have the right to write a complaint to the Central Bank on its official website. Also, it will not be superfluous to draw attention to the problem on social networks – write a post about unfair blocking and mark the bank account. Banks don’t like this hype, so public attention can help solve the problem faster.

Initially, the bank may block the transaction or account for up to 30 days. But this is not the limit: if additional documents are required, the time frame for considering the case may be extended by the bank or RosFinMonitoring, and the proceedings may drag on for months. You can rush a bank or department by filing a complaint with the Bank of Russia through its website. If the appeal to the regulator did not help, all that remains is to appeal to the court.

Consequences of blocking an account

If all is well and the bank is happy with the proof of the legality of the money you provided, you will be given access to your account and all your money. But this does not mean that there will be no more problems. For example, in theory, you could get a tax penalty on income from the sale of cryptocurrency, as you would in the case of a real estate sale.

If the bank does not have enough evidence provided by you that the funds were received in a legal way, then your money will remain frozen until the end of the proceedings.

Then the bank:

  1. either transfers the money back to the sender,
  2. or asks to close the account and open it in another bank, where he will transfer all the money, taking 5-15% of the funds in the form of a commission.

You can also be included in the unified bank register of unreliable clients, the so-called «black list»: it will become more difficult to open an account, transactions will be checked more carefully.

The biggest problem will arise if a bank classifies cryptocurrency trading as an illegal business activity. This could lead to a fine or arrest. However, there must be good reasons for such accusations – for example, the illegal organization of an exchanger, where transactions worth tens of millions of rubles were carried out.

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