Foreclosure on cryptocurrency in the enforcement proceedings: A possible model

With the enactment of the Federal Law on Digital Financial Assets and Digital Currency in 2020, digital currency was regulated for the first time ever in Russia. This established the prerequisites for discussing the issue of foreclosure on digital currency in enforcement proceedings. However, no specific amendment for such a foreclosure has been made in the Federal Law on Enforcement Proceedings. In this regard, the article aims to propose a possible model of foreclosure on cryptocurrencies in Russian enforcement proceedings and describe the factors on which such a procedure would depend. From the standpoint of a genetic and systematic approach the article analyzes domestic doctrinal sources, current Russian legislation and bylaws, and the Global Code of Digital Enforcement as an act of “soft law” summarizing the experience of foreclosing on digital assets in various legal systems. The research allowed to arrive at the following main conclusions: 1) the answer to the question about the legal nature of cryptocurrencies is not crucial for creating an appropriate model of foreclosure on digital currencies. If, in the interests of enforcement, digital currencies can be perceived as undocumented securities or receivable debts, this should be done; 2) due to the variety of digital currencies and their characteristics, it is hardly possible to create a universal model of foreclosure on them. Therefore, there should exist different types of foreclosure depending on a number of factors. Depending on the type of digital currency, foreclosure on cryptocurrencies may be based on the general procedure for foreclosing on “other property assets” (i.e. nonpecuniary assets), or require its integration into the mechanism for the enforcement of non-property claims that do not allow the replacement of the subject matter of enforcement. In conclusion, the author suggests that, with few exceptions, the existing tools of enforcement proceedings seem sufficient to create a mechanism for foreclosing on digital currency. In this sense, the development of such a mechanism requires to amend legislation on a case-by-case basis, as well as to set the methodology for enforcement in relation to digital currency, rather than a complete rethinking of enforcement proceedings. However, the effectiveness of enforcement through digital assets is also a matter of creating controlled cryptocurrency markets, financial and tax control, and information sovereignty. Therefore, the development of appropriate legal mechanisms for foreclosing on digital currency within the enforcement proceedings is not in itself a guarantee of the effectiveness of these mechanisms in practice.

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