Financial Legal Aspects of the Use of Digital Tools in International Settlements

Andrianova Natalia Gennadievna PhD in Law Researcher at the Department of Administrative Law and Administrative Process of the Institute of State and Law of the Russian Academy of Sciences 119019, Russia, Moscow, Znamenka str., 10 natalia.g.andrianova@gmail.com Other publications by this author

Under the conditions of sanctions pressure on the Russian Federation, an active search is underway for alternative payment mechanisms outside the limits of the banking system. In this regard, it seems necessary to explore in more detail the possibility and prospects of using such digital tools as digital rights (digital financial assets, utilitarian digital rights), digital currency and digital ruble in international settlements.

On March 11, 2024, Federal Law No. 45-FZ entered into force [Federal Law No. 45-FZ dated 03/11/2024 "On Amendments to Certain Legislative Acts of the Russian Federation"// The Collection of Legislation of the Russian Federation, 03/18/2024, No. 12, Article 1569], which allowed the use of digital financial assets and utilitarian digital rights in international settlements. Such a measure has become necessary to reduce the impact of sanctions pressure on payment processes during export and import operations of international trade. Along with the possibility of using digital financial assets and utilitarian digital rights in international settlements, the issues of using cryptocurrencies for settlements in transnational transactions are actively being investigated. E.S. Nabiullina pointed out that the start of settlements in cryptocurrencies should be carried out in an experimental legal regime ^[1]. The use of digital financial assets and utilitarian digital rights in international settlements will begin to be carried out without an experimental legal regime.

The definition of digital financial assets is contained in paragraph 2 of Article 1 of Federal Law No. 259-FZ dated 07/31/2020 "On Digital Financial Assets, Digital Currency and on Amendments to Certain Legislative Acts of the Russian Federation" [Federal Law No. 259-FZ dated 07/31/2020 "On Digital Financial Assets, Digital Currency and on Amendments to Certain legislative acts of the Russian Federation"// "Collection of legislation of the Russian Federation", 08/03/2020, N 31 (part I), art. 5018]. Based on the normative definition of digital financial assets, it can be concluded that digital financial assets are digital rights that exist only within the framework of an information system, the content of which are individual powers or rights of claim. The scientific literature has repeatedly criticized the definition of digital financial assets and the very need to identify such a category as such. For example, E.A. Sukhanov notes that digital financial assets are "a special (electronic, or digital) form of fixation of certain property rights" ^[2]. A.V. Zakharkina notes the "collectivity" of this legal term, since "under its "aegis" objects of civil rights, diverse in their legal nature, are united, which to some extent, it calls into question the legal self-sufficiency of the CFA" ^[3]. G.A. Vakulina points out that digital financial assets provide "a strictly defined list of (rights) requirements for its owner and give him the opportunity, under certain circumstances, to profit from such assets" ^[4]. At the same time, despite these shortcomings, in practice digital financial assets are used in the Russian Federation.

The fundamentals of the legal status of digital financial assets are regulated:

1) the above-mentioned Federal Law No. 259-FZ dated 07/31/2020 "On Digital Financial Assets, Digital Currency and on Amendments to Certain Legislative Acts of the Russian Federation" [Federal Law No. 259-FZ dated 07/31/2020 "On Digital Financial Assets, Digital Currency and on Amendments to Certain Legislative Acts of the Russian Federation"// "Collection of Legislation of the Russian Federation", 08/03/2020, No. 31 (Part I), Article 5018], which establishes the concept, procedure for the issue and circulation of digital financial assets;

2) Federal Law No. 331-FZ dated 07/14/2022 "On Amendments to Certain Legislative Acts of the Russian Federation and on Suspension of Certain Provisions of Article 5.1 of the Federal Law "On Banks and Banking Activities" [Federal Law No. 331-FZ dated 07/14/2022 "On Amendments to Certain Legislative Acts of the Russian Federation and on Suspension certain provisions of Article 5.1 of the Federal Law "On Banks and Banking Activities" // Collection of Legislation of the Russian Federation, 07/18/2022, No. 29 (Part III), Article 5298], which establishes the basis for legal regulation of transactions with digital financial assets.

The concept and procedure for the circulation of utilitarian digital rights is regulated by Federal Law No. 259-FZ dated 08/02/2019 "On Attracting Investments using Investment Platforms and on Amending Certain Legislative Acts of the Russian Federation" [Federal Law No. 259-FZ dated 08/02/2019 "On Attracting Investments using Investment Platforms and on Amending Certain Legislative Acts Of the Russian Federation"// Collection of legislation of the Russian Federation", 05.08.2019, N 31, Article 4418]. In accordance with the said law, utilitarian digital rights are a type of digital rights that certify the right to demand the transfer of a thing(s); the right to demand the transfer of exclusive rights to the results of intellectual activity and (or) the rights to use the results of intellectual activity; the right to demand the performance of works and (or) the provision of services and can be acquired, alienated, carried out within the framework of the investment platform. Utilitarian digital rights cannot be the right to demand property, the rights to which are subject to state registration, the right to demand property, transactions with which are subject to state registration or notarization. Utilitarian digital rights will be recognized if they originally arose as a digital right on the basis of an agreement on the acquisition of a utilitarian digital right concluded using an investment platform.

To realize the possibility of using digital financial assets and utilitarian digital rights for international settlements, amendments were made to Federal Law No. 173-FZ dated 10.12.2003 "On Currency Regulation and Currency Control" [Federal Law No. 173-FZ dated 10.12.2003 "On Currency Regulation and Currency Control"// Collection of Legislation of the Russian Federation", 12/15/2003, No. 50, Article 4859], which introduced the legal regulation of two types of digital rights: digital rights that are currency values, which were included in the concept of "currency values" and digital rights that are not currency values. Currency transactions also included transactions related to currency values (the concept of which includes digital rights) between residents and non-residents, as well as transactions with digital rights that are not currency values between non-residents.

According to paragraph 1.10 of Article 6 of Federal Law No. 115-FZ dated 07.08.2001 "On Countering the Legalization (Laundering) of Proceeds from Crime and the Financing of Terrorism" [Federal Law No. 115-FZ dated 07.08.2001 "On Countering the Legalization (Laundering) of Proceeds from Crime and the Financing of Terrorism" // Collection of Legislation RF, 08/13/2001, No. 33 (Part I), Article 3418] transactions on the transfer of digital rights are subject to mandatory control if they are used as a counter-provision under foreign trade agreements (contracts) concluded between residents and non-residents.

At the same time, despite the progressiveness of the approach proposed by the Russian legislator, the existing regulation retains a number of problems. It seems that at the moment transactions with digital financial assets and utilitarian digital rights are not quite common. The current legal regulation of digital financial assets and utilitarian digital rights presupposes their release and circulation in Russian information systems. In this regard, significant problems arise when using such tools in international settlements. Thus, in order to accept digital financial assets issued in Russian information systems as payment, it will become necessary for foreign counterparties to register them as subjects of relations in such a Russian information system. In addition, the digital asset itself must be traded on the territory of the Russian Federation. At the same time, certain issues of conflict-of-laws regulation of cross-border transfers of digital financial assets may also arise ^[5]. The use of digital financial assets issued in foreign information systems for international settlements has not yet been regulated. The current legal regulation provides for the need for the participation of a Russian digital financial asset exchange operator in transactions with foreign digital financial assets. In this regard, it seems necessary to develop a mechanism that allows international settlements, including using foreign digital financial assets, to increase the attractiveness of such an alternative settlement tool, including for non-residents. In addition, the emergence of the possibility of international settlements using digital financial assets and utilitarian digital rights will entail the need to improve the rules for the implementation of currency control over such transactions.

The next possible alternative form of international settlements is settlements using digital currencies. The rapid development of digital currencies around the world has predetermined the need for legal regulation of the circulation of digital currencies at the national level, including in the Russian Federation. The definition of the concept of "digital currency" is contained in paragraph 3 of Article 1 of Federal Law No. 259-FZ dated 07/31/2020 "On Digital Financial Assets, Digital Currency and Amendments to Certain Legislative Acts of the Russian Federation" [Federal Law No. 259-FZ dated 07/31/2020 "On Digital Financial Assets, Digital Currency and Amendments to certain legislative acts of the Russian Federation"// "Collection of Legislation of the Russian Federation", 08/03/2020, N 31 (part I), art. 5018]. Based on the normative definition of a digital currency, it can be concluded that it is a collection of electronic data contained in an information system and can be accepted as a means of payment that is not a Russian, foreign or international monetary unit or as an investment in respect of which there is no obligated person. At the same time, paragraph 5 of article 14 of the said law establishes a ban on the adoption of digital currency as a counter-provision for goods transferred, works performed, services rendered. The definition of digital currency and the established procedure for the circulation of digital currencies have been repeatedly criticized. So, in particular, E.N. Abramova points out that the definition of digital currency "is not based on the achievements of civil science and the provisions of the Civil Code of the Russian Federation. It lists not the fundamental, essential characteristics arising from a well-thought-out comprehensive scientific approach, but those of short-term importance, particularly fragmentary, designed to solve some controversial issues" ^[6]. A.V. Turbanov points out that "the concept underlying the Law on Digital Financial Assets in terms of legal regulation of the phenomenon called digital currency, it is untenable" ^[7]. It seems that the legal approach associated with the restrictive approach of the Russian legislator in terms of regulating digital currencies is largely related to the risks of using such tools for the economic security of the state. M.V. Karaseva rightly notes that "a digital currency ... cannot have a single issuer that would guarantee the reliability of its issuance and circulation. And, accordingly, a digital currency ... cannot be a means that is mandatory for acceptance throughout Russia by any creditor" ^[8]. E.A. Sukhanov notes that "uncontrolled, unrestricted, free issuance by private individuals of "means of payment" (and in fact "private money", which are cryptocurrencies) inevitably leads to the displacement of money issued by the state from the property turnover, and therefore cannot be resolved by the public authority (the state), which, for economic reasons, should not lose its monopoly on money issuance and control over money circulation" ^[2]. At the same time, taking into account the assessment of all risks, E.S. Nabiullina rightly points out that "in the new conditions, limited use of cryptocurrencies for external settlements is possible and necessary" ^[9]. It is proposed to implement such an initiative within the framework of an experimental legal regime^[10]. The specific conditions of such an experimental legal regime have not been regulated in detail to date, it is planned to extend the experiment only to large participants in exports and imports with strict requirements for ensuring the safety of operations. It seems that it is not necessary to limit the range of potential exporters and importers only to large organizations, since small and medium-sized enterprises may also experience difficulties in making cross-border payments and cryptocurrencies will be the most attractive option for such entities to make payments. Settlements within Russia using cryptocurrencies are supposed to be banned. It should also be noted that the effectiveness of such an experimental legal regime will be higher if it is possible to use well-known cryptocurrencies for international settlements. If the scope of the legal regime is narrowed only to new digital currencies, which, for example, will need to be issued in Russia, then the interest of foreign counterparties may decrease due to the lack of stable practice of working with new digital currencies and sanctions risks. If restrictions are imposed on the origin of cryptocurrencies (acquired during mining in Russia or obtained on foreign sites), such a restriction will require details regarding the legal regulation of the procedure for mining cryptocurrencies.

Among the risks of carrying out international settlements using digital currencies, it should be noted that such a settlement mechanism is not fully transparent, possible difficulties with reporting on transactions due to the decentralized nature of digital currencies and the lack of detailed legal regulation. In addition, in the absence of cryptocurrency exchanges and exchangers on the territory of the Russian Federation, the process of converting fiat currencies into cryptocurrency and obtaining supporting documents on transactions can be significantly complicated. Thus, the use of cryptocurrencies for international settlements is a promising area that requires detailing the conditions of an experimental legal regime within which such international settlements will be possible. The effectiveness of its use as an alternative mechanism for international settlements will depend on the conditions that will be provided within the framework of such an experimental legal regime.

Another possible alternative form of international settlements is settlements using digital currencies of central banks. As K.S. Belsky points out, money is a legal category and without the participation of the state it cannot be in circulation ^[11]. Digital currencies of central banks differ significantly from other alternative digital settlement instruments presented above precisely in that they represent a national monetary unit in digital form, regulated by the state, the issue of which is carried out by the Central Bank of the relevant state. Central banks of states are currently actively developing and implementing digital national currencies, as their use reduces the costs associated with money issuance, and accelerates and facilitates the possibility of making payments. The Bank of Russia is actively developing and implementing the concept of the digital ruble, which will represent the digital form of the Russian national currency. Since the digital currency of the central bank differs in that there is an "obligated" person in relation to it in the form of the Central Bank of the state, which centrally issues digital monetary units and controls their circulation, the risks of using such an instrument are minimal. At the same time, since in the process of developing a central bank's digital currency in a particular state, goals and objectives that meet the needs of that particular state are always put at the forefront, standardization of the model for developing and implementing digital currencies of central banks seems unlikely. In this regard, it seems possible, as the digital currencies of central banks are developed and implemented in the BRICS member states, to begin negotiations on the creation of a single centralized technological platform for cross–border settlements between the BRICS member states in the digital currencies of the central banks of these states. It is the rules of the platform that it seems necessary to provide for the procedure for converting digital currencies of central banks among themselves for the effective implementation of international settlements.

Thus, the conducted research on the use of digital instruments as alternative mechanisms for international settlements under the conditions of sanctions pressure allowed us to establish that international settlements using digital currencies of the central bank and digital rights (digital financial assets and utilitarian digital rights) are mechanisms with a lower level of risk. The legal regime for the use of cryptocurrencies for international settlements should provide detailed conditions for its application by most exporters and importers, which will allow it to be used as an alternative mechanism for making payments under economic sanctions.