http://www.cryptocoinsnews.com/2014/03/16/japanese-lender-mizuho-caught-mt-gox-scandal/
Japanese Lender Mizuho Caught in Mt. Gox
Scandal
Mizuho is the latest in a string of organizations facing heat over connection to MT. Gox
(Reuters) Connection to the former leading Bitcoin exchange, Mt. Gox, has entangled another business partner in the exchange’s highly publicized demise.
One of Japan’s largest lenders, Mizuho Bank Ltd., was added as a defendant to an existing U.S. lawsuit against Mt. Gox. The suit alleges that Mizuho aided Mt. Gox’s fraud by providing banking services to the troubled exchange.
Mizuho held fiat currency on behalf of Mt. Gox and its customers, and the amended lawsuit claims that the lender mingled funds that belonged to the exchange and its customers.
Additionally, Mizuho is accused of knowing about Mt. Gox’s fraud, even while providing services that allowed the exchange to continue defrauding its customers. The complaint plainly states, “Mizuho profited from the fraud.”
Mt. Gox is accused of fraud for inexplicably losing $400 million worth of bitcoin. The exchange filed for chapter 15 bankruptcy this week, temporarily protecting it from U.S. lawsuits. It had already filed for a similar motion in Japan.
Evidence
A previously leaked conversation between Mark Karpeles and a Mizuho bank official in January 2014 catalogs the lenders attempt to separate itself from Mt. Gox. WSJ provides a clear translation of the conversation:
Mizuho Bank official: “Well, this is a casual discussion but as we’ve been saying many times we want to close your account.”Mark Karpeles: “I discussed with my lawyers and they said we don’t need to close it, so we’d like to keep it.”Mizuho: “Closing the account is actually our demand. We made various judgments and also have a certain policy. It’s possible we will forcibly ask you to close your account. As our headquarters also told you, if possible we want you to close the account voluntarily, but the chance isn’t zero that we will leave you no choice.”Mr. Karpeles: “I want to know why you’re asking us to close everything. … I need an explanation.”Mizuho: “There’s a collection of various issues.”Mr. Karpeles: “Your approach has been very forceful and to be honest it’s rude. That makes us unwilling to take a cooperative attitude.”
What exactly “various issues” entails is up for debate, but it is clear that Mizuho knew something was amiss at Mt. Gox, as the banking official made it clear that the bank may choose to force the account to close against Mark Karpeles’ wishes.
Mt. Gox’s Many Arms
Mizuho is just one of many organizations caught in the firestorm that Mt. Gox’s implosion has caused, although it may be the first non-Bitcoin related organization involved.
The Bitcoin Foundation has also faced questions from the Bitcoin community in general, as Mark Karpeles was a board member of the foundation. Many have pondered exactly how much the foundation board members knew about Mt. Gox’s troubles ahead of time, and why the Foundation did not campaign to install transparency features to all Bitcoin exchanges.
With Mark Karpeles being involved in Bitcoin investment from such an early stage, and the slow nature of legal systems involved in international lawsuits, it may be a long time before the community is completely out of his long shadow.
The lawsuit case is Gregory Greene v Mt. Gox Inc et al, U.S. District Court, Northern District of Illinois, No. 14-01437.
http://www.cryptocoinsnews.com/2014/03/16/tigerdirect-second-online-retailor-top-1-million/
TigerDirect: Second Online Retailor to Top $1
Million in Bitcoin Sales
Tiger Direct Second online retailer to exceed $1 Million Bitcoin sales
Following Overstock, TigerDirect is the second online retailer to report Bitcoin sales in excess of $1 Million. TigerDirect processes about 2 billion dollars of orders each year. Both companies reported dramatic sales increases as a result of beginning to accept Bitcoin. Using Bitpay as its payment provider TigerDirect began accepting Bitcoin on January 23rd. Interestingly customers are eager to spend Bitcoins in spite of the constant media hype that Bitcoin is deflationary and therefore supposedly people wont spend it. Steven Leeds, director of marketing at TigerDirect stated:
The overwhelming response from our customers validates our decision.
Additionally he said that customers have benefited by saving money on transaction fees. Overstock reached the $1 Million mark on March fourth shortly followed by Tiger direct. TigerDirect took only 50 days to reach the mark. Hopefully, the dramatic sales of these companies will convince others that they need to accept Bitcoin or lose potential customers. These numbers may also force people to reassess the claims that people won’t spend Bitcoins. (Not to fall into into the media assumptions that consumerism is good or that savings are somehow bad)
Most likely the greatest impediment to adoption of the currency is the perceived difficulty of converting dollars to Bitcoins. Bitcoin ATM’s, and services such as LocalBitcoins can make this process easier for consumers. Bitcoin transactions have been increasing by roughly 10 fold a year, and this process appears intact.
TigerDirect uses Bitpay to process its Bitcoin transactions, while Overstock uses Coinbase. On January 11th Bitpay announced that it is adding more than 1,000 merchants a week to its network:
We believe that merchants are starting to see the value that accepting bitcoin can bring to their business,” We’re adding merchants at a pace of 1,000 new merchants per week.
“We expect exponential growth in the popularity of bitcoin around the world with both merchants and consumers, and anticipate seeing the biggest growth in China, India, Russia and South America.”, said BitPay’s Jan Jahosky.
This growth is significant recalling that Bitpay only just surpassed 1,000 merchants in September 2012, and only had a total of 10,000 merchants in September 2013. These dramatic numbers represent the continued adoption, in spite of some media scare tactics, of the Bitcoin network. Bitcoin adoption can be measured by the USD equivalent of Bitcoins sent each day, and also by the number of transactions Per day. Currently, the Bitcoin network averages about 70,000 transactions Per day.
Though the Bitcoin payments to these companies are impressive they still represent only a small fraction of their total sales. Hopefully, more consumers will soon realize the advantages of using Bitcoins for purchases. Online purchases are where Bitcoin does what it is best at: operate as a transactional currency. While many claim that Bitcoin is a commodity (Goldman Sachs and other corporate miscreants), the fact is that Bitcoin operates as a transactional currency better than any other.
Regulatory Ramifications:
Regulators seem to be taking an approach of not wanting to intervene at the moment. Following is a statement from Bitpay CEO Tony Gallippi:
“Regulators don’t want to regulate [bitcoin] because if they do people would see it as safe. Regulators don’t want to relay the message right now. They want to have the attitude ‘buyer beware.’ They can’t do that if they also regulate, so they’re stuck.”
This is an interesting statement. It leads to the conclusion that governments and regulators may be hoping that a lack of regulation will force consumers to avoid Bitcoin. It may also be an attempt to garner more demand for regulation. These regulations may be used to achieve goals other than the stated goals of ‘consumer safety’. The Bitcoin community needs to be aware of these sorts of nuances and should be careful about accepting regulation that may represent an attack on the network rather than some caring philosophy of concern for consumers.
http://www.coindesk.com/okcoin-raises-10-million-become-chinas-largest-exchange/
OKCoin Raises $10 Million to Become China’s ‘Largest Exchange’
OKCoin, the exchange claiming to be China’s largest by trading volume,has announced a $10m Series A funding round.
The investment round was led by Ceyuan, one of China’s earliest venture capital firms, followed by Mandra Capital, VenturesLab and numerous high-profile angel investors.
Despite the nation’s recent crackdown on cryptocurrencies, it seems Chinese venture capitalists are still bullish on bitcoin exchanges and the currency itself.
Bitcoin in China
Back in November 2013, the focus of the bitcoin community was on China – the world’s hub bitcoin trading. At that time, BTC China was the biggest exchange in the world, having managed to raise a $5m Series A funding round from Lightspeed Venture Partners (Snapchat, Nest). There were even rumours that an even bigger round was in the works for the young company.
However, things move fast. After the Chinese government began regulating bitcoin in December, trade volume plummeted and the world’s top exchange was no longer Chinese.
Local exchanges came up with creative solutions for customers to continue to buy and sell bitcoin, and players like Huobi and OKCoin claimed to pass BTC China in their daily trade volume, although these figures have been the subject of much dispute.
OKCoin has grown rapidly over the past few weeks and is now the biggest Chinese exchange, according to its CEO Star Xu. He claims the exchange’s current daily trade volume is approximately 50,000 bitcoins per day.
Interestingly, on top of that, the exchange allegedly trades 5 million litecoins per day. The company claims that at its peak it reached over 300,000 bitcoin and 13 million litecoin trades.
Future growth
Mr Feng Bo, founder and partner at Ceyuan, commented that he has a tremendous amount of confidence in the future of bitcoin and the continued growth of OKCoin:
Ceyuan is a well-known fund with investments in successful Chinese companies like Qihoo 360 (NASDAQ: QIHU), Light in the Box (NASDAQ: LITB), UC Web andVANCL – among others.
Interestingly, Silicon Valley investor Tim Draper was involved in the round, as a partner of VenturesLab. He and his son Adam remain active in bitcoin-related investments, mainly via Adam’s Boost.vc incubator where Tim is a mentor. Tim also invested in OKCoin’s angel round.
OKCoin overseas
The investment in OKCoin will be used to expand the team, fund product research and development, further security enhancements, but also to expand OKCoin’s operations beyond China.
This a different strategy from the other Chinese exchanges and it may prove to be a smart move, given the current regulations in the state.
Mark Mai, VentureLab’s China partner, stated that as the regulatory environment in regions such as Singapore, the US and Hong Kong becomes clearer, it will open up opportunities for OKCoin to operate in geographies where it can offer maximized safety and protection for OKCoin clients.
Mai said that the growth of virtual currency is inevitable, and that many countries are coming to terms with the fact that they have to regulate these currencies, because their citizens are using them regardless.
He added that OKCoin welcomes oversight because he believes it will help the company to serve its customers better, allowing them to open up regulated bank and trading accounts so it can engage in third-party clearance and settlement.
All eyes will be on OKCoin’s global expansion in these uncertain times. Will the exchange make it as a large player outside China? Only time will tell.
http://www.computerworld.com/s/article/9246921/Mt._Gox_kept_exchange_open_despite_knowledge_of_large_scale_theft
Mt. Gox kept exchange open despite knowledge of large-scale theft
Exchange continued to operate and collect transaction fees despite its troubles, U.S. bankruptcy filing suggests
By Jeremy Kirk
March 12, 2014 08:53 PM ET
IDG News Service - Mt. Gox may have collected a large sum in trading fees in the weeks before its closure, even though it was already aware that a vast number of bitcoins had gone missing, its U.S. bankruptcy filing suggests.
A sworn declaration in the filing from Robert Marie Mark Karpeles, Mt. Gox 's CEO, reveals that the Bitcoin exchange knew in early February that its situation was far graver than it had disclosed at the time.
Mt. Gox halted bitcoin withdrawals from its exchange on Feb. 7. It told customers it was investigating possible fraud due to a security issue called transaction malleability, but did not specify at the time how many bitcoins were missing. Buying and selling on the exchange continued until Feb. 25, when its website went dark.
Mt. Gox's first disclosure of the scale of its problems came when it filed forbankruptcy protection in Tokyo District Court three days later, saying 750,000 of its customers' bitcoins were missing, along with 100,000 of its own.
It appears from the U.S. bankruptcy filing that Mt. Gox executives knew the gravity of the company's losses up to 19 days before its public disclosure, but gave traders no reason at the time to believe the exchange might not be solvent.
In the filing, Karpeles states that the withdrawals were halted Feb. 7 due to "the theft or disappearance of hundreds of thousands of bitcoins owned by Mt. Gox customers as well as Mt. Gox itself."
Why Mt. Gox continued to operate the exchange with that knowledge is unclear.
Karpeles did not respond to a request for comment for this article sent to his personal email address.
The impact of Mt. Gox allowing customers to buy and sell bitcoins it suspected it did not have may be revealed by class-action lawsuits, one of which was filed in Chicago on Feb. 27, and another of which is planned in the U.K.
"They took trading fees on assets which didn't exist and accepted deposits when they knew they were insolvent," Aaron G., a Bitcoin investor who did not want his last name used, said via email.A
"The origin of the losses may or may not be incompetence," added Aaron, who has filed a fraud complaint against Mt. Gox with Tokyo police. "But they knew for at least two weeks and kept operating as normal."
After Feb. 7, Mt. Gox was still processing thousands of trades a day,according to Bitcoincharts.com, which records trading volumes for many Bitcoin markets.
An average of 49,912 bitcoins were traded daily on Mt. Gox between Feb. 7 and Feb. 25, at an average weighted price of $380.54 per bitcoin.
http://www.cryptocoinsnews.com/2014/03/14/icelandic-government-warns-against-auroracoin/
Icelandic government warns against Auroracoin
Pétur Blöndal warns Icelandic people for the risks of virtual currency Auroracoin.
Early this morning, the Auroracoin medium of exchange was discussed by the Economic and Trade Committee of Parliament. The Icelandic authorities expressed their concern about the currency, calling it risky business. They claimed that consumers needed to be educated and warned of the risks this virtual coin may pose. Pétur Blöndal, member of Parliament for the Independence Party and vice-chairman of the Committee, had little details to disclose but said there was an agreement regarding the fact that using the medium of exchange held great risk for everyone.
It seemed there were many things unclear and the launch of the coin seems to bring multiple issues to the table. The Committee was especially concerned about taxation. It’s difficult to work this out since politicians around the globe can’t seem to find a solution for taxing cryptocurrencies. Next to taxing, Blöndal also felt that the concept the coin was dangerous. The developers behind the medium had promised a limited supply, but according to Blöndal people had to blindly trust that this would not be changed. There was also a concern about how property rights were protected? To enforce his opinion, he claimed that it has been shown that Bitcoin has no real protection for rights of individuals.
“What is missing is that consumers be warned against this cryptocurrency,” said Blöndal. In ten days time, Auroracoin’s 50% premine will be distributed among all Icelanders.
But what will be the final verdict on Auroracoin? Will the government take special measures or just look at the launch from a distance, ready to intervene when necessary? According to Blöndal, representatives of the Central Bank of Iceland were present during the meeting. They were discussing if the cryptocoin could be deemed illegal and how the authorities could respond to this. There was an in-depth diagnosis of measures taken by other countries. The Bitcoin movement has received lots of bad publicity lately, and some other countries have been putting restraints on the cryptocurrency and even banning it. Up until now, nothing has been decided regarding the Central Bank’s stance towards Auroracoin.
Blöndal says that people have to realize that Auroracoin is not backed by anyone other than its developers. ”Currencies exist in many different forms, but this one is an example of a currency that is not backed by any government. We have laws regarding currencies, and they do not apply to this exchange method.”
Iceland has seen a few rough years, but they managed to stand up again because of their ‘alternative’ handling of the financial crisis. It was only a matter of time before people would come up with their own solutions, looking at the causes of the crisis in the first place. The whole world is, slowly but surely, starting to realize that fiat money can’t survive in its current form. The initiation of Bitcoin and other cryptocurrencies has shown that there can be another way. As usual, governments want to regulate but this takes a long time and the world doesn’t want to wait any longer. There’s potential danger to virtual money, denying this would be naive. On the other hand, there’s also an opportunity in it. Iceland is the first example of how a cryptocurrency might do something for one nation. In ten days, Auroracoin will make its airdrop and Icelanders will receive their coins.
http://www.cryptocoinsnews.com/2014/03/14/bitcoin-exchange-doing-security-right-bitcurex-successfully-blocked-a-hacking-attack/
Bitcoin Exchange Doing Security Right: Bitcurex
Successfully Blocked A Hacking Attack
Some 9 hours ago, astute Bitcoiners watching Bitcoin exchange charts were greeted by a surprising blip on Poland’s largest Bitcoin Exchange: Bitcurex. Bitcurex has been in operation since July 2012, and is operated out of Lodz, Poland under the registered Digital Future Ltd. It seems that a hacker managed to create 94 million PLN (The Polish Zloty) and used the fiat to buy Bitcoin orders on the order book. According to witness reports from traders on Bitcurex at the time, the hacker used his hacked PLN to buy the order book and caused a noticeable ~10% change in the exchange rate. The hacker then left a buy order for ~19,000 Bitcoins on the order book which was in the process of being filled when trading was halted.
Some Bitcoiners are all “doom and gloom” at the news of another Bitcoin exchange shutting its doors for a little while. There are many people that are still smarting from the news of Mt. Gox halting Bitcoin withdrawals first then all operations later. There are several differences between Mt. Gox and Bitcurex that are quickly becoming clear. While the occurrence of a hack of any kind against a Bitcoin Exchange is unsettling, the way in which Bitcurex has dealt with the matter is commendable.
Within 5 minutes of the market buy and buy order being placed Bitcurex shut down trading on their site. A few hours ago, the Bitcurex team made an official statement via their Facebook page.
Dear Users,We successfully blocked a hacking attack on Bitcurex, preventing mass theft of BTC funds of our users. Thanks to automatic safety procedures, hackers managed to defraud only a portion of the funds stored in operational Hot Wallet Bitcurex. The majority of funds from Hot Wallet, as well the entirety of funds from Cold Wallet and FIAT monetary funds remained intact.Our team located and removed the source of the problem. We are working on resuming normal service, at the same time an external audit is being conducted: we will soon provide the exact date of resuming all Bitcurex functionalities. More information will be provided in further statements.We are sorry for the inconvenience, and most of all we thank the whole BTC community for the support we received: we were put to a test that will make us stronger.Best regards,
Bitcurex Team
This is not the death of Bitcoin
Personally, I am curious to see how the mainstream media will present this story. I will not be surprised if some western sources of news report the facts in a skewed manner in order to paint Bitcoin in a dangerous light. The real important reaction to watch for will be from Polish language news sources. No matter what the world and global Bitcoin community at large think about the hack and subsequent recovery, it is the Polish people that will ultimately decide whether or not Bitcurex lives on.
The good news is this: Bitcurex “successfully blocked” the hacking attempt. Though the wording of their statement implies that some funds from Bitcurex’s hot wallet may have been automatically transferred out it also implies that all Bitcurex users will have 100% of their funds once Bitcurex resumes service. Bitcoin exchange security is a very big deal, the automatic security precautions that Bitcurex adopted ended up thwarting a major heist.
In comparison, a few other Bitcoin exchanges that have been hacked in the past few weeks arePoloniex and Flexcoin. The former opted to continue operating and will pay back users from future fees while the latter was put out of business. Stay tuned to CCN for more updates on the Bitcurex hack and other Bitcoin news.
http://www.cryptocoinsnews.com/2014/03/13/cftc-considering-bitcoin-regulation/
CFTC is considering Bitcoin regulation
The CFTC is thinking about regulating Bitcoin and other cryptocurrencies
Ever since Bitcoin and other cryptocurrencies started gaining worldwide popularity and acceptance, there has been a debategoing on about regulation. When bad news hits the fan, the cry for a legal framework is even bigger. Yesterday, we were happy to report that the state of New York is taking applications from enterprises that want to acquire their ‘Bitlicense’. Today, it seems the world’s leading economy is considering regulating it.Commodity Futures Trading Commission (CFTC) Acting Chairman Mark Wetjen has told journalists that the regulator is looking into how it can increase oversight of Bitcoin and other virtual currencies.
Notorious crypto
Bitcoin is known for its characteristics of providing anonymous, instant money transfers at very low costs through a decentralized network. Those same characteristics are the reason Bitcoin received considerable notoriety. The coin has been used by money launderers and people looking to buy drugs and other illegal goods. In January this year, Bitinstant’s CEO was formally charged with money laundering and enabling illegal drug transactions through Bitcoin.
Bitcoin and every other cryptocurrency lives in an environment where there is a complete lack of regulation. Everything is possible, and there is little that can be done to prevent bad things from happening. Because of this, China has barred financial institutions from dealing in Bitcoin.India has warned its investors against dealing in Bitcoin. It’s remarkably easy for countries to wash their hands clean of all things that have to do with Bitcoin, but that doesn’t take away the fact that the lack of regulation brings serious risks. Bitcoin tries to make its way into the homes of common people and because of that, there needs to be some form of legislation to ensure the protection of these folks.
The CFTC knows they need to act, and it seems they are well on their way to at least consider regulation the virtual currency. “We are looking into that,” Mark Wetjen, acting chairman of the CFTC, said Tuesday. “It’s been initiated, there’s been an internal discussion at the staff level.”
The CFTC regulates the commodity futures and options markets. Wetjen said the agency is analyzing whether digital currency falls under its purview as a watchdog over commodity manipulation.
“I think people believe there’s a pretty good argument that it would fit that definition,”Wetjen said. ”Then there’s a separate question about whether or not there is some derivative contract based on, or denominated in a virtual currency and whether that’s listed on an exchange. … There’s some looking into that question too, but it’s impossible to offer a timeframe for any final decisions,” he added.
Taking a positive stance
It’s not remarkable that the CFTC decided to publically claim it is talking about regulation. Japan recently said Bitcoin is “unworthy as a currency, but some transactions could and should be taxed.” Obviously, calling the coin unworthy and yet taxing it is a bit contradictory but Japan is considering regulation anyway.
Every country is taking different stances towards Bitcoin and cryptocurrencies in general. Total banning of the concept is usually followed by negative feedback from the public, so the United States are taking a slightly different approach. They’re not making any promises but, on the other hand, they’re not saying no to Bitcoin either. The recent developments, like Mt. Gox’s collapse, prove that there is a need for regulation. It all depends on what governments want with the coin. If they are able to preserve Bitcoin’s advantages in some sort of legal framework, people will gladly accept, and cryptocurrencies will flourish. Only time will tell.
http://www.cryptocoinsnews.com/2014/03/13/balanced-energy-told-texas-regulators-take-bitcoin-explorations-investments/
Balanced Energy has Been Told by Texas
Regulators to Not Take Bitcoin for Exploration
Investments
I was reading the news this afternoon and saw this article that caught my eye. It was notable due to it dealing with Bitcoin, and its use as an investment tool.
Balanced Energy, a small oil company, run by Kirk Johnson was recently told by Texas State Regulators they are not to accept Bitcoin payments. They served them with an Emergency Cease and Desist order.
Balanced Energy had announced in a pitch at the Texas Bitcoin Conference that they are the first company to accept Bitcoin for exploration investments.
Texas State Regulators wasted no time in telling Balanced Energy that they could not do that as they had not properly educated investors on the risks of Bitcoin.
A Texas State Regulator was quoted as saying
A Texas State Regulator was quoted as saying
Risks inherent to the use of Bitcoin and the risk that fluctuation in the price of the digital currency may affect business operations.
A Balanced Energy spokesman said
The order aimed to address disclosure issues by the specific company, not pass judgment per se on the use of Bitcoin for oil investment.
Texas Regulators are also stating that this would not be a problem if Balanced Energy did their paperwork to make sure they are accredited investors.
When reading through the article it seems like Texas Regulators were jumping on this not due to paperwork concerns, but more the concern that they did not understand Bitcoin as a currency and wanted to stop it due to that lack of understanding.
This has left Kirk Johnson, president of Balanced Energy having to spend time and money on pursuing legal avenues to be able to proceed with Bitcoin.
In the Emergency Cease and Desist Order one thing that stuck out was this, part 14 line b of the order.
14. In connection with the offer for sale and sale of working interests in wells in the
South Runway Prospect and North Guitar Prospect, Respondents are
intentionally failing to disclose any material facts relating to the nature of the risks
associated with the investment, including, but not limited to, the following:
a. The nature of the risks associated with the purchase of working interests,
including risks inherent to investments in oil and gas drilling programs and
the risk that the investor may lose the entirety of their capital investment,
b. The nature of the risks associated with the use of Bitcoin to purchase
working interests, including the risks inherent to the use of Bitcoin and the
risk that fluctuation in the price of the digital currency may affect business
operations.
There are fluctuations in any currency. Bitcoin has been volatile lately yet has a huge upside and is still growing. Bitcoin offers a new option and should be embraced not pushed aside.
While both sides are figuring this out it can be a positive step forward for Bitcoin. There will hopefully soon be a clear path to using Bitcoin for investment purposes in Texas. This can give an example to other states to follow.
With New York looking to regulate exchanges so they can be opened, Overstock posting huge sales in Bitcoin and companies like Balanced Energy looking to expand and use Bitcoin as part of it’s business model things are looking great for wider adoption of Bitcoin.
With New York looking to regulate exchanges so they can be opened, Overstock posting huge sales in Bitcoin and companies like Balanced Energy looking to expand and use Bitcoin as part of it’s business model things are looking great for wider adoption of Bitcoin.
There is always the risk Texas will ban it outright for this use, but I am hopeful that they will not, add in Kirk Johnson, and Balanced Energy look like they are in the fight to win there should be a positive resolution to this soon.
Bitcoin Businesses and Canadian Banks: The ‘Catch 22’ Dilemma
Published on March 15, 2014 at 11:29 GMT | Law, News, US & Canada
Matt Burgoyne is an associate at Canadian legal firm McLeod Law. He is involved with Canadian and international counsel in the developing area of virtual currency law, specifically including bitcoin currency.
One of the most frustrating things I encounter when being retained by a new client or working with an existing client operating in the bitcoin space is that without exception, I have the unfortunate task of advising them that as it stands now in Canada, the chances of them obtaining a regular commercial services based bank account are 0%.
Sometimes this is a non-starter and the bitcoin entity makes the decision to set up operations in another country, which is extremely unfortunate for a variety of reasons, including the economic loss to Canada derived from losing a potential new Canadian business and the more important loss to the potential client in regards to their bitcoin business.
This is a shame, because, as I havepreviously mentioned on CoinDesk, Canada is an attractive environment for bitcoin entities to set up operations since our country does not have, for example, the state-by-state money transmitting regulations that currently exist in the US.
Businesses need banks
Without basic commercial banking services, most bitcoin businesses would have a tough time operating, as businesses in general often need, as an example, the ability to deposit money somewhere and require some level of online banking.
I have personally spoken with presidents and senior vice-presidents of major Canadian banking institutions and credit unions, and the impressions I get can be summed up as follows:
(a) Banks are still in the process of figuring out what bitcoin is and how to deal with it, since it is a disruptive technology which could arguably compete with the bank’s own existing services and products (although no banking executives on my calls explicitly mentioned the competition concern).
(b) Banks are apprehensive about boarding new bitcoin clients because Canada’s federal government, via the Department of Finance, has yet to introduce regulations which specifically target bitcoin and digital currency operations.
(c) Banks are apprehensive about boarding bitcoin entities over concerns related to money laundering activities which could be carried out by their newly boarded digital currency clients.
Guidance lacking
As mentioned in section (b) above, Canadian bitcoin entities are presently victims of a ‘catch 22’ type of situation: they are caught in a situation from which they cannot escape because they are subject to arbitrary banking rules and the lack of Canadian legislation, which effectively places them in a situation in which they have no control over.
Buried on page 134 of the 419-page recently released Canadian 2014 Federal Budget, the Canadian federal government confirms that it will “introduce anti-money laundering and anti-terrorist financing regulations for virtual currencies, such as bitcoin”.
OK, so regulations will be introduced by the Canadian government which will specifically address bitcoin, which would, in my opinion, put Canadian banks and credit unions at least partially at ease as per (b) above, but when are these regulations going to be announced and come into effect?
There has been absolutely no guidance from the federal government on this issue. It could be next week or it could be in six months. In the meantime, bitcoin entities are caught in this unfortunate ‘catch 22’ predicament.
Banking hypocrisy?
An issue which deserves some serious attention is the way that both Canadian and international banks execute their anti-money laundering and anti-terrorist financing regulations.
It’s great that banks have anti-money laundering and anti-terrorist financing policies, but often the execution of those policies are abhorrent and sloppy at best.
Case in point, in an article published by elitedaily.com on February 21st 2014, entitled ‘The Ugly Truth Behind Major Banks Financing Mexico’s Drug Cartels‘, the author noted that:
Readers may recall that last December, the British bank HSBC (which has a large Canadian presence) agreed to settle with the US Justice Department to pay approximately $2 billion in penalties for having moved $881 million in drug proceeds from cartels in Mexico and Columbia during a recent five-year period.
Arguments have been made that banks in general often do not face criminal prosecution for violating anti-money laundering and anti-terrorist financing regulations, but instead, according to the author of the aforementioned article referred to above, “(accept) settlements that either defer or erase the threat of criminal suits.”
If this is true, it can be argued that there is little incentive for banks to actually toughen internal regulatory compliance.
There have been instances of senior bank executives leaving their positions at their respective banks because of this lack of internal regulatory compliance.
For example, in the aforementioned article, reference is made to a gentlemen named Martin Woods, who served as director of Wachovia’s anti-money laundering unit in London for three years before leaving his position ‘in disgust’ after his repeated requests to executives to put a stop to ongoing drug money laundering operations, which were allegedly occurring in Wachovia’s branch network, were ignored).
Ignored issue
Canadian and international banks take the position that they won’t board bitcoin clients because of concerns that bitcoin entities could be used to facilitate drug money laundering activities. At the same time as a result of sloppy execution some of these banks are guilty themselves of facilitating drug money laundering activities and as a result have paid billion dollar settlement fines.
Is this hypocrisy? At a minimum it appears to be an inconsistent application of anti-money laundering policies internally versus externally to bitcoin clients.
I believe that the mainstream media, when discussing bitcoin and the risk of money laundering activities associated with it, fails to consider or comment on the hypocrisy issue discussed above. This is most unfortunate.
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