A recent trial in the Tel Aviv district court ruled in favor of a large bank which dropped a bitcoin exchange as a client, despite the exchange following all of the proper anti-money laundering (AML) and know your customer (KYC) requirements.
Court Ruled in Favor of Bank Leumi
The case was brought to court by the Tel Aviv-based exchange after it was denied service by the bank. The proceedings followed an incident in which the bank claimed “hackers broke into its accounts in order to send funds from the bank to buy bitcoins,” it told the court. Bits of Gold assisted the bank with the investigations but there was no indication that it was involved in any way, the court learned.
Nonetheless, Bank Leumi told the court that its own cybersecurity issues warranted cause to stop offering banking services to the exchange.
Fear of Cryptocurrency – AML/KYC Not Enough
It was shown in court that Bits of Gold had followed all AML and KYC procedures, which included reporting all transactions larger than a certain amount to the authorities as required by the Israeli law. However, Bank Leumi still claimed that the nature of cryptocurrency renders its AML requirements inadequate since it cannot know whom the end receiver of the cryptocurrency is.
The bank told the court that it fears how criminal organizations can send their “monkeys” to buy bitcoins and transfer them to wallets under their control. Monkeys are “low level people under their control who will never testify against the masterminds,” Finance Magnates explained. The publication relayed the bank’s concern:
As cryptocurrency wallets are not issued by any authority, and are only identified by ‘a bunch of numbers’, it cannot make sure that it is following its own AML requirements as the bitcoins can be exchanged back into fiat currency at some unregulated venue outside of Israel.
While praising Bits of Gold for its transparency and compliance operations, the court ruled that Bank Leumi can decide to deny service to it.
About Bits of Gold and Bitcoin in Israel
Bits of Gold has been providing bitcoin exchange services since 2013. Users can buy bitcoin using bank transfers, credit cards, or cash. At press time, bank transfers is still an option listed on the company’s website.
Cash purchases are made through the GMT transfer network and they take about three minutes to complete. GMT operates through a vast number of banks and money transfer operators worldwide.
Customers can open an order on the Bits of Gold website, then go to one of the locations to deposit money. Alternatively, they can use the Bitcoin ATM located at the Bitcoin Embassy in Tel Aviv, Bits of Gold CEO Yuval Roash explained to The Marker, a local publication.
He said that his company has gone through great lengths to give their full cooperation to the regulators. For example, customers with transactions larger than 50,000 shekels, worth about $14,156 USD, are required by regulators to visit the company’s office and fill out paperwork for the Money Laundering Prohibition Authority in person. “This is a bit unusual in the Bitcoin market, but we try to cooperate with the regulator and integrate into the world of finance,” he detailed, adding that:
Regulation is one of the things that have been important to us since the beginning. From the very beginning, we saw the problem with Bitcoin in terms of its anonymous characteristics, and we wanted to receive a currency service certificate – and we received it in August 2013.
Do you think banks should be able to deny service to Bitcoin businesses? Let us know in the comments section below.
Images courtesy of Shutterstock, Bits of Gold, and Bank Leumi
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