Last year, the Australian banking industry declared war on bitcoin and its related industry as they shut down BitCo's across the board devastating many companies to the point of bankruptcy and unemployment. Some even fled the country to relocate to a more friendly environment applicable to their business model.
At one point, in a single swift action they closed accounts held by over 17 bitcoin related businesses on top of other countless account closures occurring all year in 2015.
One Localbitcoins trader is fed up and fighting back. Michaela Juric, aka Bitcoin Babe and the name of her Australian based digital currency company, wants the ACCC to speed up an investigation on the matter and has started a petition to get their attention. She began looking into the issue last year when the banking industry in Australia united to unjustly wreak havoc on unsuspecting business owners accounts, hers included.
Bitcoin Babe Interview
We had the opportunity to speak with Bitcoin Babe over the weekend on this topic to get some insight on whats going on in Australia and what she doing to help improve the situation. Here's what she had to say.
dinbits: First of all introduce yourself? Let everyone know who you are and what you do.
Bitcoin Babe: My name is Michaela, I am the owner of Bitcoin Babe Australia, a retail type Bitcoin trading service based in Sydney.
db: You're obviously pissed off at the banks in Australia, care to elaborate?
BB: I've had enough of the clear cut bullying Bitcoin traders and businesses alike are having to deal with from the banks. So far now I have been black listed from 11 banking institutions in Australia (to put that in perspective there is only 30-40 financial institutions in Australia), with 2 of those banks moving to ban my immediate family members (even though they have had nothing to do with Bitcoin) out of fear they may be linked to my business on-goings. While all this is happening, the exact same banks are producing media releases, talking about how much they are "embracing" the technology by experimenting with ripple and Blockchain technology. It is unfair, and it is illegal.
db: You've started a petition. How is that going and what will that accomplish, or what do you hope it will accomplish?
BB: To date the petition has received 143 signatures. I am hoping with the recent media attention it has received, those numbers will boost a little higher. The petition itself calls upon the ACCC (Australian Competitive and Consumer Commission) which is the regulatory body who investigates such things as anti-competitive behavior (i.e: banks shutting down bank accounts used for trading bitcoin) to investigate the issue, and hopefully overturn a lot of what these banks have done, and make them responsible for their actions. There has been a lot of murmurs about the ACCC conducting this said investigation, but no formal statement has been released. I am hoping this petition will finally bring this issue to their attention, that something needs to be done, and it needs to be done sooner rather than later.
db: We reported in 2015 that Australian banks had banned together and pretty much outed many bitcoin businesses. Although I am unfamiliar with the exact inner-workings of Australian banks, I am familiar with AUSTRAC and its counterpart FinCEN here in the United States as well as its regulatory banking landscape. Just about any bank can and may support a bitcoin business at their own discretion in the US, however, generally only with express permission and advanced knowledge the business model. Even then it is subject to account closure with elevated suspicious activity or excessive cash transactions related to digital currency.
There are only a few banks in the entire country that will even support large digital currency business models and in almost all of those cases regulatory compliance, such as state licensing and federal registration, is a requirement. Additionally, there are higher fees and requirements to hire compliance staff to support activity monitoring at some banks in certain cases.
So my question to you is that under the assumption you manage to achieve your goal, do you foresee similar penalties in the way of additional business requirements and/or account fees above and beyond a normal business account?
BB: Funnily enough, NAB (one of the bigger banks here in Australia) once had a spokesperson tell me that the only reason they didnt allow Bitcoin businesses to have accounts with their institution was because AUSTRAC had not released any official "ruling" on Bitcoin, and thus didn't know how to deal with it. AUSTRAC's sole purpose is to deal with currency, which in Australia, Bitcoin is not recognized as. Bitcoin is actually categorized as a "goods" - the same as a coffee mug or a chair - and thus is taxed accordingly under the GST (Goods and Services Tax). This decision was made by the Australian Taxation Office (ATO, the US equivalent of the IRS). With that being said, why would AUSTRAC, a currency regulator have anything to do with "Goods or Service"? We are literally left in this purgatory bitcoin limbo with no where to turn!
Keeping this in mind, regulation for bitcoin, in my opinion is something I would certainly welcome. If anything what this industry needs is a bit of guidance so businesses know where they stand and what they need to do to stay compliant. You can fight the issue of "excessive fees" or any other cosmetic issues after the fact. We have nobody in our corner telling us what is right and what is wrong. Everyone is fumbling and tripping over each others feet, playing hypocrite to what the last party had to say.
db: Thank you for your time, I'll leave you with the last word to say anything you wish to say.
BB: Please sign the petition at:
https://www.change.org/p/accc-accc-please-investigate-the-misconduct-of-banks-denying-services-to-bitcoin-companies
https://www.change.org/p/accc-accc-please-investigate-the-misconduct-of-banks-denying-services-to-bitcoin-companies
Global Epidemic
Australia is not alone in dealing with this issue. Banks in the United States, Canada, the United Kingdom, China, and all over the world have various levels of either internal, sometimes collaborative, service refusals and limitations along with government restrictions, as with China, where banks are forbidden to accept digital currency related business.
In the United States for example, the agency administering regulation over these transactions is the Financial Crimes Enforcement Network (FinCEN), a division of the United States Treasury, and unlike AUSTRAC, FinCEN has provided a good deal of guidance on compliance with regulations that govern digital currency transactions.
However, on one hand FinCEN requires companies that buy and sell bitcoin (with the exception of few exemptions) to be registered as a money services business, and companies that are exempt must still adhere to BSA reporting requirements. On the other hand, banks who see entities in full compliance with federal regulation typically will not do business with these organizations without copious amounts of red tape and additional fees. In some cases they will not allow the organization to open an account at all.
Industry professionals have spoken out on this as well.
...regulators need to step up and address the "derisking" of bitcoin MSB bank accounts. Sending out an agency press release or sound bite does not solve the problem. Simple, straightforward expectations of bank AML customer due diligence (CDD) can go a long way. - Joe Ciccolo, President, BitAML
...calls from digital currency traders in the B2C and P2P space that want bullet proof bank accounts to instantly accept unlimited cash deposited by strangers without question. It doesn't work that way and this puts you in a situation where you become a sitting duck for fraudulent activity. Earning bank support for digital currency business models, especially those accepting third party cash deposits, takes time, patience, and allot of work in a controlled transaction processing environment.
Banks, on the other hand, should lighten up on excessive restrictions and requirements when considering these business model types and realize the supererogatory level of KYC/CIP controls many of these companies enforce internally within their programs and policies. - Dale Henry, AML Training, xbtBase
In an effort to stem the tide of de-risking, FinCEN tried to strike a conciliatory tone in the November Statement. FinCEN remarked that “the Bank Secrecy Act does not require, and neither does FinCEN expect, banking institutions to serve as the de facto regulator of the money services business industry any more than of any other industry.” It continued: “FinCEN recognizes that, as a practical matter, it is not possible for a bank to detect and report all potentially illicit transactions that flow through an institution.”
Despite the encouraging words, the November Statement does not provide any respite for banks that have determined the cost of banking MSBs is too high. On the contrary, the message was clear: de-risking will not serve to excuse a bank’s failure to implement a risk-based approach with regard to MSBs. - David L. Hall and Matthew P. Nettleton, Wiggin and Dana LLP
In response to the mass execution of business accounts performed by the Australian banks, AUSTRAC offered its "understanding" of the financial industries decision to do so but very quickly made sure that everyone was fully aware of the fact that the blame need be placed solely on the shoulders of the financial institutions who initiated the bans. In a September statement they said:
"...Australia’s AML/CTF Act does not impose requirements on a reporting entity to close accounts or terminate a business relationship, although we understand this may be an example of a risk control considered by a business.
Our organisation recognises that technology is driving change in the financial sector, including in the payments environment.
We recognise that supporting these new ways of working are an economic imperative for Australian businesses, particularly if we are to keep pace internationally. Yet, we must also be conscious, as we embrace these changes, to protect our financial sector and protect the integrity of Australia’s AML/CTF regime..."
Unfortunately, both AUSTRAC and FinCEN could have about achieved the same level of guidance and advisory in their individual statements by issuing a blank sheet of paper.
The Cause and Effect
To analyze the root cause we need look no further than what a banks typically stand for in the first place ... money. Money and the desire to keep more of it.
Simply put, it costs to much.
To adequately report and monitor transactions at the level they need to be is expensive and failure to remain in compliance of regulations typically results in money fines.
Australia and other countries have various reporting requirements and thresholds, however, they are all similarly based on the same anti-money laundering principals globally. MSBs and other types of financial institutions, including virtual currency companies, are typically governed by the exact same regulations that banks are and they are required to monitor and report transactions in the same manner.
Ironically, they are essentially on the same team. So why the conflict?
Well the costs and regulation are simply what the banks are stating but the issues may go deeper, even to the point of banks seeing digital currency as some sort of competition. This is the belief of many people (including ACCC Chairman Rod Sims) however there is little evidence to back this up and to date there hasn't been a bank that has stated this.
Regulatory agencies have been quick to state that there is nothing persuading banks to do this (account closures) and have even come out urging leniency so the regulation claim doesn't really hold water outside of the compliance costs which brings us right back to where we started, money.
We reported this previously in a two part special report and there hasn't been anything in the way of an alternate enlightenment offered to date.
Anyone Getting This Right?
With all of the negativity surrounding the topic, one has to wonder who is stepping up to the plate. It certainly is not banks like Wells Fargo or BBVA. The latter being rather hypocritical in the fact that they have invested millions into supporting the technology and have promoted this on billboards and news outlets, but outright refuses to work with related business entities, or any money services business for that matter.
In a response from BBVA we received this statement
"...our policy prevents us from opening accounts that identify themselves as MSB businesses"
Well Fargo is notoriously known to shun anything remotely resembling digital currency to the point that if they ever were to accept the business, it is unlikely anyone would be in support of giving it to the. However, I know of at least one case where an entity in the digital currency space does bank with Wells Fargo, although it is a secondary business model.
Silicon Valley Bank is one of the financial institutions doing things correctly and has banking solutions available for digital currency companies and as far as countries go, Canada is a prime example of doing things the right way. Canada has differentiated money services businesses and money transmitters from virtual currency services (something we can likely expect soon from other countries) and that is certainly a step in the correct direction.
2016 will be an interesting year on this front. Michaela's petitioning along with other efforts, the most prominent of which is Labor Senator Sam Dastyari, is likely to speed up the ACCC investigation in Australia and this may elicit positive results in some form and certainly allot of excuses on behalf of the banking industry.
"Banks must comprehensively and clearly explain why they are de-banking small digital currency companies while moving into the digital currency industry themselves," Dastyari said.
"The banks can put their mouthguards in and get in the ring, but all anyone has ever asked for is a credible explanation and I don't think they've got one ... If the banks are looking for another excuse to come to Canberra I'm only too happy to oblige them."
In the United States, banks seem to be slowly loosening up a bit, but appear just as guilty of the same practice. We may well see more acceptance in 2016, however, some individuals and small businesses may not be around for the endgame with FinCEN most certainly (as they have already hinted) on the brink of initiating a wide sweep of enforcement that will most likely be a game changer. It's not like anyone would be able to complain about this either, they have provided more than ample warning in the last three years.
Likewise, emerging industry backlash against the banking organizations is brewing in more than one country and its not like they haven't been given ample warning as well.
On that note, anyone interested in signing the petition the Bitcoin Babe company has initiated, you can located here. https://www.change.org/p/accc-accc-please-investigate-the-misconduct-of-banks-denying-services-to-bitcoin-companies
If You're Not Part of the Solution, You're Part of the Problem
Banks should really try and remember the internet back in the 1990's when they all but refused to take any part of the "silly little industry" banking (no pun intended) on the belief that the internet would just go away quietly and things would return to normal.
This ended up with banks struggling to gain any footing at all and inadvertently handed billions of dollars in global business over to companies like PayPal on a silver platter. At the moment, they (well some of them anyway) still have a chance to be part of the solution.
As it sits now they are part of the problem, possibly the biggest part of the problem, and in many ways that is one of the primary reasons digital currency exists in the first place.
bitAML quotation courtesy bitAML and CoinTelgraph
xbtBase quotation courtesy xbtbase Compliance
Wiggin and Dana quotation courtesy Wiggin and Dana LLP
Labor Senator quotation courtesy The Australian Financial Review
xbtBase quotation courtesy xbtbase Compliance
Wiggin and Dana quotation courtesy Wiggin and Dana LLP
Labor Senator quotation courtesy The Australian Financial Review
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