Why so many bitcoin exchanges have their bank accounts closed and have problems establishing bank accounts?

I find it really strange that it happens that so many Bitcoin exchanges have their bank accounts closed.

Outside of the Bitcoin world, I find it very unusual to have a bank account closed, for a reason other then inactivity. The only case I remember is Julian Assange's Swiss Postfinance.ch account closed.

Maybe its a specific practice of banks in certain countries?

Many banks that I had been dealing with, seemed to have the attitude that everyone with a passport (for individuals) or company papers (for companies) can just open an account, no matter what is his business, if he is trading spaghetti, sand on the beach, air or voucher codes is none of banks business, they only worry is that the person who opens the account is really the one who he says he is. The bank doesn't have to understand your business, their business is to verify ID and do maths. The rest is the customers business and responsibility. Of course the bank has to report transactions over a certain threshold and/or suspicious to a certain government agency, but closing accounts?

Maybe its the matter of attitude, common practices, banking culture being different in those countries that the banks closing the accounts where established? The Bitcoin exchanges accounts closed where mostly in "old" western EU (UK, France), and the much more relaxed "no bullshit" attitudes of banks I have encountered is mostly from Central/Eastern EU banks ("new" EU countries).

Is it common for western EU banks to be so picky about customers, and closing accounts despite meeting formal ID requirements of the companies?

The sometimes mentioned claim that it might be illegal to "hold other people's money if you are not licensed to do it" is not very plausible, as any business "holds other people's money" for some time, and they are even ones which sell "numbers which hold a value" for money - prepaid vouchers for mobile phone recharges for example. That voucher is usually a 16-digit long number that holds some value - if that is fine, then Bitcoin must be no different - both are basically selling numbers which hold monetary value.

miernik

Posted 2011-11-09T23:12:34.763

Reputation: 692

If you haven't heard of accounts being closed for various reasons, you haven't talked to very many people . It can be for overdrafting, keeping a low balance, being untruthful on some form or even something completely out of your control, such as depositing a check that bounced. Usually when they close an account, they won't let you open a new one either and this can also affect your ability to open accounts at other banks. There is also little legal recourse if it happens to you. – RentFree – 2013-05-30T04:34:49.803

Have you got some references? All I can find is: http://bitclockers.com/forums/index.php?topic=394.0

– Highly Irregular – 2011-11-09T23:38:56.373

1Not exactly a bank, but PayPal is also refusing to work with Bitcoin sites. – Thilo – 2011-11-10T00:18:38.070

3Bitcoin Solutions LLC has gone through 3 banks. One bank employee was honest about the situation (Risk related to bitcoins) the others simply chose to not state a reason. All three pointed to a section of their terms stating they can close an account for "any reason" and refused to disclose. – Justin Weeks – 2011-11-26T23:08:21.013

1The bank doesn't have to understand your business, their business is to verify ID and do maths. ... this might be true in the rest of the world, but it is definitely NOT true in the USA. There are, unfortunately, laws here called "know your customer" (http://en.wikipedia.org/wiki/Know_your_customer) that force banks to do a lot of law-enforcement type stuff. – eldentyrell – 2011-12-09T06:29:02.503

1Thilo, Paypal is about as far from a bank as you can get. If they actually were a bank they couldn't do half of the evil stuff they get away with. Definitely not a bank. More like a gigantic grandfathered loophole in the VISA/Mastercard merchant agreement. – eldentyrell – 2011-12-09T06:30:24.823

It's a great way for the government to get around due process. A law like "it shall be unlawful for anyone suspected of being a terrorist to buy food" wouldn't pass muster, but if they just say "places that sell food must ensure they don't sell food to terrorists" you get the same effect. And you don't have to investigate, charge people with a crime, or give them any process at all. The restaurant or grocery store just says, "sorry we don't want to do business with you". We get to punish people for being merely suspected. (Except we do this with banking, not food.) http://ow.ly/QiKx30cBIgk

– David Schwartz – 2017-06-15T07:29:32.870

Answers

Countries have AML (anti-money laundering) laws that limit activities that could enable money laundering. A Bitcoin exchange arguably can be used for money laundering. Even if the letter of the law doesn't say anything specifically relevant to Bitcoin, banks don't want to take chances.

To be able to respect AML and other laws, banks do need to know a few things about the owner and the business, and they have a "know your client" procedure for it. For most businesses this goes uneventfully, for others (e.g. Bitcoin exchange) it could be a problem.

Meni Rosenfeld

Posted 2011-11-09T23:12:34.763

Reputation: 18 542

To clarify AML and KYC (know your customer) - it's enough for the bank to know who you are as long as you are handling your own deals - whatever you buy/sell for the needs of your business. However, if you are pushing third-party deals through that bank, then KYC principle holds the bank responsible also for those third parties; so you practically either have to identify your customers and pass this info to the bank when needed (as various payment gateways/aggregators do), or leave if you can't do it. – Peteris – 2014-02-25T19:59:39.823

In the EU, banks tend to follow guidance from their central banks and regulators. That guidance is suggesting that bitcoin operators will fall under the EU e-Money Directive http://ec.europa.eu/internal_market/payments/emoney/index_en.htm because of holding customer funds so if your business is not licensed as an e-money entity, then the banks are being very cautious. A distinction can be made between floating-rate and fixed-rate exchanges if you can get the bank to comprehend this. See my answer to 'exchange legal requirements' http://bitcoin.stackexchange.com/a/2882/916

– matonis – 2012-02-08T16:05:53.757

I know that one of the Polish exchanges is closing down as they don't want to have problems with possible unpaid taxes and so forth. From what I understand the operations that take place in an exchange would require them to pay taxes and they just don't want to get into that.

It is possible that some exchanges are closing down because they operate illegally, that is, they aren't companies and they don't pay taxes. This would be a perfectly justified reason for the accounts to be closed down.

I don't think it could be some political reasons or otherwise, seeing how WikiLeaks still can receive bank transfers whereas Paypal, Visa and Mastercard all bailed on them.

ThePiachu

Posted 2011-11-09T23:12:34.763

Reputation: 41 594

4The polish exchange you are talking about (Bitchange.pl) is an anti-example of what I am talking about, because their bank account was NOT closed, and there are no reports of the bank having anything against it. They where even still using the bank account to process withdrawals for some time after they decided to close and suspended trading. My question is NOT about closing exchanges, only about operating exchanges having their accounts closed and being forced to look for another bank (e.g. MtGox, Intersango). – miernik – 2011-11-10T00:01:23.377

Well, their bank account was not closed, but the reason for them shutting down is a valid enough reason for their bank account being shut down in the future. – ThePiachu – 2011-11-10T11:24:02.823

1no, the reason for them shutting down is absolutely not a reason for their bank account being closed - they closed because of a small risk of the tax considering their activity as a subject to a special 2% tax (which BTW exists only in Poland and is not about income tax even), and the bank is in absolutely no position to even know, nor to ask, if they where paying the tax or not - there are PLENTY of businesses which run into the risk of a dispute with the tax office as to what kind and value of taxes should be paid and I never heard of a bank closing an account because of it. – miernik – 2011-11-10T13:53:07.013

2Every single business runs into the risk of a dispute with the tax office, because the tax law is very complicated and unclear, and the tax office often has a different view of how to interpret it, and this is simply the risk of doing business - BitChange.pl closed because they saw that the profits from the exchange business where not high enough to be worth taking the risk. The only thing a bank can do is to report what is it obliged to report and to disclose to the tax office - and then its up to the tax office to fine the business, bank doesn't even know what taxes you pay! – miernik – 2011-11-10T13:58:07.197