Another bank account bites the dust

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Steve Sokolowski
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Another bank account bites the dust

Postby Steve Sokolowski » Sat Sep 29, 2018 9:36 am

Yet another bank closed our accounts. This time, the bank is Janney Montgomery Scott, a brokerage in New Jersey. While it's nothing new that banks continue to discriminate against cryptocurrency businesses, this particular action surprises me for a number of reasons. I wanted to document this closure not just to tell people to avoid Janney for their trading needs, but also to analyze some of the underlying factors. I think that they reveal a lot about the state of the industry right now.

The length of our relationship I had with Janney is noteworthy. Unlike the PNC accounts that were closed in April (viewtopic.php?f=11&t=3958), I had been a customer of Janney's since 1999, and Chris had also been a customer for at least a decade. Since 1999, we amassed hundreds of thousands of dollars in retirement savings and invested it with the company. I continued with them even when my financial advisor quit and started her own company. I referred many new customers to the company as well. Given this long history, and knowing that these other customers would probably take $2m out of the company, it is obvious that banks now believe that cryptocurrencies are so poisonous that they are willing to lose a large amount of business to stay away from coins at any cost.

The reasons being given for these account closures vary between banks. Every bank that has closed an account has been unable to point to a specific law that caused the account closure, so it isn't the government's fault. They either won't provide a reason, will provide a factually incorrect reason, or will simply say that cryptocurrencies are associated with bad people.

In Janney's case, they provided a factually incorrect basis for closing the business account. Apparently, the compliance department performed an examination and decided that the reason they were closing the account was that they can't determine where cryptocurrency originates from. In the prepared statement we were read, "drug dealers, money launderers, and terrorists" were cited as some of the people who could be sending us money, which we would then be sending to Janney's accounts.

This explanation is ludicrous on multiple levels, of course. The most obvious is simply that people don't send us money. Mining pools simply don't accept deposits, so churchgoers and terrorists alike can't send us anything. I've written many times about how we have a system that could function as a "meta exchange" between 1000 coins where a person sends to one address and gets a different coin at another address - and also about how the reason we don't enable it is because such an exchange could never earn enough money to offset the compliance costs. At one point in their call, we talked a little bit about what mining actually is, and it was apparent that the compliance officers had absolutely no idea what we were talking about when we said that the coins we are sending them do not have a source.

In essence, mined blocks were being sent to an exchange, sold to dollars into their bank, and then used to pay taxes. I think it's important to point something out: mining isn't just legal, it is the most clean business involving money that can possibly exist. If a regulator ever called them, then we can give them terabytes of data showing the transactions where every single coin was mined, the transactions where those specific coins were sent to the exchanges, and they could contact the exchanges to obtain their internal database records to prove the addresses belong to them. We can show them with 100% mathematical certainty that the money is not originating from, as they feared, "terrorists." No other business can absolutely prove that the money in their accounts wasn't involved with terrorism at some point back in the chain.

I think it's pretty clear that these banks don't have any idea what cryptocurrencies are, and that they aren't willing to learn even basic information about their usage. They are willing to lose customers who have been with them for two decades and with whom their employees have personally attended Christmas parties. They are suspicious of people whose outflows are almost exclusively to tax agencies. They say that the money could be coming from terrorists without considering that drug dealers, terrorists, and money launderers are pretty dangerous people, and if I ever found out that one of them was trying to take advantage of me, I would be calling the police for my safety, not figuring out a way to make money with them.

In terms of banks, I think the lesson to be learned for anyone who does any dealings with cryptocurrency, even if (like most people) they are completely legal, is to have multiple accounts. Don't lie to banks, but don't tell them that you use cryptocurrencies either. Banks see money transferred between accounts at their own institution as "poisoning" other accounts, so create two accounts at different banks. Sell coins to one account, transfer them to the other, and conduct your business. Since the banks don't have access to each other's records, it's less likely that you'll trigger some sort of audit where clueless compliance officers will flag your account. Plus, if one of your accounts gets closed, then you are still able to conduct business immediately with the other one. What's a shame is that this sort of activity is exactly the pattern that actual criminals use. When you treat people who are doing nothing wrong like criminals, they have to act like them.

In terms of the effect on bitcoin prices, this recent action further strengthens my position that there is a large amount of money trapped in cryptocurrency that is not able to be exchanged into the traditional financial system. I'm not referring to funds from illegal activity, but to those generated from legal activity where banks are freezing or denying accounts. It's not governments telling banks to do it; it's banks' incompetence. I further believe this money constitutes the majority of cryptocurrency value. If our accounts that paid $2m in taxes last year are being frozen, imagine what happens to the person who bought 1000 bitcoins when they were worth $10 and he uses his bank account to buy sports cars.

Nobody really talks about the issue, but I suspect that anyone who owns over a million dollars in cryptocurrency is essentially locked into coins. It is really easy to get money in, but really difficult to get any money out. It has made me second-guess whether $980 will indeed be the floor of this bubble, because that low estimate was based upon the idea that anyone who wanted to sell coins could do so. Clearly, that isn't the case in all (and perhaps not even the majority) of circumstances. I may find myself adjusting that estimate upward.

With rewards to the long-term outlook, I think that the industry is being held back by the inability to pay taxes. Bank accounts are not necessary to conduct business, because Purse.io clearly shows that it is possible to buy things like office supplies and computers. They are necessary to pay taxes. There are undoubtedly companies that are holding off on expansion plans, or who have decided not to start out, because of the banking issues. Paying taxes is the #1 problem with running a cryptocurrency business right now, and the field is going to be held back until either banks stop closing accounts, or until the US government starts accepting tax payments in coins. When that happens (Japan already does), that's a key indicator I'll be looking for, as it will remove the restrictions that are causing talent to start companies in other industries for now. I don't think many people appreciate that the Japanese government's acceptance of coin payments is a large factor in why cryptocurrency has taken off so much there.

That part about talent going to other industries, by the way, is important. There are other issues involved than the costs of moving our accounts all the time. Earlier this week, I had to send an E-Mail to Constance, Vance, and others telling them that they needed to move their retirement accounts. How would you feel if someone said that to you? Would that make you feel like your employer was doing everything legally? Would you be more or less likely to work with the company for a long time?

In conclusion, most of the price analysis is missing the mark because it focuses exclusively on what traders are doing, rather than the business environment. First, while the proportion of criminal activity in cryptocurrency has declined dramatically, banks are actually becoming more stringent on their rules. Banks are now starting to take action against money that has anything to do with cryptocurrency, even if it is in individual accounts, and few seem to appreciate how the banking environment, which is getting worse, has removed the possibility of selling for a large number of people. The level of knowledge about cryptocurrency among bankers is pitiful. Second, for all the conspiracy theories people have, the banks are not taking this action in reaction to the government. We've never been contacted by any government agency, ever, except one time to refund a tax overpayment. Therefore, I see the probability that the government will eventually accept cryptocurrencies for tax payments as high, and when that happens, we will see a wave of investment into the industry, and smart traders will see that as more important than it will seem at the time.
Slurms
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Re: Another bank account bites the dust

Postby Slurms » Mon Oct 01, 2018 8:12 pm

I agree with pretty much everything you have said, except one thing. I personally find it hard to believe that all banks are doing this at the exact same time without any guidance. Whether that guidance is coming from a national body like the treasury or an International one like the BIS I have no clue.

Banks usually compete to get business, in this industry every bank is doing the exact opposite. Seems strange.

+10 for your posts though. Thank you.
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dragonbyte_llc
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Re: Another bank account bites the dust

Postby dragonbyte_llc » Tue Oct 02, 2018 6:46 am

Cryptocurrency is competition for banks, and they fear becoming irrelevant, so they think they're killing the baby in the bassonette. However, with international support, they are merely hastening their own demise.
dra2120
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Re: Another bank account bites the dust

Postby dra2120 » Tue Oct 02, 2018 12:32 pm

I can't image how much of a pain it must be for you guys to keep having to go through all this stuff, but I thank you for keeping your business above board at all times. I very much like mining for a group of a people I know are not trying to skirt the regulations, but showing the rest of the industry that it can be done legally, and ethically.
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aib
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Re: Another bank account bites the dust

Postby aib » Thu Oct 04, 2018 2:28 pm

don't worry, we will use crypto to live normally in the future, without bank.
gmeador2008
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Re: Another bank account bites the dust

Postby gmeador2008 » Fri Oct 05, 2018 4:20 pm

Personally I believe it is all of the above. Anti Money Laundering laws really put banks in a difficult position but also give them an excuse to not service Crypto Currency businesses or even individuals dealing in crypto currency. Try and open a business account for a Crypto Currency business, you will get turned down repeatedly (FYI - Try small local banks or Credit Unions if you are not having any luck).

I also believe with bigger banks like Chase etc... they are trying to slow/stop the growth of the Crypto business because they do see it as a threat and I also agree that they just do not get it. They cannot get their arms around how to monetize it. I believe everyone including banks, Wall Street and even the Government will fall in line, because they will want their piece of the pie and when those stars align... I personally believe at least select coins will explode in value. I also believe this will happens in years not decades.
MistyWaters
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Re: Another bank account bites the dust

Postby MistyWaters » Sun Oct 07, 2018 9:57 am

I own a bitcoin ATM business so I know very well what you are going thru :)

We hired an AML compliance company to handle all of our papers and compliance with KYC/AML documents, and more, to present to the small banks we bank with. By having all of those printed pages showing our company policy, how we handle SARs, and more reports that you have to do as a MSB, it definitely showed the bank we had all of our compliance in check.

My understanding with the company we used to make our documents and training, is what the user said above. Many banks are scared about bitcoin simply because they don't understand it, and especially the bigger banks don't want to have a case involving one of their banking clients who sold and transferred laundered bitcoin, giving them massive fines and fees in the process. They are waiting for more government response.

Perhaps you guys could register as an MSB (if you already haven't), and have AML/KYC company documents for PH, to present to the credit unions/private banks you open new future accounts with. This puts them at ease, and gives a much better % of maintaining an opened account when you have all of those documents in place. Many times, the banks used our own procedures crafted by the AML company to make their own procedures as the government doesn't give them guidance yet with crypto.

My dream as well is hopefully they will accept taxes in coins as well, cutting out the middleman (fiat exchanges) and simply paying direct to the IRS with coin.

Best,
Simon_says
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Re: Another bank account bites the dust

Postby Simon_says » Thu Oct 18, 2018 10:43 pm

Here is a list for biggest crypto exchanges and theirs corresponding banks that are dealing with. I hope you can take some advantage from this info. Just make you research and find out if you can run your business with them.

BITFINEX ...... DELTEC BANK, BANK OF COMMUNICATIONS
BITFLYER....... SILVERGATE BANK
BITHUMB........ NONGHYUP BANK
BITSTAMP....... GORENJSKA BANKA, UNICREDIT
BITTREX........ SIGNATURE BANK
COINBASE....... METROPOLITAN COMMERCIAL BANK, SILVERGATE BANK, LHV BANK, BARCLAYS
COINONE........ NONGHYUP BANK
GEMINI......... SILVERGATE BANK
KRAKEN......... SILVERGATE BANK, FIDOR BANK, EVOLVE BANK
ROBINHOOD CRYPTO ...... APEX ( BMO HARRYS BANK )
UPBIT.......... SHINHAN BANK

I hope this information will be of any help to you guys.

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