Monday, December 23, 2013

WSJ: Banks Mostly Avoid Providing Bitcoin Services

Robin Sidel at WSJ writes:
Companies trying to cash in on the newfangled bitcoin craze are having trouble getting old-fashioned bank accounts.

Lenders are leery of dealing with virtual-currency companies because of concerns that the businesses could run afoul of anti-money-laundering laws or be involved in illegal activities, banking executives say. Regulators and central bankers around the world have raised similar concerns in recent months.

The problem has grown so acute that some owners of fledgling virtual-currency businesses are trying to elude bank scrutiny by avoiding the words "bitcoin" or "bit" in their names, according to entrepreneurs and investors who actively track the industry.

Patrick Murck, general counsel for the Bitcoin Foundation, a trade group, has been raising the issue in meetings with regulators and bank executives.

"This is definitely causing a bottleneck in the industry," he said in an interview. "The ability of companies to get bank accounts is necessary so that they can take the next step in building out the core bitcoin infrastructure."[...]

Entrepreneur Jesse Powell said he reached out to roughly 30 banks in the past year when he wanted to open an account for his fledgling virtual-currency exchange, called Kraken. Bitcoin exchanges need bank accounts so that they can receive wire transfers from customers.

"I talked with tons of them and got far along, but ultimately it turned out to be a waste of time because the [banks' regulatory] compliance guys would pull the plug," he said. Stymied in the U.S., Mr. Powell eventually found a bank in Germany.

Then last month Bank of America Corp. BAC -0.95%  froze the account that funded general operations for Kraken's parent company, called Payward Inc., according to Mr. Powell. He said the bank unlocked the account on Dec. 2 after he responded to a questionnaire from Bank of America about Payward's business.

"It was a total nightmare, to put it mildly," said Mr. Powell, who tapped his personal bank when the company account was frozen.[...]

"It is really, really hard to get a bank account, because banks don't know if bitcoin is friend or foe," said Meyer "Micky"Malka, a former banker and founder of Ribbit Capital, a venture-capital firm in Palo Alto, Calif., that has invested in three bitcoin companies[...]

John Reitano didn't even try to get a bank account from a large financial institution earlier this year when he was setting up Coinflash, a San Diego company that aimed to start a bitcoin-trading network similar to airport currency kiosks.

"We went to a lot of little banks and explained what we were doing, but we got turned down by them, too," Mr. Reitano said. Ultimately, he didn't need a bank account; the business ran into regulatory hurdles and didn't get off the ground, he said.

Note well: These problems are occurring before there is any major legislative crackdown.

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