Lighting the Candle at Both Ends: How Canadian Banks are Stifling Bitcoin

Canada has been popping up more frequently in headlines when it comes to Bitcoin. Canadians are starting to embrace Bitcoin

Canada has been popping up more frequently in headlines when it comes to Bitcoin. Canadians are starting to embrace Bitcoin and its crypto peers in growing numbers, while at the same time authorities are ramping up their vigilance in preventing its use for illegal activity.

Bitcoin’s acceptance and growth is best cultivated by the availability of exchanges where it can be traded for speculation or bought for investment. To provide a meaningful reflection of the asset’s value to society, there must be ample volume and liquidity. Thus, the exchange must have a solid and growing customer base, which in turn necessitates a stable and robust operational infrastructure.

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Bank of Canada
Bank of Canada Headquarters in Ottawa (Source: bankofcanada.ca)

There are several Canadian-based exchanges such as Vault of Satoshi, Virtex and Cointrader.net. Each exchange has experienced differing fortunes when it comes to keeping their bank accounts alive.

Over the past year, Canadian banks have been notoriously unforgiving toward Bitcoin brokerages. Many have had their accounts closed with business owners claiming they were offered little or no explanation.

Last week, Finance Minister Jim Flaherty made his position clear when he said:

“It is important to continually improve Canada’s regime to address emerging risks, including virtual currencies such as Bitcoin, that threaten Canada’s international leadership in the fight against money laundering and terrorist financing.”

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This differs markedly from the attitudes expressed south of the border. Ben Bernanke has said that virtual currencies “may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system.” The U.S. government, while on constant lookout for illegal activity, has expressed a generally open view to virtual currency and is exploring how to best live with it moving forward. The Canadian government has only shown the one side of the coin, stressing only the risks and the fact that it is not legal tender.

For its part, FINTRAC (Financial Transaction  and Reports Analysis Centre of Canada) is lighting both sides of the candle, at least when it comes to how banks apply their position. Because Bitcoin isn’t considered legal tender, operators of an exchange don’t require a money services business (MSB) license, as it doesn’t exist. The catch is, they can’t even get one if they wanted to. Left in limbo, exchanges have nothing to show their bank.

In a document outlining ways of dealing with digital currency, FINTRAC provides an option to “choke bitcoins oxygen (sic)”.

Both TD Bank and RBC have closed accounts belonging to exchanges. Cointrader.net was also just notified by what it had been considered as “Canada’s last Bitcoin friendly bank”, Bank of Montreal, that their account will be closed as well.

Cointrader maintains that they have employed adequate anti-money laundering (AML) measures. Whether these would be theoretically recognized by FINTRAC is another question. Either way, Cointrader has lamented the apparent crackdown on “this exciting new technology”. They are now seeking alternatives such as other bank accounts or even moving operations to another country.

Vault of Satoshi is newer to the game and but has still gotten its fair share of difficulty. They too were refused a license from FINTRAC. Thus far, they have been through RBC, BMO, Scotia and Wells Fargo. They are mulling the introduction of fiat-fiat exchange, which may force FINTRAC’s hand in granting a license which can provide shelter or its crypto business. This can take 48 months to acquire.

As FINTRAC sorts through its options in dealing with Bitcoin, it is likely that a more consistent stance will emerge within the coming year. Bitcoin exchanges should then be able to plan accordingly although it remains to be seen how accommodating the banks will be.

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