The Israeli cryptocurrency industry is still in limbo. The biggest legal discussion involving Bits of Gold, an Israeli exchange, and Bank Leumi, one of the top two largest banks in Israel, has ended in a settlement that essentially meant a win for Bits of Gold, forcing a stalemate situation in which the bank’s attempt to deny service to the exchange was struck down.
While Bits of Gold is able to maintain its bank account, due to the parties’ settlement the industry cannot use the case as a legal precedent, which essentially means that no applicable regulation or legal framework is guiding how the banking industry shall operate concerning cryptocurrency-related accounts.
Currently, Israeli banks categorically deny opening accounts for clients that have cryptocurrency or blockchain-related activity, which places the entire industry in limbo. This situation means banks will refuse cryptocurrency clients, keep closing accounts, or never open them in the first place until the next ‘Bits of Gold’ will go ‘all the way’ and secure a legal precedent that will apply across the industry or the Israeli regulators or legislators will care to do their job in a timely manner.
Background and Legal Proceedings
Bits of Gold is an exchange that is licensed as a currency changer business (the common license for fiat currency service providers in Israel). Since its incorporation in 2014, the company has been holding an account with Bank Leumi – one of the top two largest banks in Israel. In 2015, the bank decided to close the company’s account despite the company’s meticulous conduct – due to the fact that the company deals in cryptocurrency.
Bits of Gold appealed to an Israeli district court to continue to make use of its bank account and conduct its operations. The district court determined that the bank’s decision to cease the activity in Bits of Gold’s account was reasonable and ruled that the bank may prevent such cryptocurrency-related activity.
Bits of Gold then appealed to Israel’s Supreme Court in two motions – one of which was for an immediate injunctive relief that was supposed to stay the closure procedure until the appeal over the decision to close the account was decided.
The Supreme Court granted the immediate injunctive relief, which de facto overturned the district court’s ruling for the time being since Bits of Gold was allowed to continue its operations, while stating that it appears that the damages that the bank might incur were purely speculative for now. The decision of the bank is based on the assumption that the company’s activity indeed carries risks that arise in violation of the provisions of the law, and therefore the bank is liable to pay the price for the materialization of those risks. However, until now, for more than five years, in which the account has been operating, these fears have not materialized as the district court has determined that the company acted transparently and did not violate any statutory provision.
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— Youval Rouach (@YouvalRouach) June 4, 2019
The Supreme Court’s ruling in providing the immediate injunctive relief has, so it seems, motivated the bank to settle with Bits of Gold. Such a solution was indeed reached, and on June 3, 2019, the Supreme Court validated the settlement as a judgment. The settlement provided that Bits of Gold shall continue to make use of the account and to conduct its operations as such are being conducted today. The bank, on the other hand, may examine every transaction on a case by case basis to determine the risks that it deems to be arising from Bits of Gold’s activity. As per the settlement, the company is obliged to fully cooperate with the bank.
All That Glitters Is Not Gold
All of the above seems quite the achievement, and indeed, for Bits of Gold and its legal advisors this is a big win, since the bank can no longer deny transactions without reasoning, decline to provide its services, or generally deny activity in the account and is now required to scrutinize each single transaction on a case by case basis.
However, while Bits of Gold secured this massive achievement, the cryptocurrency industry has sustained a significant loss. The court’s ruling specifically provided that it applies only to the parties involved (i.e., Bits of Gold and Bank Leumi) and only to the matter on hand without serving as legal precedent.
This means that the cryptocurrency industry and everyone involved is left in the same spot – waiting for the regulator to finally adopt a proper regulatory regime that will allow the activity and operation of accounts related to cryptocurrency activities; or, waiting for the next ‘Bits of Gold’ to face the banks and go ‘all the way’ to obtain a legal precedent that will apply across the industry.
Gil Solomon is a partner at Gil Solomon & Co. – a corporate & high tech law firm