ING bank terminated relationship with bitcoin broker due to suspicion of money laundering
A recent case before the Amsterdam court in preliminary relief proceedings focused on the question whether ING could terminate its banking relationship with a bitcoin broker because of its suspicions that ING’s bank account was being used for money laundering purposes. In this blog, the Dutch Corporate Law Lawyer Onno Hennis discusses the case in more detail.
Cryptocurrency market (still) unregulated
As a result of the decentralised data storage using blockchain and the anonymity of the technology, cryptocurrencies have grown into actual payment instruments in addition to investment objects. The cryptocurrency market is (still) unregulated. It is no secret that it is partly for this reason that criminals like to use cryptocurrency. To acquire cryptocurrency, however, criminals will have to exchange their illegally acquired (cash) money. Bitcoin brokers are sometimes used for this purpose.
Purchase and sale of cryptocurrency
In this case, the bitcoin broker’s core activity was the purchase and sale of cryptocurrency. The bitcoin broker used a business account with ING for his activities. After a few months, ING noticed that the bitcoin broker was using cash to buy bitcoins for third parties. ING then advised that it disapproved of this method and obliged the bitcoin broker to carry out transactions by transfer only.
Cash payments converted into scriptural money
To satisfy ING’s request, the bitcoin broker engaged a Dutch cash-in-transit company who accepted cash to be paid into the bitcoin broker’s business account with ING. In essence, therefore, cash payments were subsequently converted indirectly into scriptural money.
Bitcoin broker must verify origin of money
At some point, ING discovered that in less than one year, 3.5 million euros had been converted into bitcoins in this way. ING then asked the bitcoin broker to explain how he had verified the origin of the money. The bitcoin broker stated that all his processes are set up in such a way that abuse is prevented as much as possible. For example, he had audited his clients, sought (and followed) the advice of a law firm, and put safeguards in place in the contract documents with clients.
Bitcoin broker must not convert cash into bitcoins
ING considered the information provided by the bitcoin broker still too poor. ING prohibited the bitcoin broker from – also indirectly – converting cash into bitcoins. Afterwards, it turned out that the bitcoin broker was still making cash deposits in the Netherlands. In the end, ING terminated the relationship. ING applied a notice period of three months, giving the bitcoin broker sufficient time to switch to another bank.
Preliminary relief proceedings bitcoin broker against ING bank
The bitcoin broker then brought preliminary relief proceedings against ING. In short, he demanded the continuation of the banking relationship. To that end, the bitcoin broker argued that ING’s termination was invalid. After all, the bitcoin broker had given ING full access to its compliance processes, was acting in accordance with the law, and, moreover, the bitcoin trade is not subject to any supervision. The bitcoin broker argued that although his clients did have a higher risk profile (with regard to money laundering), this does not mean that these clients should be categorically refused. Finally, he argued that his interests in continuation of the relationship outweigh ING’s interests in terminating the relationship.
Dutch court: Insufficient security as to the origin of the money
However, the Dutch court held that the termination of the relationship was acceptable according to standards of reasonableness and fairness. Indeed, in accordance with the General Banking Conditions, ING may terminate the relationship with its customers with immediate effect if its reputation or the reliability of the financial system is at stake. The Dutch court concluded that the bitcoin broker had provided insufficient certainty as to the origin of the money. Partly because ING had applied a generous notice period of three months and the bitcoin broker was in the meantime banking with bunq, the termination was upheld.
Dutch lawyer for help with bitcoin contracts
A contract for bitcoins and other cryptocurrency is, in principle, an ordinary civil contract. The (civil) legal aspects of cryptocurrency and related contracts have not yet been fully crystallised and are still very much under development. If you have any legal questions about such contracts, AMS Advocaten can be of service to you.