Bitcoin Companies and Entrepreneurs Can’t Get Bank Accounts

noaccounts15 Nove 2013 / Forbes – In the first week of July, Jay Shore got bad news. U.S. Bank and Chase informed him they were closing the accounts for his company, Coinabul, a San Diego-based precious metals buyer that sells silver and gold for Bitcoin. They didn’t want to house his half-million dollars. Chase was mum on the reason but Shore says a U.S. Bank compliance officer told him it was shutting down all small Bitcoin clients.

“They tried to force me to take a cashier’s check but I refused,” said Shore who worried he wouldn’t be able to deposit it elsewhere. He made a dozen trips to U.S. Bank because they wouldn’t give him more than $30,000 at a time. “The money is now sitting in our corporate vaults along with our metals.”

Bitcoin – invented in 2009 by a mysterious programmer – is a replacement for state-backed currency, “mined” from the Internet via complex computing. It’s been booming this fall; one Bitcoin is currently worth over $400, its value doubling over the last month. It has limited real world uses now but offers, as investor Peter Thiel says the “world-changing” promise of online transactions without fees, third parties or identity; it’s the online equivalent of paying someone in cash, and it works universally. Long popular with those using it to buy and sell illicit goods online, it’s now found new fans: the venture capital community, taking the place in their hearts left empty by social networking companies that have IPO’ed. Second Market, which sold Facebook shares before the company went public, now has an investment fund for the $4-billion Bitcoin market. The Winklevoss twins have put $1.5 million into Bitcoin exchange BitInstant, while also applying with the SEC to start a Bitcoin ETF. Union Square Ventures, Lightspeed Venture Partners, Jim Breyer, Accel, and Google Ventures are among those pouring millions into promising cryptocoin start-ups. But many Bitcoin start-ups have a big problem: they can’t get bank accounts. Shore is one of the many Bitcoin entrepreneurs sent packing in the last few months.

“I’ve been kicked out of every major bank in New York,” says Charlie Schrem, the CEO of Bitinstant. “Chase, Wells Fargo, Citibank, U.S. Bank. And once they shut down your business account, they ban your social security number too meaning you can’t keep a personal account.”

While in Hong Kong in April, Schrem got notice from Chase that Bitinstant’s account was being suspended immediately, meaning he had to race home on a hasty flight with four connections in order to get the money into a different bank to avoid shutting down the business. Bitinstant has since suspended operations. It’s hard to pay the rent or electricity bill if you don’t have a USD bank account (at least for now).

“ Starting this summer, almost every U.S.-based startup who previously had banking was cut off if the word ‘bitcoin’ was mentioned, including simple checking for payroll and operational expenses like utilities and rent in USD,” said the Bitcoin Foundation in a statement. “The upcoming congressional hearings are timely as banks are unable to accurately asses risks without clear guidelines – leaving entrepreneurs bank less and forcing innovation overseas.”

The Bitcoin banking casualty list is a long one: popular Bitcoin – USD exchanges Bitfloor and BitInstant, in New York; Tradehill, in California; and Bitbox, in Michigan, have been out of commission for months. All had registered as money exchangers with the Department of Treasury’s FinCen, per federal guidance. Mobile Bitcoin payment company Coinapult moved from Colorado to Panama to avoid the “murky, unpredictable, and onerous” regulatory environment in the U.S., says a company representative. Capital One even shut down the merchant account for Mulligan Mint, a commemorative coin maker, when it started making physical Bitcoin silver coins; the business was not in fact dealing with Bitcoins, just making fake models of them.

“Saying Bitcoin in a bank is like yelling fire in a theater,” says Kinnard Hockenhull, the 23-year-old founder of Bitbox.

Citibank, Bank of America, J.P. Morgan Chase and Wells Fargo declined to speak on the record about the issue. U.S. Bank didn’t respond to a request for comment. Steve Kenneally, VP of government relations at the American Bankers Association, says the banks are wary following two prominent pieces of government guidance this year. In March, the Department of Treasury’s FinCEN said that businesses doing Bitcoin exchanges were classified as “money services businesses,” meaning they need to be registered as such and conduct due diligence to know who their customers are and prevent money laundering. But for banks, having a MSB customers entails enhanced monitoring. On top of that, the FDIC issued guidance saying that banks face heightened responsibility around high risk businesses — such as those dealing in guns, fireworks or Bitcoin.

“With virtual currency, there’s a lot of uncertainty out there and banks don’t like uncertainty,” says Kenneally. “Clearer regulation is needed as to the legality and treatment of virtual currencies.”

Kenneally says what makes things harder for banks and policymakers is when virtual currency proponents promote Bitcoin’s anonymity, cross border ease, and frictionless transactions, all which set off red flags for regulators. At the same time, Bitcoin is a completely trackable and traceable currency with one big public ledger for every transaction. “That’s the neat thing with Bitcoin,” says Kenneally. “You can see every transaction that ever happened but it’s happening behind pseudonyms and email addresses that you don’t have a big directory to.”

Coin Validation, a new start-up, wants to create that directory, but the proposal hasn’t been well-received by the Bitcoin community……. Read more

http://www.forbes.com/sites/kashmirhill/2013/11/15/bitcoin-companies-and-entrepreneurs-cant-get-bank-accounts/

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