Bitfinex is not the only bitcoin exchange which has disabled fiat deposits. The bitcoin exchange Btc-e has also announced on Twitter that it is not accepting U.S. dollar wire transfers until the end of the month, citing a bank account problem.
The Chinese exchange, Okcoin, is also reportedly having the same issue. A Reddit user posted a message supposedly displayed on the user’s account stating that U.S. dollar deposits have been temporarily suspended since Wednesday “because of the issues with intermediary banks.” The announcement further reads: “Please do not make further deposit as your wires may be rejected by intermediary banks. We are now actively looking for alternatives to resume deposit as soon as possible.”
A few other cryptocurrency services and money service businesses are reportedly encountering the same problem as well.
Third Party Banks “De-Risking”
Intermediary banks and correspondent banks are third party banks. The terms are sometimes used interchangeably. Regardless of any slight differences, they both facilitate international fund transfers as well as transaction settlements.
When Bitfinex filed a lawsuit against Wells Fargo, it was revealed that Wells Fargo was acting as a correspondent bank for the Taiwan-based banks which Bitfinex uses.
Big banks have been known to “de-risk” correspondent banking relationships that are considered high risk for their businesses. It is a common problem. According to the World Bank, “this risk avoidance would typically occur on a wholesale basis, without a case-by-case assessment of the risk associated with individual customers, or the country or region involved, or as a result of an analysis indicating that the business relationship as a whole was no longer profitable.” Therefore, it would not be uncommon for a bank such as Wells Fargo to sever its correspondent banking relationships with other Bitcoin businesses in the same way it did with Bitfinex.
Taiwan Banks Tightening AML Requirements
Following Wells Fargo’s de-risking decision which only affected outgoing wires, Bitfinex informed customers that all its incoming wires will be “blocked and refused” by its Taiwan banks.
According to an article by Whalecalls, banks in Taiwan did not previously have strict AML/KYC requirements, but they were enough to comply with U.S. regulations. However, the U.S. has recently revised these requirements. The U.S. Department of Financial Crimes Enforcement Network (Fincen) is now requiring businesses operating as a money transmitter to report any suspicious activities. “A report must be filed when a transaction that is conducted by, at or through the MSB [money service business] is both: suspicious, and $2,000 or more,” Fincen wrote on its website. Bitcoin exchanges are classified as money transmitters, according to the agency.
While the U.S. has tightened its control over activities of money transmitters, Taiwan also has its own agenda when it comes to ramping up its AML/KYC efforts. On March 16, the Taiwanese government established an office to combat money laundering to help build a more transparent and orderly financial environment, according to Focus Taiwan publication.
It also aims to beef up “money laundering prevention before the third evaluation round of the Asia/Pacific Group on Money Laundering (APG) next year,” the publication reported the country’s Premier Lin Chuan saying, adding that Taiwan is currently on the APG watch list.
In August last year, the New York State’s Department of Financial Services (DFS) fined Taiwan’s Mega Bank US$180 million “for its poor compliance practices, after identifying ‘a number of suspicious transactions’ between the bank’s New York and Panama branches,” the publication further details. The Taiwanese Deputy Justice Minister Tsai Pi-Chung then noted that this incident damaged the credibility of Taiwan’s financial activities worldwide, which should be rectified.
Bitcoin exchanges’ deposit problems started soon after the Taiwanese regulators set up the AML office. While U.S banks are de-risking and Taiwan is determined to regain its credibility, so that it is taken off the APG watch list, the situation is looking grim for any bitcoin exchanges using banks in Taiwan.