The Dutch Central Bank, De Nederlandsche Bank, wants to regulate crypto companies by requiring them to get licenses in order to operate.

The bank claims the measure will deter money laundering and the use of cryptocurrencies to fund terrorism, according to a short brief in Dutch daily newspaper De Telegraaf. To qualify for a license, crypto companies must report “unusual transactions” and know who their customers are.

The Dutch Central Bank said the regulation was necessary because the decentralized, anonymous nature of the crypto market makes it a target for money launderers.

Crypto Exchanges Used to Launder Money

According to one investigation, more than $88 million was laundered over 46 cryptocurrency exchanges around the globe during the past two years.

ShapeShift AG — which is incorporated in Switzerland but operates out of the United States — allegedly processed more than $9 million in illicit funds since 2016. The altcoin exchange service previously let people trade bitcoin and other virtual currencies anonymously, though it has since adopted mandatory KYC.

Similarly, the classified sex-advertising website Backpage used cryptocurrency exchanges to launder millions of dollars in bitcoin, as CCN reported.

In a bombshell 93-page federal indictment, the US Department of Justice accused the online sex marketplace of money laundering, conspiracy, and facilitating prostitution.

The Department of Justice shut down Backpage in April 2018 amid revelations that it promoted underage prostitution and sex trafficking since its launch in 2004.

Sex Marketplace Laundered Millions in Bitcoin

backpage money laundering bitcoin crypto

The Justice Department also found that the sleazy website laundered tens of millions of dollars using cryptocurrency.

“Backpage furthered its money laundering through the use of bitcoin processing companies,” the Justice Department alleged. “Over time, Backpage utilized companies such as Coinbase, GoCoin, Paxful, Kraken and Crypto Capital to receive payments from customers and/or route money through the accounts of third parties.”

It is because of these high-profile crackdowns on money laundering that many regulators remain leery of the decentralized, anonymous cryptocurrency industry.

John Williams, the CEO of the Federal Reserve Bank of New York, says crypto’s persistent issues with scams is a major deterrent to mass adoption.

“The setup or institutional arrangement around bitcoin and other cryptocurrencies [is problematic],” Williams said. “They have problems with fraud, problems with money laundering and terror financing.”

Report: Crypto-Centric Illegal Activity is Overblown

That said, money laundering also occurs using fiat currencies. In April 2018, the office of Quebec Chief Scientist Rémi Quirion published a report concluding that bitcoin is wrongly blamed as a go-to vehicle for money laundering and criminal activity because the facts don’t support these claims.

“Bitcoin is not above the law, nor is it a magnet for illicit transactions: it forms only a tiny part of the criminal money circulating around the planet,” the report stated. “The reason: it is less attractive for anyone who wants to make transactions without leaving a trace.”

Similarly, a January 2018 report by blockchain analytics company Elliptic also found that less than 1% of all bitcoin activities conducted between 2013 and 2016 involved money laundering.

“Bitcoin’s illicit use is mainly based on anecdotal evidence, usually without supporting data analysis of how it is used across geographical regions, or trends over time,” the report stated.

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Despite their harsh exterior, banks have been quietly preparing for a world that involves cryptocurrencies.

Bank of America has most recently secured a patent for a cryptocurrency aggregation system, one in which big companies store customers’ crypto deposits in an enterprise account involving vaults and offline storage rather than taking on the risk themselves. For example, “deposit accounts at an enterprise, such as a financial institution, are used by customers of the financial institution to deposit funds for safekeeping,” according to the patent.

While many of the dozens of patents filed by banks thus far have focused on blockchain technology, this system, which received the green light on Nov. 13 by the U.S. Patent and Trademark Office, is clearly a competitive move in crypto.

Bank of America’s system is comprised of a memory to store customer and enterprise accounts as well as a processor to handle cryptocurrency deposits across coins like “Bitcoin, Litecoin, [XRP], Peercoin, or Dogecoin” and identify public keys, matching keys with the relevant customer and determining the value of deposits. The processor also harnesses the public key of the business and aggregates the crypto in an enterprise account.

 

Source: U.S. Patent and Trademark Office

 

The patent application, which was filed in 2014, acknowledges that crypto transactions are on the rise, saying “financial transactions involving cryptocurrency have become more common.” Meanwhile, the number of merchants accepting cryptocurrencies is growing every day, with companies like Square having recently secured a patent for taking crypto payments.

An enterprise crypto storage system from the likes of Bank of America could spur further adoption and encourage businesses and consumers alike to transact in crypto. But it could also turn off many in the crypto community amid an often contentious relationship that exists between the two worlds, especially if the bank begins tacking on fees and additional costs that the peer-to-peer system is designed to avoid.

Nonetheless, Bank of America describes a system that is efficient, one that is designed to bypass fees that are associated with converting cryptocurrencies. For instance, in one of multiple “embodiments” of the technology described in the patent, Bank of America suggests its system “negates the need for customers of the enterprise to use a third-party currency exchange to execute a desired currency exchange.”

Crypto Bank

They describe taking similar steps with crypto as banks do with fiat by “securely storing the customer’s cryptocurrency funds,” which would give the enterprise the ability to use the crypto stored in these accounts to “to conduct transactions on the behalf of those customers that may want to utilize such cryptocurrency and debit or credit the particular customer accounts as appropriate.”

Meanwhile, Michael Wuehler, one of the inventors whose name appears on many of the company’s blockchain patents though is missing from this one, recently suggested that the patents are “meaningless” and are designed to skew the public perception of the bank on innovation.

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SEBA Crypto AG – a cryptocurrency startup based in Zug, Switzerland – is allegedly on the verge of obtaining a banking and securities dealer license sometime during the second quarter of 2019.


What Can You Do with That?

The license will be granted by FINMA, Switzerland’s financial market regulator. Should SEBA obtain the approval it needs, the firm will be able to conduct cryptocurrency trades and investments for both quality investors and established banking ventures. The industry will thus be further legitimized thanks to a stronger institutional presence.

In addition, the company is also looking to offer custodial services to its clients. CEO Guido Buhler explains:

As a general rule, crypto assets, just like investments in stocks and bonds, must be vested with our custodian bank function to the regulator.

What Makes Switzerland So Important?

As a side project, the company is hosting its own initial coin offering (ICO) in the hopes that it will garner an additional $206 million that it can put towards the expansion of its operations into larger financial hubs in 2019 starting with Switzerland’s own financial capital of Zurich.

Switzerland is one of the world’s most established blockchain and cryptocurrency regions. The nation plays host to the renowned “Crypto Valley,” which takes part of its named from the legendary “Silicon Valley” in northern California. As Silicon Valley offers an array of high-ranking tech companies like Facebook, Crypto Valley offers the world numerous blockchain startups seeking to boost mainstream adoption of digital assets.

Raising Some Extra Cash

Switzerland boasts some of the world’s most flexible and “easy-going” regulations when it comes to crypto. However, FINMA does recognize that there are several risks associated with trading and buying digital currencies. In early November, for example, the organization sent a confidential letter to various financial institutions asking them to estimate risk coverage of cryptocurrencies for roughly 800 percent of current market value.

Last September, SEBA made headlines when it secured roughly 100 million CHF (equivalent to roughly $103 million USD) in a new funding round to build a regulated bank that could work in both traditional and digital finance.

The Road Less Traveled

Andreas Amschwand – designated chairman of SEBA and formerly UBS global head of foreign exchange and money market – explained:

In Switzerland, we have commitment from various authorities to establish a comprehensive regulatory environment for the development of blockchain technology and the sustainable, stable growth of crypto assets. This makes Switzerland the ideal place to launch a new financial services paradigm. I’m excited to be part of a team of experts helping to usher in the crypto economy.

Is SEBA opening the door to future blockchain development? Post your comments below!

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Bitcoin Max, a Brazilian cryptocurrency exchange, has recently seen two banks in the country, Santander and Banco do Brasil, reopen its accounts following preliminary decisions made by Brazil’s Federal District Court. They reportedly reopened the exchange’s accounts to avoid paying fines.

Banks Reopen Crypto Exchange Accounts

According to local news outlet Portal do Bitcoin, failing to comply would have cost Santander up to $1,350 and Banco do Brasil up to $5,400. Speaking to the outlet, Bitcoin Max’s attorney Leonardo Ranna reportedly revealed its bank accounts “have been restored,” along with those of its partners.

The ordeal may not yet be over, as the case against Banco Santander saw it comply because of a “kind of injunction” that determined the financial institution had to reopen the exchange’s accounts within five days. The injunction had previously been denied by a judge, Portal do Bitcoin reports, which saw Bitcoin Max’s lawyers appeal to a Federal District Court Judge.

The new decision came as the judge, Ana Catarino, considered the banks’ lack of communication about shuttering the exchange’s account to be “abusive conduct,” prohibited by the country’s consumer protection laws.

brazil bitcoin exchange banks

Banco do Brasil reportedly even held $32,300 of the exchange’s funds in limbo. A lawsuit against it was filed on Sept. 12. Initially, an injunction was denied, but judge Fátima Rafael, from the Federal District Court, later gave the financial institution a 24-hour period to reopen Bitcoin Max’s accounts or face a fine of about $540 per day.

Per Portal do Bitcoin, the exchange’s CEO, Adriano Zanella, claimed the banks didn’t even reveal they were going to shut down its accounts. The report reads:

“Adriano Zanella, CEO of Bitcoin Max, said that in both situations there was no formal communication from the banks on the closure of accounts. In the case of Banco do Brasil, Zanella states that he learned of the blockage through the manager of his agency at which point he would ‘carry out an electronic transfer through the bank.’”

This is notably not the first time a cryptocurrency exchange in the country sees the judicial system side with it against a financial institution. In August, Brazilian exchange Waltime won a court battle against Caixa Econômica Federal, a bank that had frozen its accounts with over $200,000 in them.

Cryptocurrency Exchanges in Brazil See Scrutiny

As CCN has reported, cryptocurrency exchanges in Brazil have been under scrutiny. Back in August, the government sent them a 14-point questionnaire to learn more about their businesses, and earlier this month the country’s antitrust watchdog, CADE, sent them another questionnaire they have to answer or face a fine that could reach $25,000.

Notably, these developments came at a time in which XP Investimentos, Brazil’s biggest investment firm, is launching its XDEX cryptocurrency exchange. However, the country’s biggest bitcoin exchange, Mercado Bitcoin, recently fired “at least” 20 employees.

Investment funds in the country have also been given the green light to invest in cryptocurrencies like bitcoin, although only indirectly. This means they can’t buy bitcoin themselves but can acquire derivatives and foreign funds.

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