Israeli Court Rules Banks Have the Right to Deny Service to Bitcoin Company, and This Exchange Has a Hard Time

Recently, in a case heard by the District Court in Tel Aviv, Israel, a large bank refused to accept a Bitcoin exchange as a client, even though the exchange fully complied with all anti-money laundering (AML) and know your customer (KYC) regulations, and the court chose to support the large bank.

Court sides with bank

The Tel Aviv District Court reportedly dismissed a lawsuit filed by Israeli bitcoin exchange Bits of Gold last week in favor of Bank Leumi, the country’s second-largest bank by assets.

The exchange took legal action after Bank Leumi refused to provide services to Bits of Gold. The proceedings followed an incident in which the bank told the court that “hackers had accessed the exchange’s accounts in order to steal funds to buy Bitcoin.” The court heard that Bits of Gold assisted the bank in its investigation, but there was no evidence that the exchange was involved.

Nonetheless, NAB told the court that its cybersecurity concerns warranted the suspension of banking services to the exchange.

Fear of Cryptocurrency

Bits of Gold proved in court that it complied with all AML and KYC procedures, including the requirement under Israeli law to report all transactions above a certain size. However, Bank Munisi continued to maintain that the very nature of cryptocurrencies made it impossible to fully comply with AML regulations, as the identity of the recipient of cryptocurrency is unknown.

The bank told the court that they were concerned that criminal organizations would send their henchmen to buy Bitcoin and transfer it to wallets they controlled. Finance Magnates explained that these people were “low-level people under their control who would not testify for others.” The media outlet relayed the bank’s concerns:

Cryptocurrency wallets are not issued by any authority and can only be identified by "a string of numbers". At the same time, Bitcoin can be converted into legal currency in some unregulated areas outside of Israel, so it is impossible to confirm that it complies with AML regulations 100%.

Although the court praised Bits of Gold for its transparency and compliance, it still ruled that Bank Leumi had the right to decide not to provide services to it.

Bits of Gold and the State of Bitcoin in Israel

Bits of Gold has offered bitcoin exchange services since 2013. Users can buy bitcoins via bank transfer, credit card, or cash. At press time, bank transfers are still an option on the company’s website.

Cash payments are made via the GMT transfer network and take about three minutes. GMT operates a large network of banks and currency transfers around the world.

Yuval Roash, CEO of Bits of Gold, explained that users can place orders on their website and then top up their account. Alternatively, they can choose to use the BTM at the Bitcoin Embassy in Tel Aviv.

He said his company had been fully cooperating with regulators for a long time. For example, regulators required that customers who traded more than 50,000 shekels ($14,156) visit the company's office to fill out forms to comply with anti-money laundering regulations. He elaborated:

This is not common in the Bitcoin market, but we still try to cooperate with regulators and try to integrate into the financial world.

Regulation was important to us from the beginning. We saw the problems with the anonymity of Bitcoin from the beginning and we wanted to apply for a money services certificate, which we did obtain in August 2013.