Bitcoin Forum

BitSpend. A bitcoin-based company which allows you to buy items on regular websites using Bitcoins have closed down indefinitely (apparently) because their bank (chase) has confiscated all of their money, saying that they are a "high risk client" to excuse their actions.

Chase has also said that:

"We will decide within 30 days whether or not to return any or all of your funds"

As of yet we are waiting for something new in this regard.

http://www.reddit.com/r/BitSpend/comments/1go95b/updatenews_why_we_have_been_slow_and_taking/

What are your thoughts? Should BitSpend sue Chase for their massive loss of profits?

They will get every cent of their balance back and have absolutely no case on which to sue.

Banks are private property.  Banks can close an account for any reason or even a lack of reason unless it violates a protected class (race, religion, etc).

Just about every bitcoin related business (not to be confused with businesses that accept bitcoins) has had at least one bank account closed.  You either adapt and move on, or you get out of the business.

You don't seem to have noticed the part where Chase basically said "we might give you back some money".

Either way, Banks still have to be regulated, controlled, backed and insured by the government. So the government has a lot to do with the banks. I doubt the government would let a bank confiscate a bunch of money just because it wants to. It has to be a court order or something.

The business model of BitSpend.net is highly suited to crowdsourcing.

A bank can easily close a single bank account owned by a single business, but no one could realistically shut down a coordinated network of dozens or hundreds of people who were all willing to use their dollars to make purchases on behalf of BTC-paying customers.

I'm not quite sure how this could be done in a cheat-proof way, though.

more reason to have a business relationship with your bank and local financial authority if you intend to deal with FIATchanging multiple hands.

and get rid of the arm chair anarchist views of ignorance is bliss when it comes to FIAT.

my bank manager knows me, we have shaken hands many times. he understand bitcoin, understand my business model so i have no issues continuing to do what i do. and no fear of sudden crazy actions from the bank

If you mean the risk of the crowdsourced affiliates cheating, it will never be cheat-proof but the risk can be managed. The organizers start out with a handful of vetted affiliates to make the purchases, and bring in new ones via a kind of probation period where the purchases you are given to handle are initially small until you build up reputation. The BTC payments are held in escrow by the organizers during the probation period until the customer confirms receipt, and later as soon as the affiliate provides proof of the order.

God, I hate banks and fiat currency. Long live Bitcoin.

Yeah and if the bank's computer model says you are high risk the account will be closed by corporate and there is absolutely nothing your local banker (who has no real power) can do.  We did $20M in transactions, generated nearly $50K in banking fees, never had a single complaint, never had a single case of fraud, were registered as an MSB, provided both bank anti-fraud team and local banker a 20 page document outlining our business model and the account was summarily closed by corporate due to high risk nature of our business.

Have bitcoin companies considered using local banks and credit unions? I realize the "big evil banks" might have a more convenient branch location, might have better deals for businesses, but the risk of being shut down I'd think would be higher with a "big evil bank." Not that smaller banks aren't so harmless, but they actually need the business.

IMO if you are a bitcoin business and you have a bank account with Chase, RBS, HSBC, BoA, etc - you are asking for trouble and should have multiple bank accounts or at least a contingency plan in case one gets randomly shut down with no notice.

My thoughts exactly, no need to jump to far fetched conspiracies.

you got no clue how the system works.. so here goes..

regulators such as fincen/FSA dont proactively shut down businesses. they work off of reports known as SARS reports given by banks and individuals where there is a real risk of a crime happening based on the best judgements of banks and individuals evidence at hand., so the FINCEN/FSA will never tell a bank to shut down an account, on a whim.

now stepping down the ladder to the level of banks. it is the banks responsibility to monitor its customers (not the regulators) and if a bank see's something dodgy or gets a complaint from a customer they are suppose to freeze an account and investigate the legitamacy of the business and or the complaint. the bank are not allowed to reveal to the bank account holder the exact nature of why they are being investigated.

once the bank has done its internal investigation and decided a crime has been committed then and only then would a SARS report be generated and FINCEN/FSA(SOCA) made aware of the potential crime. for further investigations to occur. if other bank account holders are involved fincen/FSA would suggest to those banks to begin investigations and if enough info is there to freeze the account then they will but only after fincen/FSA receive a SARS report with enough evidence to act on.

the banks don't freeze accounts on a whim, they have to have good reason. and even after the good reason they have to have enough information to make a sars report of an actual crime.

i repeat
fincen/FSA will not ask a bank to freeze an account on a whim. fincen/FSA need to have received a SARS report about the people involved to then get the banks to act.

take mtgox for instance.. they had a confidential informant send them a SARS report before anything happened to MTGOX

now the weakest point is the banks.. as they are the point where a account can be frozen on less legitimate reasons. and if a crime has not been committed they HAVE TO release the account.

the banks do not simply run away with the money on a whim.

it may be worth reading the regulations once in a while. so having a working relationship with the local bank manager more so then just one hand shake and a business plan you can quash any concerns the bank has and ensure your rating with the bank is not high risk.

saying your local bank manager had no powers is a moot a point as saying how does corporate head quarters of your bank know your transactions are related to bitcoins, and not something unrelated. like memberships/advertising/etc.

its all about how you come across to the banks and inform them of the business plan and how you will reduce risks and self manage issues, to make sure the banks never have any issues. and to continue regular chats with them.

just handing over a business plan and thinking thats all thats needed for the year is not helpful

Yeah once again a) there were no issues and b) the closure had nothing to do with Bitcoin (in our case).  The model based on account transaction volume predicted the account was high risk and the closure was absolute.  Our local banker was actually pretty upset given we were a high grossing account for the local branch.

If you never reach that point then your "relationship" with local branch manager is meaningless you wouldn't be closed anyways and if you do reach that point your local branch manager isn't going to stop a closure.

As it relates to the OP like I said they will get all their funds back and they have absolutely no grounds to sue.  A bank can close an account for any reason at any time even without a reason and there is no grounds for a suit.

"Antifragility" means that sooner or later more Bitcoin businesses are going to start thinking about their paths forward in entirely different ways. Their internal dialogues will go something like this:

"Now that we know you're going to use the rules to fuck us unless we jump through your unending series of hoops, we've decided that fuck your rules - we'll make our own. Where before we were using as a regular business, we'll instead form distributed informal networks. We'll focus all our efforts on meeting the needs of our customers and resisting your efforts to shut us down and none of our efforts on compliance. Everybody's going to get paid in BTC and nothing is going to be reported to the IRS. If you manage to shut down the network we build now then we'll just build a larger one next time and spend more resources on making harder for you to detect and interfere with."

Well then.

I was just going by what the BitSpend team and the Chase employee said.

understood. luckily my bank in england.. both local and at head quarters level would have regular contact so that if it approaches limits i would have been adequately informed to then increase my 'capital' to cover issues (in the UK its basically moving up the levels of the FSCS insurance fund policy prices).

as for bitspend and any future fiat touching businesses:
stick to the rules
keep in regular contact with your bank
have a well developed 'handbook' to reduce risks a bank would see

It's already been pointed out to you that Bitcoin businesses that adhere to the rules and have pals in banks are still getting shutdown.

Try the Internet Credit Union instead for your next business account: https://iafcu.org/.  According to this article: http://spectrum.ieee.org/tech-talk/computing/networks/credit-union-bitcoins-new-best-friends they are a bitcoin friendly bank, and it looks like they are owned by the Internet Archive, one of the few companies that pays its employees (partially) in bitcoins.

That's a key point.

BitSpend only needed a bank account to restock the dollars on the payment cards they use for making the purchases as part of their service.   If they used a bank account debit card, then obviously that was at risk of the bank taking an action like this.     But if instead they had a credit card or prepaid debit card even which could be reloaded as needed, they simply only need a way to convert bitcoins to the funds for reloading.  One labor-intensive approach is to convert bitcoins to cash and use the cash to buy Moneypak, which is then used to reload the card.   No bank account is necessary.

This whole process would be unnecessary if the merchants were to accept Bitcoin for payment though, cutting the payment card (and their bank issuers) out of the picture completely.

I think you're missing the potential of decentralization.

If the operators of BitSpend can find 20 trustworthy individuals who are each willing to buy $1000 worth of bitcoins per month (probably because they already are), they could organize them into a network capable of processing a quarter million dollars worth of purchases annually by having these 20 individuals buy items with their own personal debit/credit cards and ship them as gift orders. It would basically be impossible to shut down. There aren't any particularly difficult technical or organizational barriers to making this happen that motivated individuals could not find ways to overcome, and talented and passionate people who are tired of having their ambitions arbitrarily thwarted for illegitimate reasons are some of the most motivated people around.

And how you got through this?

I know this is talking from an idealist POV but banks are infrastructure and that should merit a different set of mind.
This case is basically like saying "We're gonna cut your power and water supply because we don't like that you're producing giant purple dildos."

Someone should form a new bank or buy a smaller existing private bank in a more friendly geographic location.

Fund it with Bitcoin and use it as an entry / exit point for the crypto ecosystem.

Some kind of Bitcoin based IPO would be a good way of raising money to do this.

No I was speaking from a practical application of the law point of view.  You have no right to a bank account, your account, any account can be closed at anytime for any reason without recourse.  The sole exception being that the bank violates a protected class (race, religion, etc).

If you think that is unfair, start a Bitcoin friendly (or neutral) bank.  No seriously I will be your first depositor and I WANT to pay you thousands of dollars a month in banking fees.

Luckily there are over 1,100 national banks in the United States.

Banks can do just about anything they want. They are in charge of the world and that's exactly why bitcoin was invented, to change that

I read somewhere that before 1929 and the Great Depression that number was at least an order of magnitude higher.

The Fed needed to cull the herd to a manageable level.

An Open Letter to the BitSpend Team (http://www.reddit.com/r/BitSpend/comments/1gqjf8/an_open_letter_to_the_bitspend_team/)

Time to use the airbnb or crowd sourced taxi route.

Who the hell were you banking with if you don't mind my asking?
Every major bank I've talked to about my own bitcoin & crypto plans has been so excited they nearly humped my leg.
I've talked with local branch managers and at some of the bigger banks I've dealt with regional finance managers.  Pretty much everyone agrees that if you're complying with FinCen and other relevant laws, then they love you and won't freeze your accounts.
Initially I did talk to some of the smaller local "community" banks and they really didn't feel comfortable with high volume accounts.  But the bigger banks love the high volume accounts as long as you're willing to maintain the liquidity requirements (i.e. Don't move in 1Mil on Monday just to move it all out on Tues unless you have 20Mil sitting on deposit).  However if you have that kind of volume, it's probably best to just start your own bank.

It doesn't really matter the big 5 all work the same but Bank Of America and PNC Bank specifically.  Speaking with other Bitcoin related companies Chase, Wells Fargo, Citi all have arbitrarily closed accounts in good standing.  I am not going to name names but the odds are just about Bitcoin related company (not to be confused with companies which accept Bitcoins for payment) that you have used has had at least one bank account closed for "no good reason".   The same thing occurs with international banks as well, not a single exchange anywhere in the world hasn't had at least one bank account closed (Canada, Japan, Germany, France, UK, it doesn't really matter).   It is just part of the business.   High transaction volume without a corresponding high asset base is "risky" in most banking models.  They are worried about regulatory oversight, fraud, criminal activity, money laundering, cybercrime, etc.  Right now "oh this is Bitcoin so a huge number of transactions to a huge number of individuals is normal" isn't a good enough answer.  The simplest "solution" is just to close high risk accounts and make them someone else problem.  Maybe in time that will change.

Now what you described (leaving millions in deposit) is laughably an entirely different scale.  I am sure if you are willing to leave $20M on deposit they likely will bend some of their own rules.  I was talking about SMALL BUSINESS.  A Bitcoin startup even if they had $20M in cash couldn't really justify leaving idle to keep their bank happy.

Pretty much explains why it's not worth bothering.


You're new here, the chief symptom of which being that you take yourself way too seriously. Tone it down by about two degrees of magnitude, it's getting annoying.

I'm confused by that statement for a couple of reasons.  Not sure if I missed your sarcasm or you missed my humor.  Also, I'm not new, been here a while but had to change accounts after a payment service launched that had the same name as my previous account (was simpler than asking for a name change).

Still I have yet to talk to a major bank that wasn't extremely interested in banking a bitcoin enterprise.