In a landmark decision for the cryptocurrency exchange industry, Mercado Bitcoin, Brazil’s second largest crypto exchange, has lost its case against Banco Itau. The Brazilian high court has ruled that banks can close cryptocurrency exchange accounts without justification. The high court indicated that Mercado Bitcoin would have to prove that a constitutional norm was broken to win the case, and appeal to the Supreme Court.
Mercado Bitcoin and account closures without justification
Banco Itau argued that the AML and KYC procedures involved in the opening of accounts gave them the rights to close any accounts that they wanted. They also cited the National Money Council standards to bolster their case. Essentially, even if the account has not been proven to have facilitated any criminality, the bank is still justified in closing it down.
Mercado Bitcoin argued that this type of activity was an abuse of power as account closures were completely at the discretion of the bank. Further, the fiat financial system has a monopoly on the means of exchange, which cryptocurrency is trying to displace. It is at an unfair disadvantage when the technology is discriminated against by banks.
An account closure without any form of justification seems to violate basic legal principals, especially in a closed-end system. People are forced to do business with banks due to the existing fiat infrastructure, yet the banks can close accounts at their discretion without any justification. Such a rationale is, in fact, the basis of bitcoin and other decentralized technologies. Startups such as Paxful have emerged that are using DLT to assist those who are disadvantaged by the existing banking infrastructure.
Mass closure of crypto exchange accounts
Brazil is the latest nation where cases are being finalized over unjust account closures, and Mercado Bitcoin is certainly not the only affected exchange. In Chile, a coordinated attempt by a number of banks shut down crypto exchanges accounts at the same time. However, the Chilean Supreme Court has thus far ruled in favor of one of the crypto exchanges.
Crypto exchange Buda won its case against state-owned Banco del Estado. It is significant that there does seem to be cohesion here concerning South American court rules. In Brazil and Chile, exchanges can win if they prove the action of the banks is unconstitutional. The Chilean court noted that while there may be certain risks with cryptocurrencies, this was not a legal basis for account closure. It amounted to –
“an arbitrary and illegal action, which constitutes a deprivation of the right protected by Article 19 No. 2 of the Political Constitution of the Republic, that is, the right to equality before the law.”
In India, the reserve bank ordered all commercial banks to cease operations in relation to cryptocurrency. The move prompted the majority of blockchain-related companies to exit the region. The ban is being argued in court, though it has been continually delayed.
Many cases are ongoing, and Buda is currently taking on ten other banks, as it operates in a number of South Amerian countries. Colombian banks closed the accounts of all crypto exchanges, including Buda, in a simultaneous move without providing any explanation.
Digital Nomad with an interest in Zen and Blockchain technology.
Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.