
Why you can’t cash out pt 2: Bitcoin and KYC/AML - davidgerard
https://davidgerard.co.uk/blockchain/2017/12/23/why-you-cant-cash-out-pt-2-bitcoin-and-know-your-customer-anti-money-laundering-laws-kyc-aml/
======
psyc
These articles raise real problems that exist, however the negative bias + the
title tip the scale towards FUD. You might have trouble cashing out. You
might, like me, have no trouble at all beyond having to upload a couple of
images. I think if you do some research ahead of trying to cash out, your odds
are pretty good.

~~~
charlesdm
As with any transaction, if you're wiring in $1-10-100m (and you don't
commonly transfer these amounts) then let your bank know. Much better than
having it pop up unannounced -- "surprise!".

~~~
SwellJoe
My bank makes it a bit difficult to wire large(ish) sums regardless of whether
Bitcoin is involved, particularly when wiring overseas. It's just the nature
of the US (maybe world) we're living in today.

I haven't had any trouble moving around the small sums I deal with in
cryptocurrencies on Coinbase, and I suspect most people just dipping their
toes into it won't have any issues. It's more likely to be an issue if you're
dealing with large sums. $10,000 is, AFAIK, the amount that banks have to
report and that's probably where things start to get a little more hair...and
if you split up >$10,000 into a few transactions over a few days, they
probably report that, too.

I guess Bitcoin millionaires are dealing with problems that Bitcoin
thousandaires just don't experience.

~~~
true_religion
Stucturing transfers to avoid reporting requirements is illegal...

~~~
SwellJoe
But, just transferring sums that add up to $10k+ over a few days in the normal
course of business is not. I've had several occasions in my life/business
where I've done just that. It would be up to the government to connect that to
other patterns that point to illegal activity I would think (or, your bank
might grill you on it, since they've been put in the position of policing
their customers). My bank has asked me why I was sending several thousand
dollars a month to someone in Croatia or Russia (I've worked with contractors
over a long period of time in both places), but they didn't make it
particularly painful to do so, other than the large-ish money transfer fees US
banks normally impose.

Merely moving money around for legal purposes is not a crime, even if it adds
up to $10,000 in some specific period of time, but it might get your account
flagged in some way, is what I'm trying to say.

------
ryanwaggoner
This is so bizarre. This is a whole series on the various reasons you can’t do
X, written while hundreds of thousands of people are doing X all over the
world.

Seriously, I’m sitting next to someone who cashed out of cryptocurrency (yes,
for USD) two days ago.

This is sour grapes to a new level.

~~~
Jommi
Can you explain his process a bit? You could just be making this up.

~~~
ryanwaggoner
He sold his coins on Coinbase and withdrew to his bank. Done.

Maybe the author’s post should have been “why a tiny fraction of
cryptocurrency whales can’t cash out without a little research and upfront
vetting” but I suspect that would have made for a terrible title. So he wrote
a great title instead. It just doesn’t have the benefit of being true.

~~~
taude
Sold a significant amount, or like 40K worth? I'm curious about people cashing
about significant values and converting to USD.

~~~
JumpCrisscross
If you’re cashing out more than $100,000 in crypto currency, you have the
resources and the reason to hire a tax lawyer. They will, in addition to
ensuring you don’t piss off the IRS, help you mollify any AML concerns.

~~~
phil21
> They will, in addition to ensuring you don’t piss off the IRS, help you
> mollify any AML concerns.

Hmm? I'm not sure how a tax attorney would mollify any AML concerns on the
exchanges. Customers have zero AML concerns, they just want their money.

I totally agree a tax attorney is a thing you need at that level. Disagree
they will be helpful in any meaningful way in getting your money out of an
exchange account - they are irrelevant to that process.

A good tax attorney with crypto experience _should_ be able to direct you to a
vetted and legit OTC trade desk/counterparty though. That lets you avoid the
exchanges entirely.

~~~
JumpCrisscross
> _I 'm not sure how a tax attorney would mollify any AML concerns on the
> exchanges_

Exchanges and banks need to verify you aren’t laundering money. You want them
to verify this quickly. A competent lawyer can help you prepare the necessary
paperwork and, in a pinch, explain things to a bank’s or exchange’s compliance
officer over the phone. That increases your credibility and in turn odds of
getting approved quickly.

~~~
phil21
> compliance officer over the phone

I think this shows a bit of naivety on your part, unfortunately. No compliance
officer at any public exchange is picking up the phone over a $100k customer.
I'd be surprised if _anyone_ \- including 8 figure clients - can get such a
person on the phone right now. I personally know of cases where 7 figures are
locked up with zero way to contact a human. Typically it's so far working out
in most cases I know of, but having that much tied up for 60+ days with almost
no communication (attorney or not) can be a bit nerve wracking for most.

I do agree re: your point on documentation, that certainly can be helpful.

~~~
JumpCrisscross
> _No compliance officer at any public exchange is picking up the phone over a
> $100k customer_

At the exchanges you may have trouble. Many of them lack proper compliance
departments. There are, however, response requirements under U.S. law your
attorney will be knowledgeable about.

At a bank, contacting compliance is trivial if you know how to use the
relevant public databases. There are also questions about structuring, _e.g._
transferring the coins to a multi-member LLC and then cashing out into it,
that could be relevant for one’s jurisdiction.

All that said, having documents in order is a huge plus. Incomplete AML and
KYC documents tend to go to the bottom of the priority pile and top of the
risk pile.

~~~
phil21
Completely agreed. I haven't seen many cases where the banks are holding funds
up due to AML/KYC, so I was 100% focused on exchanges.

You're absolutely correct - when dealing with actual financial institutions
just have a Real Lawyer(tm) do that for you or you're very likely to have a
bad time.

------
Alex3917
If you want to start trading crypto, you need to set up a separate bank
account for this before you start and go through the compliance process with
the bank in advance. This can take several weeks, but if you don't go through
the process before you start accumulating significant amounts of crypto then
you'll never be allowed to cash out. (And also there are only a handful of
banks that will allow you do this, you can't just make a new account at Chase
or Wells Fargo or whatever.)

This is why almost all of the big ICOs still have the 'money' they've raised
in crypto, because they didn't do KYC/AML and so they aren't allowed to sell
their crypto and put the cash in a bank account. The only thing they can do is
pay their employees in crypto, at which point it's the employees problem of
how to cash out.

~~~
psyc
Can you explain the “never” in this assertion? Never is a strong word.

~~~
Alex3917
It's illegal for banks to accept deposits of money without knowing how the
person depositing the money got it. And this isn't just in the US, it's in
every country worldwide. This means that if you're buying crypto assets behind
just a couple hundred bucks to mess around with, you're going to want to work
with a compliance officer, where every time you buy something you send them an
email explaining exactly what you bought and how much you paid for it.

Basically if you put a hundred bucks in Coinbase and you end up with a few
thousand bucks then you're not going to run into any issues. But if try to
drop $20M into a bank account they're going to tell you to get fucked.

------
gruez
>As I detail in chapter 8 of the book, I’m pretty sure this is how the 2017
crypto bubble was kicked off — when people couldn’t get US dollars off
Bitfinex, so they bought Bitcoin and other cryptos to withdraw, pushing the
price up.

How does that make sense? If you sold some crypto for fiat, realize you can't
cash out, then buy back the crypto you just sold, isn't the effect on
supply/demand net 0? I guess the only consequence is inadvertent wash trading,
but I doubt that has a huge effect on the markets unless you're insane and are
doing it over and over again, expecting something to change.

~~~
davidgerard
The mechanism is:

1\. Users have a USD account and a BTC account. They can’t sell their bitcoins
and withdraw their cash, but they can buy more bitcoins using their newly-
topped-up USD account – which contains trapped “dollars” which can’t be used
for anything else. Think of it as a Bitfinex “USD” token, not as actual US
dollars – Disneyland fun-money which can only be spent inside the theme park.
The price goes up. In April, BTC on Bitfinex was often $200 higher than
elsewhere.

2\. With the higher price on Bitfinex, traders arbitrage by buying coins on an
exchange with a lower price and selling them on Bitfinex. (Note that the USD
from the sale is stuck on Bitfinex.) This raises the price on the other
exchanges.

3\. Expectations rise, the price gets mainstream press and more people get
into Bitcoin. The bubble inflates.

This works precisely because you can’t get your money out – and other
exchanges were also having problems with US dollar withdrawals. Users were
reluctant to remove their BTC from Bitfinex because the “price” was highest
there (even if unrealisable) and because they loved it as a trading platform.

The trapped “USD” tokens also got used to buy other cryptocurrencies – the
price of altcoins tends to rise and fall with the price of bitcoins – and this
fueled new ICOs, as people desperately looked for somewhere to put their
unspendable “dollars.” This got Ethereum and ICOs into the bubble as well.

FWIW, I described this to Phil Potter from Bitfinex and he thought it was
plausible. I don't think they _intended_ a bubble to start, but I do think
that's what kicked it off.

I'm not sure if the “USD” were Tethers at this stage, or just funbux trapped
there.

~~~
gruez
>1\. Users have a USD account and a BTC account. They can’t sell their
bitcoins and withdraw their cash, but they can buy more bitcoins using their
newly-topped-up USD account – which contains trapped “dollars” which can’t be
used for anything else.

that doesn't really address my question. the USD have to have come from
somewhere, and in both case, it's either natural demand (from people wanting
to buy BTC), or a net zero effect (from selling, then subsequently buying).

~~~
davidgerard
These were dollars they had deposited before April and couldn't get out again.

~~~
gruez
Yeah, but weren't they intending to buy crypto (why else would you deposit
money into an exchange)? The only effect I can see here is people not being
able to back out after getting cold feet.

------
gst
Not all banks are opposed to Bitcoin. Some banks even offer integration with
Coinbase so that you can see your Bitcoin transactions in their banking
interface: [https://blog.coinbase.com/usaa-expands-coinbase-
integration-...](https://blog.coinbase.com/usaa-expands-coinbase-integration-
to-all-usaa-members-bd759bb836b2)

~~~
bbrian
I was give 0.5 BTC at a hackathon run by an Irish bank (Ulster Bank) a few
years ago. I guess when I cash out, I'll cash out with them!

~~~
solotronics
you can only bank at USAA if you are a US federal government employee or
current/former armed forces. which is fascinating that they are one of the
most supportive banks of the US with Bitcoin.

------
wslh
Bullshit, you can find a Bitcoin friendly financial organization that knows
how to make the whole process easier. In the worst case you can use
LocalBitcoins.

We have used services like Bitex[1] and the exchange process work like a charm
after the, obviously slow, onboarding process (e.g. paperwork).

[1] [https://bitex.la](https://bitex.la)

------
ckastner
_I know of one such case where the user had sold a car for bitcoins years ago,
and wanted to cash in on the current bubble. The best the exchange could come
up with was sending it in daily in amounts of several thousand dollars_

Are all Bitcoin exchanges like this?

I'd be _very_ distraught if someone wouldn't allow me to withdraw my full
balance.

~~~
thefreeman
It's all based on your level of verification with the exchange. At the maximum
(level 4) verification on Kraken you are limited to $100,000 withdrawal per
day or $500,000 per month. So while he still wouldn't be able to withdraw the
full amount at once, it is not nearly as bad as the author makes it sound.

~~~
davidgerard
Lots of people can cash out, but really, lots of people can't. Money suspended
in mid-air from Coinbase for an indefinite length of time is becoming a
_standard_ consumer experience.

Perhaps retail investors shouldn't go near bitcoin, in which case I completely
agree.

I'd love to know what proportion of transfers from Coinbase end up stuck in
mid-air; I did ask them, but of course they haven't time to answer email from
some blogger.

~~~
ryanwaggoner
This is ridiculous. I’ve read hundreds of stories about people who have had
issues with Coinbase. I’m sure they’re the tip of the iceberg and there are
actually thousands or even hundreds of thousands having issues.

But Coinbase has many tens of millions of users, so it’s still probably a
small fraction. And by your own admission, you have no idea, so stating that
it’s “the standard experience” is just more anti-cryptocurrency FUD like your
article series.

EDIT: it’s actually 13 million as of Dec 1. The point stands: 100,000 users
having issues is still less than 1%.

~~~
davidgerard
Literally any bank having 100,000 fucked-over customers would consider it - or
be made to consider it - an issue, and any reasonable person would consider it
a matter of _tremendous_ concern.

Would you consider it a matter of no concern if it was your bank, rather than
something bitcoin-related?

------
thisisit
KYC/AML is going to be the biggest bone of contention going forward. Given the
rising complexity of online transfers lot of countries are now rolling out
laws which require banks to track _source of funds_. Any transfers which
happen outside _known sources_ is promptly reported to government authorities.

Then there are transfers from _high risk_ companies. Coinbase seems to be one
of them. With the bitcoin prices going through the roof, IRS and DHS will be
keenly interested in the flow of money.

~~~
nerdponx
_Contact your bank first. Be prepared to provide the full history of every
crypto you’ve ever touched and where the money for it came from. Be prepared
to give enough information to your tax office that they could reconstruct you
from a nail clipping. If it’s any substantial sum, get a proper accountant._

Exchanges, at least in countries like the US, could add a lot of value by
offering IRS- and KYC/AML-friendly transaction history reports.

------
aviv
Cryptocurrencies' weakest link are the exchangers. There is a greater than
zero chance that a well known US exchanger will have their US offices raided
by authorities in 2018-19 after a terror attack of some sort will be linked to
cryptocurrency financing, whether true or not. Assets would then be seized
indefinitely. If Bitcoin fails, it will be because of the exchangers.

For this reason (and others), do not ever store your coins in an exchange
wallet.

~~~
maxerickson
The other side of it is that it wouldn't be at $15000 without exchange buyers.

------
ryan-c
If you have cryptocurrencies, you should set up accounts on exchanges well in
advance, and request substantial limit increases. Also, don't keep a balance
you're on actively trading with on exchanges.

------
tacon
"But what happens when a fourth use of money is introduced, one which
subordinates all the other characteristics: money as a system of control?"

[https://www.youtube.com/watch?v=FyK4P7ZdOK8&t=382s](https://www.youtube.com/watch?v=FyK4P7ZdOK8&t=382s)

------
rboyd
These sensationalist articles serve as indirect spam for OP's 180-pg book on
Amazon. Millions of people are transacting in crypto (including trading for
national currencies) every day.

Bitcoin is trading on the CBOE/CME now for heaven's sake. Please apply your
talents to something more constructive.

