If you’re ever tempted to sue your bank, look out for duty and reasonableness.

by Edmund Yong

If you are planning to mount legal action against your bank for refusing to open an account or closing your existing account, here are some notable precedents around the world. Needless to say, the winning cases are few and far between but are worth taking a look.

Let’s start with Israel which has a surprisingly crypto-friendly judiciary. It helps that under Israeli law, banks have a duty to provide banking services and cannot “unreasonably refuse” to do so. Pursuant to section 2(a) of the Banking (Service to Customer) Law 1981, banks have to accept deposits, open and maintain accounts, so long as it has a credit balance in favour of the customer, and the customer abides by the terms and conditions.

Duty to Provide Banking Services

In Feb 2018, Bits of Gold exchange won a court order against Bank Leumi to stop the bank from unilaterally shutting down its account. This played out as a showdown between the leading crypto brokerage platform fighting for survival against one of the nation’s largest banks. The decision was later upheld on appeal in Jun 2019 by the Supreme Court, the highest court in Israel, and both sides reached a settlement.

Some background: Bits of Gold (BoG) is a licensed cryptocurrency dealer and has been operating its account on good standing since 2013 without incident. But a regulatory warning in 2014 from the Bank of Israel had put the banking industry on alert and BoG’s rapid business expansion started to raise red flags at the bank.

In allowing for the temporary injunction on Bank Leumi, Judge Anat Baron reasoned that BoG’s existence would be endangered if its account was permanently blocked. The injunction would neither affect Bank Leumi’s right to examine individual activities in the account, nor would it affect the bank’s ability to take risk mitigation steps which it has proven ability to do so in the past. Furthermore, Bank Leumi can always seek remedy if it incurs damages as a result of the injunction. The court had to properly balance between the duty of a bank to provide banking services vis-à-vis its responsibility to prevent illegal activities like money laundering and financing of terrorism (ML-FT).

She remarked in her ruling: “It appears that the damages that the bank might incur are mere speculations for now. The decision of the bank is based on the assumption that the company’s activity indeed carries risks that arise in violation of the provisions of the law, and therefore the bank is liable to pay a price for the materialization of those risks. However until now, for more than 5 years in which the account has been operating, these fears have not materialized as the District Court has determined that the company acted transparently and did not violate any statutory provision.”

On appeal, the three judges presiding over the case stated that BoG can continue with business as usual in compliance with any future regulations as and when they are issued.

The Test of Reasonableness 

In Mar 2019, the Tel Aviv District Court decided that the Union Bank of Israel (Bank Igud) will not be allowed to close the account of local crypto mining company Israminers Ltd. The dispute started a year prior when the bank refused to accept deposits by Israminers originating from the exchange of crypto-to-fiat, blocked their use of funds to purchase mining hardware, and subsequently issued them a 30-day notice to close their accounts. Israminers sued the bank claiming that this action was unreasonable.

In her response to this, the Judge Limor Bibi wrote: “I believe that the sweeping policy, which does not distinguish between different types of activity, scope of activity and different types of customers – in the field of digital currencies – is unreasonable.” The bank went too far as “it will not be possible to open and manage accounts for customers engaged in providing services related to virtual currencies.”

However, this was not a solid win for Israminers. The bank has the right to refuse the customer’s requests to deposit fiat money if it is coming from questionable or unverifiable sources, as it may put it at ML-FT risk. “In these circumstances, I find the bank’s argument that, given that the ‘money trail’, as defined, in terms of sales in a trading arena to an unknown factor which knowledge of it haven’t been proven, creates risks of money laundering. As a result, I find the bank’s refusal to provide service with regard to the receipt of the money deposited in the account as reasonable.”

Incidentally, the same Judge Limor Bibi had sat on a previous case involving Bank Hapoalim, Israel’s largest bank, which used ML-FT as an excuse to block a bitcoin transaction in May 2018:

A father-and-son client of the bank (Shalom and Lior Simon) was denied an incoming transfer of $195,488 from a European crypto trading venue into their account. The bank claimed that there was a reasonable basis for concern that transaction was linked to ML-FT, despite the existence of documents showing the exact source and destination of funds for both parties. In addition, the transaction was duly reported by the client to the Israel Tax Authority. None of this was sufficient to convince the bank, which rejected the transaction and refunded the funds.

The court ordered the bank to deposit the funds into the client’s account immediately as the transaction was properly documented with no real suspicion of ML-FT or tax offenses. For their part, the client agreed to sign an IRS W8 form declaring that they have no linkage to the US.

Notwithstanding the above, the ML-FT argument is gaining traction in Europe. It had tipped the Oslo District Court in Norway in favor of the nation’s largest bank Nordea against a local crypto exchange Bitmynt. The court said the bank has full rights to close the account of the exchange: “After a global assessment, there is no doubt that the risk of money laundering and transactions related to criminal offenses is clearly elevated by bitcoin trade… The court finds it clear that this risk constitutes an objective reason for the bank to deny customer relationships under the Financial Contracts Act §21.”

Constitutional Right to Banking?

For sake of discussion, is there a basic civil right for banking services? It is certainly not a basic fundamental for human life like clean drinking water. But civil rights denote the right to participate in all aspects of civic life, social political and economic, free from repression and discrimination – not so much the right to bank (for one’s physical survival), but the right not to be discriminated or excluded from banking. Wouldn’t it be interesting if there is case law for this in the crypto context!

The answer is curiously yes and we’re about to find out more in the next article.

[Click here for Part 2]


General news articles, mostly from Finance Magnates and Bitcoin News. Court rulings are in public domain. Israeli banking legislation can be viewed at: