Recently, Kinnard Hockenhull got a call from his bank saying that they’d decided to shut down his account. For Hockenhull, this was potentially fatal news to his business. He’d been working on getting a venture-funded Bitcoin exchange off the ground, and without a U.S. bank account, he’d have no way to pay out customers in dollars.
The bank, Comerica, gave “no reason” for the closure, Hockenhull said in an email interview. “When I asked if anything was wrong, they insisted nothing was wrong.” The way he sees it, even though his company, BitBox, was in a legitimate line of business, Comerica — like other U.S. banks — seems to have developed cold feet about doing business with Bitcoin businesses lately, for fear that they will run afoul of U.S. financial regulators. Comerica declined to comment for this story.
In April, Bitfloor, the world’s fourth-largest Bitcoin exchange, shut its doors after its bank refused to do business with it. The feds want banks to do business with companies that can identify their customers in the event of a criminal investigation, and many banks don’t seem to have the time or the inclination to figure out who is doing a good job of this and who is not. That lack of banking certainty can make things tough for a startup business like BitBox — which only accepts U.S. customers.
And then, the Internet Archive came to the rescue. Yes, the Internet Archive. The outfit that so diligently records our web history also runs its own bank — The Internet Archive Federal Credit Union, or IAFCU, based out of New Brunswick, New Jersey. And when Hockenhull needed somewhere to turn, Internet Archive founder Brewster Kahle gave him the means to keep his company alive. Since then, the IAFCU has taken on a half-dozen Bitcoin businesses, such as BitBox, giving them a critical link to the U.S. financial system.
Not all of the Internet Archive Credit Union’s customers have been dumped by their banks, but given the problems that some Bitcoin businesses have with U.S. financial institutions, they want to stay one step ahead of the banks. “A lot of these places basically say, ‘Look, if they haven’t shut us down now, they’re might shut us down soon,’” says Jordan Modell, the IAFCU’s CEO.
Earlier this year the Treasury Department agency chartered with setting anti-money laundering guidelines spelled out what Bitcoin businesses need to do to ensure that they’re in compliance with federal law. According to observers, the complex guidelines — followed a few months later by a federal action against the largest Bitcoin Exchange, Mt. Gox — have spooked many banks, who don’t feel that doing business with these small Bitcoin companies is worth the potential risk of regulatory scrutiny.
That’s a big mistake, Modell, says. “These are not drug dealers, money launderers, or whatever,” he says. “These are average folks.”
The Internet Archive’s role as the backer of one of the country’s most Bitcoin-friendly financial institutions is a bit of an unlikely tale. Kale and former college buddy Jordan Modell founded the IAFCU last year with the idea that they could help out people in Modell’s community of New Brunswick, New Jersey, while at the same time experimenting with the credit union business itself, to see if there were ways that the credit union model could be brought into the 21st century. “We’re trying to actually in a way bring credit unions forward by their bootstraps,” says Modell