Why banks are blocking your crypto purchase

Over the last week or so I’ve seen a few comments about banks blocking cryptocurrency purchases. I understand the animosity many of you hold towards banks due to their handling of cryptocurrency purchases but I thought it might be interesting to some of you to get an insight into the perspective of those who work there, at least at the mid to lower level.

Until recently I worked in a financial crime team for a nationwide bank and it was one of the more crypto-neutral banks. The role comprised of supporting victims of fraud, securing their accounts, investigating fraud cases and of course tracing and recovering stolen funds where possible. I had been involved in crypto for several years when I joined the team but chose to keep this to myself as it seemed that the general consensus in my team and the fraud department as a whole was that crypto was a giant ponzi scheme full of scammers, which to be fair, isn’t entirely untrue.

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The two below cases have stayed with me for different reasons. Imagine working at a bank and dealing with the below customers:

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• A young man called up as he had joined a telegram group to seek “crypto investment advice”. He had paid $1000 in crypto for “exclusive technical analysis”. Reading between the lines it seemed that he had joined a paid signals group but was trying to conceal it. He told me he had fell afoul of the mods and was banned. He asked if we could get his money back. I had to explain that his crypto transaction was irreversible, which he knew. He then asked if we could submit a chargeback against the crypto exchange that he had bought the crypto from before withdrawing. We could, but we’re not going to as the crypto exchange is not at fault. They left an unhappy customer and eventually ended up closing their account.
• There was a case of a middle-aged man who had deposited in excess of $100k in BTC over the span of two weeks to a niche crypto exchange which specialized in a dogecoin knock-off. He had been approached online by an ‘investment analyst’ who shared the unique opportunity of getting in early on the next memecoin. He started with small amounts to play it safe. However, every time he logged onto the exchange he was up another several thousand dollars. So, he kept on depositing more and more. After two weeks he decided to sell a portion of his profits. Of course, he couldn’t withdraw. First, he needed to provide ID. Then proof of address. Then he needed to provide source of funds. His evidence of source of funds were deemed insufficient by the exchanges AML team and he was subsequently locked out of his account. A day after he called us the site became defunct. The website was registered offshore. We couldn’t help him other than provide a sympathetic ear. Fortunately, he told me he owned his own business and that’s why he had the excess money to invest. So to him, the loss wasn’t life-ending but he was certainly distraught by the experience. He was more understanding of our inability to recover the funds but was still upset we didn't call him and question him about large bank transfers to the legit crypto exchange as we may have made him realize he was getting scammed and he may have not sent as much money.

You may have noticed that the above cases were victims who were somewhat experienced in crypto, in that they at least knew how to withdraw crypto from an exchange. However, by far the most prevalent crypto scam (well in excess of 95% of crypto-related cases) were the bitcoin pop-up adverts. It was overwhelmingly the older generation who fell for this scam. In one case, an elderly victim referred to Bitcoin as “bitcorn” throughout the entire twenty-minute phone call. If you’ve ever disabled your adblocker, you’re probably aware of these pop-up ads like the one below:

How everyone can become a millionaire..

They’d click the advert, enter their personal details and in an hour or so later they would receive a phone call from a ‘broker’. The broker would sell them the investment and explain that it doesn’t matter how inexperienced they are as they would manage it all for them. They would just need them to send over their identity documentation to get started: passport, driving licence, bank statements and so on. Sometimes, they’d even ask for a photo of the victim holding their passport with a sheet of paper with the date written on. The scammer would then open an account on a crypto exchange under their identity and then walk the victim through on how to send a bank transfer over to the exchange with the account reference. It was typically a matter of weeks of the ‘broker’ continuously pressuring the victim to deposit more and more money until they realized they were being scammed. The vast majority of the time we were not able to recover the funds from the crypto exchanges as the scammer had already withdrawn the crypto and understandably, the exchanges refused to accept any liability.

I probably dealt with around 5-6 cases where the elderly victim broke down in tears when I informed them that we could not recover the funds, which were typically their life savings. Some of the calls were honestly heart-breaking. Reports were written up and sent to the authorities but nothing would ever come of it to the point that it became more of a formality than anything else.

Pretty much all the fraud cases related to crypto ended in a Sorry For Your Loss from us to the victim.

Crypto may very well be seen as a threat with the upper echelons of the banking industry but the fact of the matter was is that it is just a giant headache for fraud departments more than anything else. The amount of crypto-related fraud cases continually increases. It effected SLAs for fraud investigations which also led to the success rate of recovery with other types of fraud to decrease too as time is always of the essence. Victims would become upset with us when we couldn’t recover funds which in turn effected the bank’s image. Warnings were put up before bank transfers could be submitted, emails were sent out to customers warning them of fraud, including crypto-related fraud but it wasn’t enough to make a noticeable difference.

Eventually higher-ups in the bank I worked at made a choice. Many types of fraud are hard for banks to block but with crypto they had the ability to block transfers to the business bank accounts of crypto exchanges, which is eventually what we ended up doing for most exchanges, at least for bank transfers. With card payments, fraud cases would go through VISA and Mastercard and it was ultimately on them if they were to refund or not.

It’s all well and good put to expect more common sense from the younger victims but most of the victims were the elderly who were often technically illiterate, vulnerable and far too trusting. I raised the idea of blocking business accounts of crypto exchanges based on the users vulnerability status and introducing an age threshold (as to not affect the average crypto buyer) but this was bounced back as being too much work and also opening us up to accusations of discrimination. I left shortly after. In time I do think it will improve, but we're not there yet.

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Needless to say, whenever you have a minute with your elderly relatives, please educate them about the risk of fraud. If they're unsure of someone or something asking for money or some who is sharing an investment opportunity, get them to agree to always speak to a relative first before sending any money.

TLDR: Limited resources, overworked teams and an increasing overall workload and low rate or recovery for crypto-related fraud cases have led banks to make it more difficult for everyone to buy crypto in order to manage fraud case levels.