DNB denies whitelisting requirement, legal process Bitonic continues

The last word on the whitelisting of wallets in the new ‘crypto law’ has not yet been spoken. Bitonic recently took De Nederlandsche Bank (DNB) to court because the hard verification requirement does not arise from the law. However, DNB now states in a letter that the requirement was never made. Bitonic continues the legal process, so that clarity is created in court.

Last year in May, the so-called ‘AMLD5’ became active in the Netherlands. According to this law, Dutch Bitcoin companies are required to register with De Nederlandsche Bank (DNB) and verify the identities of their customers, in order to prevent money laundering and terrorist financing.

The registration obligation, which would not be a licensing regime, led to great commotion within the sector. Two months before the deadline for registration, only one company had received the necessary registration from DNB.

Whitelisting requirement

In September, DNB suddenly stated in a webinar and news item that the Sanctions Act would result in a strict requirement to take technical measures to verify the management of bitcoin addresses and to verify the identity of the beneficiary.

DNB indicated that this can be done by ‘whitelisting’ bitcoin addresses using screen sharing or video calling, by asking customers to send a screenshot of their wallet or via message signing . In practice, this means that all customers must do a wallet verification for each bitcoin address they want to use. The companies were free to choose which method exactly, but it had to be a technical solution.

This made transactions from and to third parties practically unworkable, because the beneficiary must then also be verified. As a result, Bitcoin companies should not only have a Know-Your-Customer (KYC) policy, but also a Know-Your-Customer’s-Counterparty (KYCC) policy.

Immediately after the announcement of the technical requirement, companies indicated to DNB that it does not as such arise from the Sanctions Act. They immediately reported to the Ministry of Finance with a substantiated letter showing this. However, the Ministry of Finance referred back to DNB as supervisor. DNB then refused to enter into discussions with a delegation from the market because it considered the discussion per individual company to be sufficient.

In collaboration with the trade association United Bitcoin Companies of the Netherlands (VBNL), 25 of the 38 Bitcoin companies that were awaiting registration sounded the alarm on November 2. They wrote in an urgent letter that the last minute requirement does not arise from the law and that DNB was not yet formally the supervisor of the Sanctions Act. However, during a subsequent meeting between the letter writers and DNB on 16 November 2020, DNB insisted on the requirement.

With the knife to the throat and an approaching deadline, many Bitcoin companies were therefore forced to implement the measures headlong – whether or not under protest. Since then, 16 Bitcoin companies have been registered. The rest are still pending.

Justice Bitonic

Bitonic recently announced that it is going to court over the issue. In this way, Bitonic wants to have the legality of the claim tested and get clarification.

However, DNB now states, in response to the letter of 2 November, that it would never have made the whitelisting requirement strict. According to DNB, they have only given examples, but these are not hard requirements. According to DNB, bitcoin companies are allowed to give substance to the way in which they comply with the Sanctions Act. “Other ways are also conceivable” , according to DNB.

In practice, however, it appears that any other than a technical interpretation is not considered sufficient, so that no registration takes place. Without clarification on what other ways are acceptable, Bitcoin companies have no choice but to implement the technical control measure, or else to suspend their services. According to the VBNL, this makes it a de facto technical requirement.

According to the sector, DNB always presented whitelisting as a standard and minimum requirement. DNB is said to have clarified in individual discussions, as well as the collective discussion on 16 November, that registration will only be granted if companies meet the newly set standard.

There is now great confusion in the sector. When looking at VBNL’s questions in conjunction with DNB’s answers, it is clear that many questions are still unanswered. It is positive that the letter clarifies that two important objections raised by the sector on 2 November are now recognized by DNB, now three months later: there is no legal requirement for the requirement and DNB was not a supervisor under the Sanctions Act on 2 November.

Nevertheless, the requirements are still shown on DNB’s website as a supervisory requirement, which means that the formal situation has not come to an end. The legal ambiguity therefore remains at least as great as it was.

Review by judge

It is now known that the preliminary relief judge will consider the difference of opinion on March 23. This is in line with Bitonic’s wish for an independent judicial review to take place.

Update 18-02: VBNL has now sent a response to the letter from DNB, which once again confirms that the same minimum requirement was applied to all companies. You can read the letter here.

We have previously written about the entry into force of the crypto law and also about the upheaval in the sector when it turned out that the registration system resembled a licensing regime. You can read more about the fire letter in November here.

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