Chile’s Supreme Court Upholds Bank’s Decision To Close Crypto Exchange’s Bank Accounts
On December 4, 2018, Latin America held the laBITconf conference, the most important Bitcoin gathering in the region.
Coincidentally, the conference was held in Santiago, Chile. And on the eve of this conference, Chile’s Supreme Court ruled against an appeal before it, in the case between Chilean cryptocurrency exchange Orionx and Banco del Estado de Chile.
Orionx filed the case under the “recurso de protección”- a court procedure in which a plaintiff seeks an injunction against a defendant whose actions affect a plaintiff’s constitutional rights.
In such a case, the plaintiff prays for a quick and urgent solution from the court.
Here is the problem: the bank, BancoEstado is said to have suddenly closed bank accounts belonging to crypto exchange Orionx.
The Court of Appeal had earlier found BancoEstado’s actions to be “unilateral and illegal.” The bank’s actions were also reportedly hinged on a termination clause inserted in the account opening agreement between the two parties.
In its defense, BancoEstado maintains that it acted within the law, citing its anti-money laundering (AML) manuals.
According to these rules, the bank was not obligated to work with customers who deal in the exchange of crypto assets, especially where such activities are not regulated under a formal regulatory framework.
However, according to Andrés Chomczyk, an attorney in the U.S., Orionx suffered an injustice when Chile’s highest court threw out its appeal. Chomczyk said that the crypto exchange’s constitutional right was trampled upon- the right to open and operate an account.
The legal expert says that this is an entirely legal activity, given that Chilean laws and regulations do not prohibit companies or individuals from exchanging digital currencies.
The court ignored a fundamental principle
The Chilean Supreme Court’s decision made a glaring omission- it noticeably disregarded “the principle of permission.”
As Chomczyk put it in the Crypto Case Minute, the principle allows individuals to engage in or practice any activity that isn’t expressly forbidden under the law.
The court’s judgment, therefore, did not consider this and also ignored the fact that Orionx’s activities fall under the purview of the wider legal system.
For example, the exchange’s services adhere to consumer protection regulations, which apply to every business regardless of the activities in question.
Orionx had argued that the bank’s decision to close the accounts was abusive and unlawful. The exchange maintained that the bank’s reason wasn’t foreseen among those that authorized a unilateral decision to terminate their agreement.
But the Supreme Court reportedly determined that reasons in the agreement between the bank and the crypto platform were simply enunciative. It added that BancoEstado’s allegations were valid and that it acted within the law in terminating the agreement and closing the accounts.
The Supreme Court’s decision is a setback (to crypto firms and businesses) because it lends credence to the practice of inserting abusive clauses within agreements.
The ruling could also turn out to be a fatal blow to Chile’s crypto ecosystem if financial institutions are allowed to get away with such actions. It also leaves crypto-related businesses without any form of constitutional protection.
Disclaimer: This is not investment advice. Cryptocurrencies are highly volatile assets and are very risky investments. Do your research and consult an investment professional before investing. Never invest more than you can afford to lose. Never borrow money to invest in cryptocurrencies.