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Bitfinex Sues Wells Fargo For Suspension of Correspondent Bank Service

The trials and tribulations of running a fintech firm in the money transfer sector were laid bare last week when the parent company of a Hong Kong-based bitcoin exchange, Bitfinex, was forced to file a law suit against Wells Fargo, the financial services company with more than $1.7 trillion in assets.

Brave NewCoin reports that Wells Fargo has suspended the U.S. dollar wire transfer operations Bitfinex depends upon to remit deposits back to their customers purchasing digital currency.

There are 4 plaintiffs in all, demanding a jury trial. iFinex Inc, who operate Bitfinex, BFXNA Inc and BFXWW Inc, wholly owned subsidiaries of iFinex incorporated in the British Virgin Islands, and Tether Limited.

Tether is incorporated in Hong Kong, with offices in Taiwan, and uses Blockchain technology to help its customers store, send and receive digital tokens which are pegged to the dollar, euro, or yen.

The currencies on Tether’s platform are backed by fiat currency assets held by the company, and the platform fully reserved when the sum of all the tethers in circulation are greater than or equal to the reserve balance of the fiat currency.

Bitfinex uses four Taiwan based banks; Hwatai Commercial Bank, KGI Bank, First Commercial Bank and Taishin Bank; to handle its transactions; the exchange currently has $430 million USD worth of digital currency and $130m of customer deposits with the bank.

The banks conduct cross-border wire transfers using Wells Fargo as its “correspondent bank”, but towards the end of March, Wells Fargo informed them that it would no longer provide wire transfers from Bitfinex’ correspondent accounts, despite having done so for the past two years, using the Society for Worldwide Interbank Financial Telecommunication Network, better known as SWIFT.

So far Wells Fargo, which provides banking, insurance, investment mortgage and consumer and commercial finance across 8,700 locations, 12,500 ATMs, 36 countries and on behalf of one on three Americans via its network of 266,000 staff, has not provided any explanation to Bitfinex as to why it has stopped providing wire transfers on behalf of the company, and has not responded to request from Bitfinex for more information.

Wells Fargo are, however, continuing to process incoming wires to Bitfinex accounts.

Bitfinex is seeking damages “in an amount to be determined at trial”, as well as compensatory damages in excess of $75,000 and “further relief” that the court deems just.

The company are seeking a preliminary and permanent injunction against Wells Fargo, preventing it from suspending, rejecting, or refusing to process wire transfers in U.S. dollars from plaintiff’s correspondent accounts.

The possibility of due diligence concerns has been raised by Bitfinex, but they insist that Wells Fargo were aware that the transfers they were conducting were on behalf of Bitfinex, and that a strict Know Your Customer (KYC) process was in place, revealing that Bitfinex were in the business of purchasing currencies.

It’s an issue that Bitfinex, founded in 2013, could no doubt do without – the company has been subject to two hacks; one minor attack in 2015, which followed by a larger scale hack in 2016 which led to the firm “socializing” its losses across all its user accounts, before issuing BFX tokens to represent the debt, which it now says has been paid off in full, using 119,756 bitcoins.

The company was also fined $75,000 for failing to register with the CFTC, after they began offering margin trading to their customers last year.

In a report released in June last year, the IMF highlighted the issue of correspondent banks severing ties with overseas banks. Many countries are reporting that withdrawals have reached critical levels, with Africa, the Caribbean, Central Asia, Europe and the Pacific region the worst affected.

That will be of little comfort to Bitfinex, however, who have a job persuading customers that its assets have not been frozen by Wells Fargo.

The trial will take place in San Francisco, where the decision to cease making the wire transfers was taken.


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