No More Bitcoin for Nordea Bank Employees, Experts Question the Motive

An act of paternalism or a case of generic Bitcoin (BTC) distrust? It is hard to make out the exact reasons for Nordea Bank’s ban on its 31,500 employees trading in Bitcoin or other cryptocurrencies — even on their own time — a prohibition that was upheld on Dec. 2 by a Danish court.

In a press release posted by the court following its ruling, Nordea Bank noted that, “Employees are permitted to keep any existing [crypto] holdings,” though it added that they were encouraged to sell them.

As reported by Cointelegraph, Denmark’s finance industry union, Finansforbundet, brought a class-action lawsuit against Nordea’s cryptocurrency prohibition in 2018 on the grounds that the ban interfered with employees’ personal lives. It appears that the bank, the largest financial group in the Nordic countries (Denmark, Finland, Iceland, Norway and Sweden), was worried that its employees might unwittingly get mixed up with some unethical or even criminal activities. As a spokesperson for Nordea Bank told Cointelegraph after the Copenhagen labor court’s decision:

“The market for crypto-currencies is unregulated and not transparent. It makes it hard to monitor where the money comes from. It increases the risk that investors, including our employees, may unwillingly get involved in activities that are unethical or outright illegal.”

He added that, “We are satisfied that the court ruled in our favour.” In the aftermath of the decision, however, others accused the bank of overreach. Jacob Pouncey, treasurer of the Nordic Blockchain Association, told Cointelegraph:

“It [the decision] is allowing a corporation to impede the private lives of its employees. It is infringing upon the personal freedoms of its employees.”

The bank’s prerogative?

In one sense, there is nothing out of the ordinary in Nordea’s prohibition. Some crypto exchanges have prohibited crypto purchases among employees, and specialized personnel within larger financial organizations, like commodities traders, are often subject to restrictions on their personal assets.

Crypto startup Seed CX, for instance, advertised on its website that it allows: “No personal cryptocurrency trading by employees.” Jeremy E. Deutsch, an attorney from Anderson Kill, told Cointelegraph he doesn’t necessarily see a legal problem with the Bitcoin-trading prohibition, “Clearly banks have the ability to regulate the securities trading of their own employees, and to have all things in place to ensure that they’re not engaging in insider trading.” What’s unusual here, though, is the breadth of the ban. Deutsch said:

“They’ve banned an entire asset class. It’s not like they’re saying, ‘You can’t trade in Amerian Express because we’re doing work for them.’ What they’re saying, rather, is: ‘You can’t own gold. You can’t own oil.’ It doesn’t make sense.”

This sort of prohibition is unique, in the view of Michael Reuter, co-chairman of the Germany-based European Blockchain Association e.V, who told Cointelegraph, “It is highly unusual that a private bank prohibits trading of crypto currencies for all its [31,000-plus] employees. From our experience this could be the first time, ever.”

Nor is this asset class (crypto) so different from more traditional asset classes in terms of risk adjusted returns as measured by Sharpe ratios, added Deutsch. “What exactly is one protecting employees from?” he asked rhetorically. The Danish court’s press release sought to answer the question “Why is Nordea doing this?” with the bank’s own prior statements:

“Investments in cryptocurrency have been restricted due to the unregulated nature of these assets which are not subject to investor protection regulations or authority supervision and related risks including volatility and liquidity risk as well as financial crime risks, e.g. that proceeds that employees might obtain from selling bitcoins derive from criminal activities.”

“The problem with Bitcoins is indeed that they may be used for criminal activities and tax evasion,” Daniël Cuypers, a labor law expert at Belgium’s University of Antwerp, told Cointelegraph. In some cases, the victim may turn to the bank to hold them liable for the acts of their employees.

Related: Criminal Activity in Crypto: The Fact, the Fiction and the Context

But what if the cryptocurrency is purchased outside the job, on the employee’s own time. How does that impact the bank? Cuypers answered:

“This should have no effect on the job. However, it may be that private activities do have negative consequences for the job. It is the impact on the job that matters, e.g., if a bank employee is arrested for financial fraud in private matters it may have a negative impact on the confidence of the [bank’s] clients.”

Nordea argued that its employees “may unwillingly get involved in activities that are unethical or outright illegal activities” if allowed to purchase cryptocurrency on their own time. What’s wrong with that? In Pouncey’s opinion, “Sure the bank has a point, but why not ban any other activity that could lead to unethical or downright illegal activity, such as buying fur coats, drinking, gambling, and other vices.”

Reuter from the European Blockchain Association challenged the notion — presumed by Nordea and held by many others as well — that Bitcoin is an effective means of payment for criminal activities:

“Because Bitcoin is not an anonymous, but a pseudonymous crypto asset, it would be unwise to use it for criminal activities. From the perspective of a criminal: he or she can easily be traced back. In principal, this argument seems to reflect a generic distrust of Bitcoin rather than a comprehensible counter-argument.”

Hostile to crypto?

There is some history here. According to Compliance Week, Nordea Group changed its strategic focus in 2014 from the Baltic states to the Nordic states “in part over concerns it was being used by its international branch customers to launder dirty money.” It had reportedly been under investigation for three years for handling illicit funds tied to Russian criminals.

In June, Nordea Bank Danmark A/S announced that its offices had been raided by Danish prosecutors under suspicion of money laundering. The bank reportedly set aside more than $106 million to cover money laundering probes. Last week, some in the crypto community seemed to feel that Nordea’s employees were paying for the bank’s transgressions. As Pouncey told Cointelegraph:

“Nordea has been connected to hundreds of millions of dollars worth of suspicious money flows. Would you say any employee working at the bank is directly or indirectly engaging in unethical or outright illegal activities simply by doing their daily task that keeps the bank running? The bank should focus on policing its own unethical or outright illegal activities first, then focus on its employees’ actions outside of work.”

An analyst that goes by the name “Rhythm” had this comment on Twitter in the wake of the court ruling on Dec. 2, “They told their staff that ‘the risks were too high.’ This is coming from the same bank that was raided by police for allegedly laundering $793 million of Russian money.”

“The crypto industry is lurching slowly toward greater regulation, oversight and transparency,” Deutsch told Cointelegraph, so for the bank to argue that it needed to protect its employees and protect itself against an unregulated, opaque market doesn’t really hold water (though that claim might have had merit three years ago, he allowed).

Deutsch added, “They are within their rights, but to prohibit every single employee from trading cryptocurrencies — including the janitors and people who work in the cafeteria — seems weird.” Pouncey told Cointelegraph that the bank may have gone too far:

“Owning crypto is not illegal in Denmark, nor is purchasing it. Yet because I work at a bank that has been suspected of laundering millions annually, I am unable to purchase cryptocurrencies despite studies showing that only a small volume of crypto transactions are actually for illicit purposes.”

The Danish court’s decision will likely be appealed, Pouncey said. This ban is impossible to enforce — a Nordea employee could buy crypto with cash or from an account outside of Nordea field of vision — “however, it will deter people,” he said. Nordea clearly overreacted, in the view of Reuter:

“Cryptoassets are in most cases unregulated assets that should be addressed in the same way as other unregulated assets. That said, we don‘t regard this decision as a watershed event in the way that more or many banks will follow.”

Overall, a benevolent reading of Nordea’s controversial Bitcoin prohibition is that it is a bit clumsy and paternalistic — protecting its employees from themselves, as it were. The darker view is the bank is using crypto as a scapegoat for its legal transgressions.

EU Won’t Let Stablecoins Enter Its Market Until Risks Are Addressed

No global stablecoin project will begin operation in the European Union (EU) until the associated risks to monetary sovereignty are addressed, according to EU authorities.

In a joint statement adopted by the Council of the European Union and the European Commission (EC), the Council and the Commission admitted that stablecoins may be effective at providing cheap and fast payments, but they have far more risks and challenges.

The statement was approved by the Economic and Financial Affairs Council (ECOFIN), one of the oldest configurations of the Council, on Dec. 5, based on the data in an official document released in late November.

It’s not clear whether the new statement will somehow affect any further course of action or would become the basis for anything legally binding. Cointelegraph contacted the Council’s press officer for comment but the representatives available were evasive.

Stablecoins’ potential to facilitate cross-border payments vs associated risks

In their statement, the EU authorities have outlined multiple risks and issues associated with adoption of stablecoins — digital currencies pegged to another asset to prevent volatility usually seen in cryptocurrencies. If adopted on a global scale, stablecoins pose a threat to monetary sovereignty, the Council and the Commission argued.

The statement reads:

“These arrangements pose multifaceted challenges and risks related for example to consumer protection, privacy, taxation, cyber security and operational resilience, money laundering, terrorism financing, market integrity, governance and legal certainty. [..] These concerns are likely to be amplified and new potential risks to monetary sovereignty, monetary policy, the safety and efficiency of payment systems, financial stability, and fair competition can arise.”

Challenges raised by global stablecoins require a coordinated global response

As such, solving the challenges raised by global stablecoins requires coordinated efforts from global jurisdictions, the authorities noted. Moreover, entities that plan to issue stablecoins in the EU should provide “full and adequate information urgently to allow for a proper assessment against the applicable existing rules,” the statement notes.

The Council and the Commission concluded:

“No global ‘stablecoin’ arrangement should begin operation in the European Union until the legal, regulatory and oversight challenges and risks have been adequately identified and addressed.”

While pointing out a number of risks associated with stablecoins, the EU authorities noted that they welcome central banks working to assess the costs and benefits of central bank digital currencies (CBDCs) and working on providing fast and inexpensive cross-border payments.

Yesterday, the governor of the central bank of France announced the bank’s plans to pilot a CBDC financial institutions in 2020. The official stated that the bank will start testing the digital euro project by the end of the first quarter 2020.

China’s CBDC Showcases Interoperability As Centralization’s Weakness

The Asian continent and particularly China have been making news and inducing bull runs in the cryptocurrency world these past few months, starting with President Xi Jinping’s comments and progressing to crackdowns. 

The main question driving the conversation is the Chinese government’s sudden advocacy for blockchain systems and a specific interest in being the first major international power to create a national cryptocurrency, and state-sponsored blockchain solutions. 

Centralized powers contradict the decentralization movement

While the focus is on China, we must remember it is a centralized government with immense state power and, according to some, a history of governmental overreach. Their steps into cryptocurrency may create interoperability issues with public blockchains and other countries’ currencies that may not fit to state-run standards.

Xi announced particular interest in the blockchain tech and highlighted that the country is working hard and implementing feasibility studies. These plans are meant to ensure that individuals and businesses make both national and international transactions using blockchain when it makes business sense. 

The state-sponsored Bluebook

In the Chinese-sponsored Bluebook of Blockchain, it is claimed that over $110 billion yuan are involved in “black industries” such as cyber fraud, making it China’s third-largest “black industry.” 

How the government is defining cybercrime presents an issue, as it has not specified money laundering or something else of the like — just that it is a black industry. While it may seem clear at first blush, this vague designation allows for centralized entities to enact control on currency, something Bitcoin (BTC) aims to eradicate. 

According to the Bluebook, there are over 28,000 cryptocurrency companies operating in China. However, in a bull warning, the idea is not to trigger Chinese crypto enthusiasts to invest more in decentralized currencies like Bitcoin, Ether, or Ethereum Classic, but rather to bring more attention to the People’s Bank of China as they gear up to launch the first-ever central bank digital currency, or CBDC.

Related: US Fed Weighs Up Potential CBDC as Countermove Against China

Sharp Ye, a Beijing-based blockchain Partner of Boom Blockchain, a firm focused on introducing projects to China, told Cointelegraph, “China will continue to pay more and more attention to the blockchain, because this is the next point of economic growth.”

The Bluebook to crackdown

China’s blockchain plans have been in motion for some years, and the People’s Bank of China has completed a CBDC prototype. With the government’s support over the years, the bank has been able to speed up the creation and implementation of this national currency, yet is still not considered the blockchain leader when compared to the United States. 

The substantial risk to companies that have issued or will issue currencies in China is worth noting. The government has put all issuers on notice through an official announcement and can legally stifle small projects to bolster its own state-run solutions. With over 25,000 companies issuing coins, close to 3,000 are utilizing blockchain technology in their business processes and, therefore, appear to be directly at risk. Within the last year, the number of transactions made using Alibaba and WeChat pay services totaled 57 billion — significantly more than Bitcoin, Ether, and XRP put together.

The announcement from the PBoC states that, “If investors see activities and operations related to virtual currencies in any form, they can report to authorities,” thereby putting all currency issuers on notice. 

Despite government clampdowns, which directly impact market activity (something state-run media warned against), it appears that cryptocurrency is on a strong legalization path in the country following the Blueprint report. However, decentralization could potentially be sacrificed so that the technology can exist in China and be interoperable with their own currency. 

Recently, the government has banned articles and statements claiming that blockchain is a scam as well as any other sentiments that downgrade the authenticity of blockchain technology or cryptocurrency. Just within the last year, more than $5 billion dollars have been allocated to Chinese state-sponsored blockchain systems. 

Related: China’s Dive Into Blockchain, Digital ID Spurs Rest of World to Action

The administrations of individual cities and provinces have financed these funds, and interest continues to rise. Since Xi’s pro-blockchain announcement in late October, the number of searches for “blockchain” on WeChat alone has multiplied by more than 10.

Weighing crackdowns with economic concerns and stimulus 

The real issue is not in raising the acceptability of crypto, but making a CBDC function under decentralized blockchain technology. So, why exactly does the government want to create a centralized technology?

There have been many controversial comments and views of analysts and individuals since the PBoC deputy director, Mu Changchun, made the statement at China’s state-run forum, Finance 40. He indicated that the new national currency would be operated in a two-tier system, with the PBoC being on top and commercial banks allowed in the second part of the centralized system. The reasons given by the director is to enable an evenly distributed responsibility between the commercial banks and to maintain healthy competition between them. 

Of all these points, individuals as well as some analysts still believe that a centralized currency with controlled and monitored interactions does not fit the original goals of Bitcoin or blockchain technology.

Some argue that this method will not allow investors private and personalized transactions anymore, a facet that helped spur Bitcoin in the first place. With a centralized setup, the Chinese government would be able to monitor all transactions and assets of individuals, unlike a decentralized system. Others claim that this new introduction into the system is to limit the lending capability of the commercial banks and to monitor and maintain the flow of money through the system.

Tradewar uncertainties making analysts speculate

Some analysts are pointing to a more international strategy for the trade war between the U.S. and China, and they believe this national currency will give the Chinese yuan an edge over dollars in no time. China believes it can achieve the blockchain advantage over the U.S. by being swift and concise with their policies and strategies.

Related: US and China Battle for Blockchain Dominance

Facebook’s Libra is another point that many people consider the reason behind China’s CBDC as well as its centralization effects. The Chinese government wants to maintain its standard or, more likely, consolidate their usability chokepoint by controlling how money can be spent within the system. But does this mean Libra will cave to the centralized standard for interoperability with the large Chinese market? Too soon to tell.

Among all debates concerning the decentralization strategy is which public chains will be chosen. The Chinese government has shown support for BTC through scrapping its plan to ban Bitcoin mining, while it is no secret that Ethereum hopes to be interoperable with the Chinese CBDC, as co-founder Joseph Lubin spoke on the matter directly. It is no longer news that the Chinese economy has a significant influence in the digital currency market and that notable investors inside China have billions invested in Bitcoin and mining activities.

Terry Culver, CEO of ETC Labs and general partner of Digital Finance Group — a leading blockchain venture group with offices in Shanghai — stated to Cointelegraph that interoperability should be an important goal for the ecosystem: 

“Interoperability amongst the entire blockchain ecosystem is important. It leads to greater innovation, wider adoption, and thriving communities. As long as we recognize our shared values such as immutability and censorship resistance, interoperability shouldn’t be an issue.”

If the Chinese CBDC turns out to be successful and the government’s alleged centralization strategy is implemented, investors and traders may begin to look into further blockchain implementations. This mass adoption ripple effect could drastically impact the blockchain industry. 

So far, both investors and issuers have been affected by market slides due to news or speculations on the future of Chinese adoption. Although both the Chinese government and the PBoC are attempting to exert control, they will find it quite challenging to eradicate Bitcoin as well as other fully decentralized Fintech solutions from the market. 

The central bank’s largest weapon will be limited interoperability between its own currency and foreign entities operating in the country. They can also continue to crackdown on means of crypto through centralized exchanges. Still, the feasibility of interoperability with decentralized tokens is quite low.

While discussing the future with Cointelegraph, Wulf A. Kaal, Ph.D. at Kaal.io — a tech consulting firm that focuses on emerging and distributed technologies — remarked:

“China’s attempts to venture into cryptocurrencies are overall a much-welcomed development as it creates regulatory and economic competition in decentralized infrastructure solutions.”

Kaal also believes that China will be in a position to use U.S.-based open-source developments and use them to race ahead. He continued:

“It is hard to see that the Chinese government would seriously consider a truly decentralized token. We would be able to debate what “decentralized” will mean in the case of China. If we agree that “decentralized” would mean, at a minimum, a token that is censorship-resistant, autonomous, and anonymous, it is hard to see the Chinese government facilitating that.” 

Sowing the seeds of doubt

At the end of November, a crypto news service claimed that the Chinese police had shut down and raided the Binance office in Shanghai. Although the exchange’s CEO and a Malta-based spokesperson have both debunked the news, stating that Binance does not even operate a Shanghai office, the consequent social media frenzy and market panic provides cause for the Chinese government to rid itself of the concept of decentralization and establish centralized entities. 

These claims involving Binance show the risks associated with decentralization and gives the Chinese government more incentive to consolidate media and developments surrounding blockchain technology.

The effort to fight such fears must be a group effort by the decentralized community, rather than relying on the government to filter truth. For decentralized currencies, there is incentive to being interoperable with centralized currencies, but blockchain’s original intent of decentralization must be honored. 

While the idea of a decentralized system being interoperable with centralized currencies would be the best-case scenario here, the community must adhere blockchain’s founding concepts of immutability and decentralization to remain unadulterated along the way. When speaking with Cointelegraph on interoperability between centralized and decentralized systems, outspoken crypto pioneer John McAfee said:

“The Chinese, and all corporate and government coins will be nothing more than surveillance systems for your financial transactions. Don’t use them, [decentralization will live on].”

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