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Israel: Supreme Court Grants Temporary Injunction Ordering Israeli Bank to Provide Banking Services to Bitcoin-Related Account

(Mar. 16, 2018) On February 25, 2018, Israel’s Supreme Court issued a temporary injunction prohibiting a bank from blocking activities in an account, held by a company trading in bitcoin, until an appeal over the district court ruling recognizing the legitimacy of a permanent authorization for such blockage has been decided. (CA 6389/17 Bits of Gold Ltd. v. Bank Leumi LeIsrael Ltd., ¶¶ 3–4, Nevo legal database (in Hebrew, by subscription).)

Bank’s Arguments Against Granting Injunction

The bank argued that its decision to block the company’s activities had been reached in accordance with the 2014 warning by the Bank of Israel and the relevant regulatory agencies regarding risks associated with bitcoin trade. (Id. ¶ 4; Press Release, The Bank of Israel; the Capital Market, Insurance and Saving Department; the Israel Tax Authority; the Israel Securities Authority; and the Prevention of Money Laundry and Financing of Terrorism Authority, Notice to the Public Regarding Possible Risks in Decentralized Virtual Currencies (such as Bitcoin) (Feb. 19, 2014), Bank of Israel website.)

The bank further asserted that the dangers described in the warning had in fact materialized “by the occurrence of several events perceived to be connected to fraud, furtherance of criminal objectives including suspicions for money laundering, and financing of terrorism.” (Id. ¶ 4 (translation by author).) The bank alleged that activities exposing the bank to such unlawful acts might harm its reputation and public trust in the bank. (Id.)

Decision

In her decision Justice Anat Baron noted that the review of a request for a temporary injunction for the duration of an appeal requires an evaluation of two accumulative elements: the chances the appeal will be accepted and a balancing of the respective inconvenience caused to either party if the temporary injunction is not approved. (Id. ¶ 11.)

According to Justice Baron, the reasonableness of a bank’s decision to refuse to enable trade activities in virtual currencies is an issue that has not yet been determined by the Supreme Court. The issue involves a determination regarding the nature of the risk posed by trade in virtual currencies, especially in view of the characteristics of the company’s activities as a company, the objective of which is to trade in bitcoin. The risk evaluation must also take into account the steps undertaken by the company to minimize the risk. It similarly must evaluate legal questions regarding the proper balancing between a bank’s duty to provide banking services and its responsibility to prevent money laundering and the financing of terrorism. Examination of these questions, Justice Baron concluded, leads to a conclusion that the chances of the appeal cannot be said to be null. (Id. ¶ 12.)

In Justice Baron’s view, a rejection of the request for temporary relief would result in endangering the company’s continuing existence. Considering the financial guarantees deposited by the company with the Court and the bank’s proven ability to prevent unlawful activities, Baron concluded that the temporary injunction should be granted as the bank would be able to obtain remedy if it incurred damages as a result of the injunction. (Id. ¶ 13.)

Verdict

The Court decided to grant the injunction for the duration of the appeal. To remove any doubt, Baron emphasized that although the injunction prohibited the bank from fully blocking the company’s account activities, it did not affect the bank’s right to examine individual activities in the account, nor did it affect the bank’s ability to take steps to minimize risks it deemed to be associated with the company’s business activities. (Id. ¶ 14.)