Coinbase Customers Blocked from Bitcoin Online Gambling Sites

US-based Bitcoin wallet Coinbase has begun closing the accounts of Coinbase users who transfer funds directly from the company’s online storage services to various online gambling sites.

bitcoinMultiple Coinbase users first reported the blocking in threads on the Reddit discussion forums, with the messages received indicating that Coinbase, whose headquarters are located in downtown San Francisco, California, is complying due to financial-services regulations issued by the US’s Financial Crimes Enforcement Network (FinCEN), which clarified last year that Bitcoin-related services offered within the US are subject to FinCEN jurisdiction.

Among the transactions being flagged, leading to Coinbase account closures, are deposits and withdrawals to and from online gambling site BetCoin and to the largest Bitcoin-only online poker site, SealsWithClubs.com.

The first SWC customer to report being blocked on Coinbase, “lhr0909,” included an excerpt from the e-mail received from Coinbase informing him of the account closure.  That excerpt:

Upon review of your Coinbase account, we have determined that we can no longer provide you access to Coinbase Services. Please understand that Coinbase is a regulated Money Service Business under the FinCEN division of the U.S. Treasury Department and as such, we are required to review accounts in order to ensure compliance with regulations.

Gambling is illegal under US law even if you live outside of the US we cannot provide services to your account for the purpose of any type of gambling activity.

Please note that we have not blocked access to the bitcoin balance currently in your Coinbase account; while we can no longer process transactions of this bitcoin via our banking relationship, you may send this bitcoin to a local wallet or another bitcoin address.

In the event that your controls change and you are able to prevent such activity from occurring on your platform please let us know and we’d be happy to review your compliance program and evaluate your account to see if we can support it in the future.

The Coinbase statement includes at least one glaring error — “Gambling is illegal under US law” — but is believed to represent over-blocking of grey-area transactions that has become a regular occurrence in the US, particularly in the wake of the 2006 UIGEA.

Also noted by commenters in the various Reddit threads is that Coinbase has of way of blocking gambling-related transactions in advance; they can only close user accounts once presumptive online-gambling transactions have been identified.

FlushDraw reached out to SealsWithClubs chairman Bryan Micon for comment on the situation.  Micon confirmed the authenticity of the e-mails and of Coinbase’s attempt to block online-gambling related transactions, even though simple workarounds are numerous and commonplace.  Coinbase itself has not issued any formal statement regarding the ban on gambling transacrions.

Micon noted that despite the SWC site being mentioned specifically in the Reddit threads, SWC players as a whole seemed largely unconcerned, unlike this past February when giant Bitcoin wallet Mt. Gox ceased active operations after the massive disappearance of about 850,000 Bitcoins stored on the site.

Micon also noted that both Bitcoin wallet services and BTC-based online gambling services would react individually to FinCEN’s apparent interest.  Said Micon, “[The] early crop of bitcoin gambling sites will each react individually to this news. I doubt there will be a general early consensus between all of them, as each has their own ethos.”

Coinbase itself is also unique in being US-based, and thus directly subject to FinCEN directive, while a majority of the largest online Bitcoin exchanges are actually based in other countries.

SealsWithClubs’s Micon also noted that online gambling sites who transact in bitcoins are markedly different from online exchanges, even though the nature of bitcoins means that users could store bitcoins in either type of service.  Said Micon, “Because SwC is a pure bitcoin poker site, transferring fiat [government-issued currency] to bitcoin or bitcoin to fiat isn’t our concern. While I understand sometimes players want bitcoin and have fiat or want fiat and have bitcoin, that part is out of our control. Since 2011 SwC has only taken deposits and withdraws in bitcoin.”

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