The RCMP have sent letters to cryptocurrency exchanges and financial institutions instructing them to stop facilitating transactions with accounts connected to the convoy protests.
A letter sent to several cryptocurrency exchanges and obtained by The Globe and Mail notes that both the RCMP and the Ontario Provincial Police are investigating cryptocurrency donations “in relation to illegal acts falling under the scope of the Emergency Measures Act.”
The letter instructs the exchange operators to “cease facilitating any transactions” with more than 30 specific cryptocurrency wallet addresses that it lists.
“Any information about a transaction or proposed transaction in respect of these address(es), is to be disclosed immediately to the Commissioner of the Royal Canadian Mounted Police,” the letter continues.
The letter comes amid heightened scrutiny of Canada’s cryptocurrency sector as supporters of the protests have turned to alternative forms of fundraising.
On Monday, the federal government enacted the Emergencies Act, giving law enforcement and financial institutions additional powers to respond to blockades and protests against pandemic restrictions.
The RCMP have also sent letters to financial institutions, including banks, listing the names of people the police force have designated as being involved in illegal acts tied to the demonstrations, according to a spokesperson for the Canadian Bankers Association (CBA).
“All financial service providers, including banks, covered by the federal Emergencies Act will need to diligently implement the required measures, as stipulated by the government in the corresponding Emergency Economic Measures Order, which are not expected to impact the vast majority of customers,” the CBA said in a statement.
The letters put pressure on banks and other financial institutions to cut off financial services and freeze accounts for individuals the RCMP have named as being involved in blockades. But it is ultimately up to each financial institution to decide whether any particular client meets that threshold, and whether to freeze funds or block transactions.
A government order published Tuesday night details emergency powers that require financial institutions, including banks, credit unions and insurance companies to “cease dealing” in financial services or facilitating transactions for people participating in a series of prohibited acts blocking roads, bridges and other critical infrastructure. The order also covers a broad swath of the financial sector that includes securities dealers, payment providers and crowdfunding platforms.
Each company must “determine on a continuing basis” whether they are holding property or funds for someone designated as a participant in activities prohibited by the emergency order. Financial institutions must disclose those customers’ banking details and transactions to the RCMP or CSIS, but can act on their own to freeze accounts and cut off services.
That will force financial institutions to pull off a delicate balancing act: They must show government they are following the emergency order and helping crack down on illegal money transfers, but avoid the perception that they are overreaching in choking off access to funds for a subset of their customers.
On Wednesday, senior officials at Canada’s largest banks huddled in a series of meetings to determine in detail what their obligations are and how to fulfill them. But there was still some confusion and several lingering questions about how to proceed even after the emergency measures took effect.
Torstein Braaten, chief compliance officer and head of regulatory affairs at Toronto-based cryptocurrency exchange Bitbuy , said the platform does not have an opinion on whether or not there is criminal activity going on, but it intends to comply with the request from law enforcement.
“We are very concerned when an address gets identified as potentially associated with criminal activity … it’s just unacceptable for us to be involved in that,” Mr. Braaten said.
He noted, however, that it’s easy for people to create new cryptocurrency wallets. “If the criminals know that their bitcoin address is known, then they will arguably just spin out another address,” he said.
Justin Hartzman, chief executive officer of CoinSmart Financial, a publicly listed crypto trading platform that received regulatory approval last year, said the compliance orders are “indiscriminately targeting the whole cryptocurrency ecosystem.”
“It is unfortunate,” Mr. Hartzman said in an e-mailed statement. “But the addresses associated with this alert have been widely disseminated to the entire crypto community here in Canada and have reportedly been reported to the blockchain monitoring softwares that service the industry worldwide.”
Erica Pimentel, a professor at Smith School of Business at Queen’s University who studies cryptocurrency and blockchain, described the move as “heavy-handed.”
“If the exchanges are in a custodial relationship where they effectively hold a client’s bitcoin for them, then this is tantamount to freezing someone’s bank account. It seems like an overreach to be able to freeze a person’s account,” she said.
Prof. Pimentel said she questions how effective asking crypto exchanges to stop facilitating transactions with certain accounts will be. She said clients can simply stop using Canadian exchanges and turn to international firms which, she added, are “unfettered” by the Canadian Emergencies Act.
“The client holds their own crypto and the exchange is simply a vehicle that is being used to change one crypto for another,” Prof. Pimentel said.
A spokesperson for the RCMP declined to comment.
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