The Venezuelan government is cracking down on remittance payments with a new banking mandate, one that could put the country’s Bitcoin users on an even tighter leash.

In a letter “addressed to all banking institutions,” the government has ordered all domestic banks to disclose the IP addresses, financial details, transaction amounts and locations of all citizens who access their banking services from outside the country.

Per the measure, Venezuelans are expected to “notify [their] banking institution of [travel] instances prior to [departing], explicitly indicating their destination place(s)” and how long they’ll be out of country, the letter reads.

If a citizen fails to comply with the above stipulations, banks may “enact a special condition that restricts the ability of the client to make online transactions,” effectively locking them out of their bank accounts if they are caught accessing services outside of the county. The bank is then required to “report the policy holder’s name; identification of the resource/asset; date and place of provenance; date of imposed restriction and the IP address from which access was attempted” to the National Entity of Financial Intelligence.

“Lack of compliance with the above stated,” the letter concludes, “will result in the imposing of sanctions in accordance with the terms outlined by the legislative decree.”

An Attempt to Monopolize Money Transfers

The measure, self-described as a means to “preserve the interests of the users and of the general public,” is the government’s attempt to strongarm the community of Venezuelans who migrate to neighboring countries, such as Argentina, to send money home. Their own country’s economy ravaged by hyperinflation, these expats seek work abroad in hopes of earning a living wage to support themselves and their loved ones.

It’s these citizens funneling money back into the country that the government wants to police with its new order.

“A lot of people are sending money to their relatives in Venezuela and they want a cut of that,” Venezuelan Eduardo Gómez, head of support at Purse.io, told Bitcoin Magazine. This strategy, he continued to explain, is much like the Cuban government’s own monopoly over cross-border transaction clearing.

“If you look at what Cuba is doing … the biggest revenue source for Cuba is remittances; it’s all the Cubans living in Florida, in Miami, sending money home to their families. If you want to send money to Cuba, you have to go through the government to sell dollars for Cuban pesos.”

Venezuelan officials are reaching for the same control. In sanctioning state-approved trading houses, which as Gómez suggests are in the government’s back pocket, politicians are hoping to reroute all remittances through these institutions to take a cut of payments. The bank order is the means by which the government intends to coerce citizens to use these services.

And their IP addresses are the leverage. As the order indicates, if a client is caught accessing online banking services abroad, or she fails to report the required information to her bank, then that client could lose banking privileges.

Gómez told us that the government has already come down on citizens using middleman services who offer cheaper money transfer services in neighboring countries, citing his siblings’ use of such services in Uruguay.

This new measure will look to sweep up those they’ve missed, including users of well-known OTC Bitcoin exchange LocalBitcoins.

With Remittances in Sight, Bitcoin Users Caught in Crossfire

“Bitcoin is a threat to [the government] because people are using LocalBitcoins to trade money around,” Gómez said.

While Gómez admitted that there’s less volume on Latin America’s LocalBitcoins hubs compared to international exchange volumes, he did say that “volume is increasing,” as it has become a popular remittance option to circumvent government-sanctioned trading houses.

Expats will even use the service as an alternative to foreign currency transfer intermediaries. Many Venezuelans living and working in Argentina, for example, will convert their Argentinian pesos into bitcoin. Using LocalBitcoins, they’ll search for a Venezuelan trader who uses the same bank as them, something that can be tricky depending on rates, bitcoin-to-bolivar liquidity and transaction size. Once a user finds the right match, they’ll give the buyer their bank account number — or, in some situations, that of a relative — and settle the transaction.

Under the government’s new requirements, Venezuelans who deposit directly into their own bank accounts could be in trouble, Gómez said, as they could have their banking services shuttered on account of illegal use — with similar consequences for those buyers transferring the funds. If the measure takes its desired effect, Gómez believes that it could have damaging ramifications on Bitcoin’s use and LocalBitcoins’s presence among Venezuelans.

“What this means for Bitcoin in the short term is that it could take some liquidity from LocalBitcoins because I have heard some rumors that a lot of Latin American traders for LocalBitcoins are Venezuelans living abroad. A lot of these guys left the country years ago, so what may happen is that a lot of those traders won’t be able to log into their bank accounts.”

Theoretically, this is easy to overcome. Instead of transferring funds into your own account, for instance, you could have them sent to a relative, instead. Gómez forecasts this as a likely outcome — one that, if it causes an uptick in LocalBitcoins’s popularity, could lead the government to shut down domestic access to the platform entirely.

“In the long term, the government may restrict LocalBitcoins via something like DNS blocking or IP blocking to restrict access to LocalBitcoins in Venezuela. If they see that a lot of people are using LocalBitcoins to circumvent this IP restriction, then they may see it as a threat.”

Still, this action would be a long time coming if it’s ever executed, Gómez predicts, for the same reason why LocalBitcoins is the only cryptocurrency exchange still active in the country: officials use it.

“A lot of people inside the government use LocalBitcoins to sell their bitcoins that they earn via mining because all of the government officials mine,” he said.

Even as the Venezuelan police raid local mining operations, government officials themselves mine with immunity, having bootstrapped their own rigs since the market’s 2017 bull run. Seeing as it’s so popular among officials, Gómez thinks the government will leave the exchange alone — for now, at least.

Bigger Than Bitcoin

In our talk, Gómez indicated that the government’s banking order will no doubt create headaches for Venezuelan Bitcoin users. But by and large, the order is about effecting greater control over all aspects of the economy. Wrangling in Bitcoin users, specifically those sending money across borders, is just one degree of this control.

“Ultimately, the government wants a cut of the pie for remittances,” Gómez said.

LocalBitcoins is certainly cutting into the government’s transaction processing profit, but it’s not only used for money transfers. Gómez also told Bitcoin Magazine that Venezuelans use the service to check the bolivar’s rate against the U.S. dollar, which has become a de facto trading standard for many in-country services.

Venezuelans used to reference DolarToday, a popular service for transparent bolivar-dollar rates. But ever since rumors began to spread that the Venezuelan government covertly purchased the domain to control the rates, “LocalBitcoins is becoming the market reference for the dollar,” Gómez said. Users will refer to the bitcoin-bolivar rate against the bitcoin-dollar rate to arrive at a reliable bolivar-dollar rate.

The government’s economic war, as Gómez indicated, is total — one that looks to tighten the noose around any service or tender that works around officially sanctioned services. Given LocalBitcoins is proving to be a multifaceted tool for those Venezuelans who use it, it’s reasonable to assume that, if its popularity continues to surge, the government may take action.

If it does, this could completely throttle the last access points Venezuelans have to cryptocurrency platforms and services. Gómez said that even though LocalBitcoins is the only operable exchange left in the country, “there’s [still] a lack of liquidity.”

In the event of this closing, Venezuelans will have yet another hurdle to jump when attempting to use crypto; this would neutralize one of the only economic safe havens citizens have left as the bolivar continues to hemorrhage value.

“Venezuelan salaries are so low that there’s not even a way for people to buy crypto. To put things into perspective, the average salary in Venezuela for one month of work is $1. Can you imagine that? Working a full month and only earning $1 at the end of it,” Gómez concluded in our talk.



