Adventures in KYC
This post is inspired by a tweet whose author was asking, in English as a second language, about the “docs” needed to register with a crypto exchange. Most of the replies he’d received were general answers about KYC (know your customer) and AML (anti-money laundering) rules and how to get over these regulatory hurdles.
I responded flippantly “you should try living in China,” because KYC with a non-Chinese exchange can be nearly impossible for someone living in China. It didn’t used to be like this: back when I started using crypto some exchanges needed no more than an email and password to start trading. Some of those may have exploded, famously, but at least they made it easy to get into bitcoin.
As time went on the KYC requirements became stricter and stricter. Some of the advances are kinda cool — facial matching and optical character recognition on passports and driving licenses, in a web browser, to speed-up account validation. But even these became harder and harder for me to fulfill. My biggest issue came with needing to KYC with an exchange in Australia.
Providing my passport was simple enough, but proof of address, not so much. One exchange suggested a bank statement, but Chinese banks don’t issue paper statements. Likewise, while I had told my home bank my updated address in China, Australian banks do not mail statements overseas. I offered a PDF they had sent to me electronically, but this was not acceptable.
My fallback plan was wrangling some kind of documentation from my bank in China. I had recently opened a new account and grabbed the paperwork, scanning through it for my address: there wasn’t a single mention of where I lived. Thinking back to my time standing at the teller, I realized they had never actually asked for my address (I later confirmed my Chinese bank doesn’t keep a record of where I live).
What else might mention where I live? My health-insurance provider mails me a policy statement every year, and so I rummaged around my apartment for the mailbox key, and headed downstairs to unlock my mailbox. I hadn’t opened this mailbox in about a year (no-one sends mail in China) and on opening it found my policy statement. Unfortunately, while my address was on the envelope it wasn’t in any of the documents inside. So much for that.
What else could I provide? The rental contract for my apartment? Sorry, it was handwritten and in Chinese. My Australian driving licence? It wasn’t issued in the last three months and showed an outdated Australian address. What about my electricity bill? In China you pay by phone and there aren’t any statements — even gas is bought using prepaid cards topped-up from a vending machine at the bank. My water bill turned out to have the apartment address, but it didn’t list my name, and was also paid over the counter at the bank. In general, paper bills either never existed or are disappearing here faster than you can say “WeChat”.
Finally, it occured to me that the local police station offers a receipt when it registers non-Chinese citizens who take up residence in China. Not very hopeful, I talked to customer service at the exchange in Australia who — amazingly — had someone from mainland China on staff who was happy to do an in-house translation. If they hadn’t been willing to bend the rules on this, I’d have been stuck getting the document translated by a registered translator and then notarized by the state.
All in all, the entire process took about a week, mostly waiting for responses from customer service, but what it brought to the fore was how difficult it is to fulfil these kinds of requirements if you don’t quite fit the mold. It was not like I had awoken from a 40-year coma, or was trying anything fishy. I was at the same company I had been working at for five years, was paying taxes in full compliance with visa and other requirements. Was registered with the local authorities, and had informed the Australian authorities of my whereabouts.
Nonetheless, it was difficult to provide proof of address. (Actually, I could prove my address in a number of ways — just none that were acceptable). Add on the fact that paper-based mail hasn’t been a thing for 30 years, and there is just no way to prove this sort of thing in China (if you really want to track someone down in China, the place to start would be via e-commerce, ride-hailing and food-delivery companies).
There are a lot of strong political opinions in the “blockchain space” around KYC and AML requirements. For the most part these concentrate on individual liberty and rights. I don’t disagree with the people championing these rights, but I want to talk here about a different aspect of these regulations that concerns me: KYC rules presume a “standard Western lifestyle” — registered address, bank accounts, mobile phone and more and more and always more.
As such, the current KYC rules exclude many people, even unintentionally. An obvious category is “unbanked” people in developing countries. I fail to see why my Chinese friends and co-workers should be punished by international exchanges simply because they live in China. Nor should we ignore those living in abusive relationships or other problematic family situations. And what of those transient by choice or circumstance? Many of my friends that might be characterised as “digital nomads” are, despite successful careers, reliant on the permanent addresses of friends and family to handle things like credit-card payments.
For policymakers this may sound like a mere inconvenience; those implementing KYC and AML rules argue that instituting all of these hoops is necessary for preventing criminal behaviour and tax evasion. But what they really do is create a system in which conformity is the price necessary for participation in the economy. If enforcement excludes people, particularly the weakest and the most in need, we are doing KYC and AML wrong.