North Dakota bill aiming to regulate crypto kiosks, prevent fraud gets mixed reactions

BISMARCK — A bill in the North Dakota House of Representatives aims to regulate cryptocurrency kiosks by limiting deposits, capping fees and requiring fraud detection measures in response to rising concerns over financial scams.

House Bill 1447

would regulate virtual currency kiosks, also known as cryptocurrency kiosks or crypto ATMs. The proposal would license cryptocurrency kiosk operators in North Dakota, limit daily deposits to $1,000, cap fees at 3%, require blockchain analytics to detect suspicious activity and mandate refunds for new customers within 30 days.

Simply put, crypto kiosks allow people to insert cash, turn it into cryptocurrency and deposit it into an electronic wallet. It also allows anyone with an electronic wallet to turn cryptocurrency into cash and withdraw it.

More than $6 million was stolen through cryptocurrency fraud in North Dakota in 2023, and the FBI received over 5,500 complaints involving crypto kiosks nationally in 2023, according to AARP.

Rep. Steve Swiontek, R-Fargo, said scammers are directing people to withdraw money from their bank accounts and put it into the crypto ATMs, where it is deposited directly into the electronic wallets of the scammers.

Swiontek chairs the board of Gate City Bank and has worked in banking for over 40 years.

He told a story about a person in North Dakota who received a message from a fraudster posing as a federal employee saying they would purchase child sexual abuse material using the person’s identity, open offshore accounts in the person’s name and that their family would be in danger if they did not comply with the fraudster’s directives. The person took out nearly $25,000 and gave it to the fraudster using a crypto kiosk. The person almost gave the fraudster another $25,000, but after a conversation with a neighbor who worked in law enforcement, they found out they had been scammed.

A fraud investigator for First Western Bank, Jacob Rued, said another way fraudsters often work is to refer to the crypto ATMs as “federal safety lockers” and tell people they are scamming that their money is not safe in their bank and needs to be deposited in the “federal safety locker.”

“If you ever hear that term, or someone you love says that term to you, you and they are being scammed,” Rued said. “That term does not exist.”

Josh Askvig, state director of AARP North Dakota, said that elderly North Dakotans are especially vulnerable to these crypto scams.

Rep. Ben Koppelman, R-West Fargo, questioned the necessity of caps on daily transactions and fees because he believes it would unnecessarily burden a growing industry. He said there are legitimate reasons for people to use the kiosks because if there weren’t, there wouldn’t be successful, publicly traded companies based on them.

“I just don’t believe that there would be a publicly traded company that’s investing in something that’s 99% scams,” Koppelman said. “And that somehow that’s got across (past) all the regulators that deal with the publicly traded companies.”

Koppelman suggested the implementation of a cap on a user’s first five transactions to protect first-time users from scams without impacting those who regularly use the kiosks.

Rued said without the caps on daily transactions, the bill would be useless.

He shared a story about a person who experienced fraud in Minnesota when he took $50,000 out of his bank account, intending to put it all into the kiosk and give it to the scammer’s electronic wallet, but was stopped at depositing $2,000 into the kiosk by Minnesota’s regulations. After he was stopped, he realized he was being scammed and did not give the remaining $48,000 to the fraudster.

“Without that (cap), he would have lost all $50,000,” Rued said. “Now, could he report that to us the next day? Sure. But in all reality, the money is gone. If you know anything about the blockchain and crypto — I mean the whole essence and principle of it is, once it’s out there, the government can’t go get it. No one can exercise control over it.”

Rue noted he was in favor of the cap on fees, as well. The companies that operate the kiosks are “profiting off the losses of these victims,” he said.

Representatives of two companies that operate cryptocurrency kiosks said they were in support of licensing operators of kiosks but not caps on fees and daily transactions.

Director of Government Relations at Bitcoin Depot Ethan McClelland said the cap on transaction fees and daily transaction amounts would make operating in North Dakota unsustainable and drive responsible operators of crypto kiosks out of the state.

The transaction limits “are encouraging scammers to spread transactions around, and it’s hindering our efforts and law enforcement’s efforts to combat fraud,” McClelland said.

Rued disagreed.

“To be perfectly frank with you,” Rued said, “with no disrespect to them, it’s laughable to me that the transaction limit is going to increase the fraud or it’s going to make it more difficult to investigate. My opinion would be the exact opposite — it’s going to decrease fraud.”

Koppelman said the bill will be worked on in a committee before a recommendation is voted on.