No government should pressure a bank to cut off customers innocent of any wrongdoing. Yet that is what happened with Operation Choke Point under the Obama administration and that is what happened again with “Operation Choke Point 2.0” under the Biden administration. Even today, countless customers are debanked because the laws and regulations in place have made banks too cautious. It’s time to bring governmental debanking to an end.
Governmental debanking can occur in many forms. It could be the result of something as formal as a court order or as casual as a comment from a regulator. It can also be caused by more indirect means such as laws and regulations that make it more difficult to serve customers. The most infamous example of governmental debanking is that of Operation Choke Point, and it’s an illustrative example of how laws can unintentionally impact people’s lives.
This initiative under the Department of Justice started in 2012 with a plan to go after fraud. The name came from the idea that the financial system could be used as a “choke point” to catch these criminals. Yet as time went on, the operation quickly expanded to target controversial businesses such as payday loan shops, gun stores, and a whole host of others.
It didn’t end there.
Under the Biden administration, the Federal Deposit Insurance Corporation (FDIC) sent private letters to banks instructing them to cut off cryptocurrency companies. These letters were kept so secret that Coinbase, a cryptocurrency exchange, had to sue the government after an information request was met with heavy redactions. So extensive were these redactions that Judge Ana Reyes described them as an “incredibly narrow illogical view of their FOIA request” and “almost laughable.” It was only then that the records were properly released.
Recognizing that history was repeating itself, Nic Carter of Castle Island Ventures memorably dubbed the Biden administration effort “Operation Choke Point 2.0.”
Not all governmental debanking efforts are so direct, though. These operations deserve criticism, but so too do the laws and regulations that work behind the scenes to cut customers off from financial services. Even perfectly innocent activity can quickly run afoul of the Bank Secrecy Act, for example, resulting in debanking.
The problem is that Congress has deputized banks as de-facto law enforcement investigators, and federal law punishes those banks if they fail to notice and report criminal activity. As a result, banks spend billions of dollars filing millions of reports on customer activity to protect themselves. If a customer strays from the norm—even innocently—and triggers too many reports, they’re out. The banks’ compliance costs and the risk of fines are simply too high.
What’s more, the Bank Secrecy Act didn’t just create problems here at home. Other governments quickly adopted the process and now there is an international financial surveillance system with which customers all over the world must contend.
Just ask Anna Chekhovich. She recently had her U.S.-based accounts closed after the Russian government labeled her an extremist. Her crime? Chekhovich and her organization, the Anti-Corruption Foundation, work to expose abuses by the Russian government. Yet despite most people recognizing that Chekhovich is the hero in this story, banks cannot ignore a government’s designation of someone as a terrorist.
The good news is that Chekhovich’s accounts were later reopened. The bad news, however, is that authoritarian governments are increasingly recognizing that the financial surveillance system can be leveraged to reach beyond their borders as they target dissidents and activists. In other words, fleeing the country no longer means escaping the grasp of dictators.
Ending governmental debanking is not complicated. Congress simply needs to prohibit reputational risk regulation, reform the Bank Secrecy Act, and end the confidentiality that has kept debanking in the dark. Considering the pain and frustration debanking has caused, ending governmental debanking shouldn’t be controversial. It’s a matter of restoring transparency, curbing mission creep, and ensuring the financial system works for all Americans.
