Compiled by: 0xjs, Golden Finance
Marc Andreessen, co-founder of a16z, revealed on the Joe Rogan podcast on November 28 that 30 tech founders had their accounts closed by US banks due to crypto-related issues. To this end, on December 6, a16z crypto published an editorial discussing “Debanking: What you need to know”. 0xjs@Golden Finance compiled the full text as follows:
“Debanking” (closing bank accounts) has been going on behind the scenes for many years, but it has now re-emerged as a topic of public discussion, with many individuals, policymakers, companies, and, most importantly for American innovation, entrepreneurs speaking out about the issue. As the cryptocurrency industry and specific institutions appear again and again in this discussion, here is a brief explanation of this phenomenon to help distinguish the signal from the noise.
But first, what is debanking?
Simply put, debanking occurs when a law-abiding individual or entity unexpectedly loses their banking relationship, or is even kicked out of the banking system.
Debanking is different from a situation where an entity loses banking services because it is suspected or confirmed, after certain investigations or other procedures, to have engaged in fraud, money laundering or other illegal activities.
Debanking can occur without any apparent investigation, detailed explanation or advance notice, without providing the entity with adequate time to transfer the funds. Most importantly: there is no due process, appeals process or other recourse.
Why is this important?
We already have fair banking rules that try to ensure that people are not discriminated against based on age, gender, marital status, nationality, race, religion, etc. But these rules do not restrict banks (or their regulators) from arbitrarily denying or revoking someone’s right to banking services.
Debanking can therefore be used as a tool or weapon by certain political actors/institutions, systematically against private individuals or industries without due process. Imagine if the government decided who can or cannot get electricity simply because of political stance or some arbitrary reason… without explanation, investigation, notification or provision of remedies. This is what debanking is all about.
Why debank?
Not all bank account closures are “debanks.” Banks can close customer bank accounts for a variety of reasons, including if they believe those customers are engaging in suspicious activity. Banks can also proactively choose to reduce regulatory compliance costs and workload by limiting exposure to certain individuals, industries, or business models.
However, this legal activity is not what sparks debanking concerns. Instead, many debanking concerns come from reports of unlawful exercise of power by regulators to exert undue influence on banks to remove customers from certain industries or those with political affiliations or interests that political authorities dislike. This allows these regulators to exert power over industries even though Congress never authorized such power.
Banks often acquiesce to such pressure because they do not want to run afoul of regulators. Many banks also do not want to deal with compliance issues, the extra scrutiny that banking regulators may impose on them because they do not follow regulations.
Where did “Operation Chokepoint” come from?
In 2013, the U.S. Department of Justice was caught opening a fraud and money laundering investigation into certain businesses as a policy initiative of the President’s Financial Fraud Enforcement Task Force. This marked a shift in government strategy: Instead of targeting individual companies for wrongdoing, the government subpoenaed banks and payment companies for information about their clients running risky or politically unpopular but legal businesses.
In other words, the government used regulation to improperly “cut off” access to financial services and close accounts, with the goal of killing businesses in industries the government didn’t like (as observed by the then-head of the American Bankers Association, the U.S. banking trade association). In 2014, Frank Keating (former president and CEO of the American Bankers Association, former governor of Oklahoma, and chairman emeritus of the board of directors of the Bipartisan Policy Center in Washington) wrote in a Wall Street Journal op-ed:
When you become a banker, no one gives you a badge or puts you in a judicial robe. So why is the Justice Department telling bankers to act like police officers and judges? The new Justice Department investigation, called “Operation Choke Point,” asks banks to identify customers who may be breaking the law or just doing something that government officials don’t like.
The program was shut down the following year due to strong legal, congressional, and institutional opposition.
Today, the phrase “Operation Choke Point 2.0” is sometimes used to refer to governments cutting off banking business from “political enemies and unpopular tech startups.” Or, as others put it, the term refers to banks “cutting ties with clients deemed politically incorrect, extreme, dangerous, or out of bounds.” Regardless of how the term is defined, it’s an issue that affects entities at both ends of the political spectrum and across the political spectrum.
Which institutions are involved?
The inner workings of Operation Chokepoint — and any other related or subsequent systematic efforts to deprive specific entities or industries of banking services — were not previously known, as investigations, if any, were conducted behind closed doors and FOIA requests were pending. However, on December 6, court documents from one such FOIA case revealed that the Federal Deposit Insurance Corporation (FDIC) instructed at least one bank (in a letter dated March 11, 2022): “… at this time, the FDIC has not determined what regulatory filings, if any, are required for banks to engage in such activities. Therefore, we respectfully request that you suspend all activities related to crypto assets.” A large number of FDIC letters were submitted as attachments to the record in the case.
Meanwhile, we already know that the original Financial Fraud Enforcement Task Force (2013) that implemented Operation Chokehold 1.0 included the Federal Deposit Insurance Corporation (FDIC) and the Department of Justice (DOJ), among others. The Office of the Comptroller of the Currency (OCC) — an independent agency under the U.S. Treasury Department — was apparently also involved, as was the U.S. central bank, the Federal Reserve Board (FRB). The Consumer Financial Protection Bureau (CFPB) was also mentioned.
Note: The US government is not the only country to implement debanking policies. Other governments, such as Canada, have also used this strategy; the UK has also had to investigate complaints about government-led debanking policies.
Why does the government do this? What are the results?
The reasons for debanking vary, from combating payment processor fraud to preventing high-risk businesses from doing business because they may be perceived to have more links to money laundering. These reasons are often referred to as “de-risking” rather than “debanking”: “the practice of financial institutions indiscriminately terminating or restricting business relationships with broad categories of customers, rather than analyzing and managing customer risk in a targeted manner.”
More broadly, de-risking and debanking can be used as “partisan tools” to stifle legitimate businesses for political reasons alone. Another reason could be that certain government agencies want more discretion and power in deciding where and under what circumstances consumers can obtain loans, financial products, and other banking services.
To be clear, the problem is not how well a particular government agency performs its duties. The problem is excessive government intervention (or general abuse of power) over legitimate businesses—without any meaningful due process or ability to constrain their behavior, which often occurs behind the scenes. Especially since there are already enough laws and legal methods to regulate businesses for legitimate reasons, such as providing consumer protection, preventing money laundering, and deterring other criminal behavior.
The use of debanking strategies can have many unintended consequences. Even when the goal is to truly protect consumers and the banking system, the results can be counterproductive, hindering consumer choice or having a chilling effect on business as a whole. These practices also undermine the U.S. government’s own policy objectives, as the U.S. Treasury Department’s report on de-risking (2023) points out:
- Exclusion of financial activities from the regulated financial system;
- Hindering remittances or delaying the smooth flow of international development and humanitarian/disaster relief funds;
- hindering the effective use of the financial system by low- and moderate-income and other underserved groups;
- Undermine the centrality of the U.S. financial system.
Finally, the use of debanking tactics can penalize legitimate businesses and individuals by association, such as someone having their previously approved mortgage revoked simply because they work for an open source foundation in the crypto industry.
For all of the reasons listed above, many have described the practice of debanking as “un-American.” When debanking is indiscriminately directed against emerging technologies, it is unequivocally anti-innovative.
What is the scope of debanking?
While we cannot speak for the entire industry or specific interests, as a venture capitalist in the crypto industry, we have personally witnessed at least 30 cases of debanking of our portfolio companies and founders over the past four years. Coinbase also publicly stated that they found at least “20 instances where the FDIC required banks to ‘suspend’ or ‘stop providing’ or ‘not continue’ to provide crypto banking services.”
There are likely many more such cases, but the issue has remained underreported because many entrepreneurs and small businesses have been hesitant to address the issue for fear of further retaliation or because they lack the resources to do so.
For our portfolio companies, a lot of debanking is happening with pre-profit, pre-coin offering companies that have received venture capital money (via institutions like pension funds and university endowments) in their bank accounts, which they use for employee salaries and general business expenses — just like any other tech startup.
So what were these companies told, either in writing or (more often) verbally? Reasons cited ranged from “We do not provide crypto banking services” to, more commonly: “Your account has been closed due to compliance-related issues. Please transfer all funds immediately.” The companies were also told this, but received no specific information about which “compliance” issue it was, nor were they able to remedy it if there was indeed an issue. Finally, other reports we received from companies included:
- We were told that “the business compliance backend team closed the account and prohibited us from opening any other accounts. No other reasons were given and there was no appeal process”;
- Rejected due to “lack of trust in all those running crypto companies”;
- Receiving unfounded query letters and notices creates expensive cycles and unnecessary stress for startups — which already operate lean compared to larger companies.