CEI has warned about debanking for 20+ Years – We were right

Over the last week, millions of Americans were exposed to the idea that their government has been encouraging banks to withdraw financial services from American entrepreneurs. The avalanche started when financier Marc Andreessen told Joe Rogan about what was happening to crypto entrepreneurs. After that, many other victims of debanking felt safe to tell their stories. It even came out that financial regulators had killed Meta’s idea for an online currency.

CEI has warned about this for over twenty years. Back in 2000, we published an analysis by former Reagan official Richard W. Rahn warning that the Bank Secrecy Act would break the bonds of trust between banker and customer. Rahn noted:

A civil society depends on the separation of duties and responsibilities of institutions. By passing the responsibility of detecting money laundering on to banks and their personnel, the government destroys this separation. Loyalties become muddled. Bank employees who are expected to spy upon their customers will lose the bond of trust that is necessary for a civil society.

Rahn even predicted the crackdown on “cyberpayments,” long before Bitcoin was a glimmer in Satoshi Nakamoto’s eye:

Cyberpayments and smart card systems hold immense promise for legitimate business transactions. It would be a very sad fate if the implementation and widespread use of such systems were impeded in a fruitless attempt to regulate against the possibility that criminals would also use such systems. Although criminals might exploit these same systems to their advantage, there is no reasonable way to prevent this without the wholesale destruction of the beneficial uses of the new technologies.

Later, in 2014, CEI was among the first to draw attention to something called Operation Choke Point. Choke Point was a freelance operation that started at the Department of Justice with the cooperation of financial regulators like the Federal Deposit Insurance Corporation that avowed to cut off the financial oxygen of businesses these regulators disliked, on the grounds that some of them might have been fraudulent.

As I covered in my study later that year, Operation Choke Point: What it Is and Why it Matters, hundreds of legal businesses suddenly found themselves debanked and having to operate on a cash basis. This was an example of the inappropriate use of regulatory power we highlighted in 2000. As I said:

Operation Choke Point forces banks to do the investigators’ work for them by scrutinizing their customers’ business methods for potential criminal violations. While due diligence is to be expected from banks, criminal investigative duties are not. Shifting the costs onto supervised bodies is not an acceptable principle of governance. Businesses need to be allowed to make their own business decisions without the threat of being required by their regulators to do their job for them.

Thanks to the work of CEI and other groups, and in particular the leadership of congressmen like Blaine Leutkemeyer (R-MO), the behind-the-scenes activities of regulators in promoting Operation Choke Point came to light and the regulators soon distanced themselves from it. The first Trump administration finally killed off the program.

However, the model remained in place. With no legislative changes, the Biden administration was able to revive it in what became known as Operation Choke Point 2.0, which the crypto industry became aware of in 2021 (I sat down to explain Choke Point 1.0 with podcaster Nic Carter that year). Yet this time, the administration refused to change tack, with even banks themselves being targets – Silvergate bank seems to have been pushed to bankruptcy by regulators for its crypto-friendly policies.

Indeed, CEI’s John Berlau noted that the similarities to Operation Choke Point’s regulation by enforcement approach to specialized banks like Silvergate was contradictory to other administration initiatives:

The resemblance to Choke Point is indeed alarming, but also very concerning is the impact this apparent regulation by enforcement will have on small banks’ ability to innovate. Several Biden appointees at the FDIC – including Chairman Martin Gruenberg and board member Rohit Chopra – have expressed concern for the health of small banks. Why is their agency making things harder for them?

Once again, John noted, the FDIC was center stage, suggesting that this agency should be the focus of the incoming administration’s efforts in this area.

And to bring us up to date, CEI’s Patricia Patnode argued recently that if once and future First Lady Melania Trump could be debanked, then anyone could be. Echoing what Richard Rahn said at the turn of the Millennium, Patricia summarized:

Indeed, “Know Your Customer” rules – a policy dropped as a formal regulatory requirement due to public outcry but still informally pushed by regulators — demand that banks treat their customers as objects of suspicion or face large penalties. It’s no surprise banks serve the interests of the regulators before those of their customers, as regulators can shut them down.

CEI continues to champion the rights of consumers above the demands of bureaucrats. Debanking is a clear abuse of government power, and it’s time for change.