Coinbase’s FOIA complaints against FDIC raise serious government transparency concerns

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In the waning days of the Biden administration, whistleblowers and investigative journalists put forth alarming revelations of financial regulators jawboning banks to cut off services to the cryptocurrency sector in what is being called Choke Point 2.0. Now comes news that these same regulators also may have concealed important information from Freedom of Information Act requests, according to allegations from the cryptocurrency firm Coinbase.
Recently, Coinbase’s Chief Legal Officer, Paul Grewal accused the Federal Deposit Insurance Corp (FDIC) – the agency that provides deposit insurance for bank accounts and also oversees bank regulation in conjunction with other federal agencies – of withholding crucial documents in response to a Freedom of Information Act (FOIA) request, raising serious concerns about transparency and accountability that could affect many Americans.
Grewal posted that a FOIA request made to the FDIC was returned incomplete because the agency limited agency communications from systems like Microsoft Teams in the documents they provided. This request was made as part of the court case between Coinbase consultant History Associates and the regulator. History Associates sued the FDIC and the Securities and Exchange Commission in June to gain access to documents related to the regulators’ probe into Coinbase.
In his X thread he called on FDIC to:
“[I]mmediately explain public reports that:
1) The FDIC does not run complete text searches of all documents within its Regional Automated Document Distribution (RADD) database
2) The FDIC does not search or produce records in collaboration platforms such as Microsoft Teams
3) The FDIC instructs individuals to inaccurately label documents as deliberative and attorney-client privileged to avoid FOIA disclosure
4) The FDIC has used agency resources to monitor and investigate individuals critical of the agency’s practices
5) With respect to the FOIA request at issue in our case, the FDIC failed to produce at least 150 responsive documents”
Not so long ago, FOIA played a crucial role in uncovering the details of the first Operation Choke Point. It was an initiative, launched by the Department of Justice during the Obama administration. It aimed to cut off access to banking services for businesses deemed high-risk, such as payday lenders and firearms dealers. Through FOIA requests, investigative journalists and advocacy groups were able to obtain internal government documents that revealed how federal agencies pressured banks to cut ties with these businesses.
On January 11, Sen. Cynthia Lummis (R-WY), posted on X, “Recent allegations of attacks against digital asset companies by staff at the FDIC, if true, are bone-chilling. Operation Chokepoint 2.0 is real and I will work with Senate Banking Chair Tim Scott to get to the bottom of these serious allegations.”
Just a few days later on January 16, Senator Lummis sent a letter to FDIC Chair Marty Gruenberg, alleging that FDIC whistleblowers reported to her office that staff were destroying materials related to digital asset activities and monitoring staff access in order to prevent these materials from reaching the Senate. She demanded an immediate halt to these actions and the preservation of all relevant materials, warning of criminal referrals if destruction or obstruction is discovered.
Operation Choke Point 2.0, which the Senator referenced, seems to be targeting emerging financial technologies, including cryptocurrency businesses such as Coinbase.
The development of new workplace communication tools such as Microsoft Teams, Slack, and encrypted messaging services like Signal and Telegram has significantly altered how all workplaces communicate, both public and private. These platforms enable real-time communication and file sharing, creating new paths and complications for record keeping. Instead of a single email chain, conversations may now span multiple group chats, emails, direct messages, memos, and phone calls.
Although there will surely be growing pains in complying with FOIA requests due to these new communication channels, agencies must quickly prioritize transparency to comply with the law and maintain public trust. Especially because agencies expect such records to be immediately provided to them from private firms when they make such document requests.
Presently, it seems that regulators aren’t interested in playing by their own rules.
For example, in 2024 FTC and DOJ updated their guidance on “Preservation Obligations for Collaboration Tools and Ephemeral Messaging.”
The press release about the update stated that, “Companies and individuals have a legal responsibility to preserve documents when involved in government investigations or litigation in order to promote efficient and effective enforcement that protects the American public.”
They referenced instant messaging used in lieu of email and clarified that, “When companies fail to preserve documents covered by an FTC investigation or enforcement action, the Commission has successfully moved for civil spoliation sanctions and may refer cases to criminal prosecutors through the Bureau of Competition’s Criminal Liaison Unit in appropriate circumstances.”
Regulators work on behalf and at the expense of the American taxpayer. It is therefore essential that agencies maintain a high level of transparency and accessibility to their work.
FOIA allows the public to request access to records from any federal agency. When a request is made, the agency must search for the requested records and determine if they can be released. Some records may be exempt from disclosure due to privacy or national security. If the request is denied, the requester can appeal the decision. In short, FOIA is a tool that bridges the gap between the governed and those who govern.
That gap was felt during the 2022 “Twitter Files” release. After Elon Musk acquired Twitter, now X, he released internal Twitter documents to several journalists, including Bari Weiss and Michael Shellenberger. They then published the information in a series of Twitter threads, each focusing on different aspects of Twitter’s content moderation practices and the involvement of federal agencies.
In Michael Shellenberger’s thread, he exposed a request from an FBI agent to be included in a Signal channel to better communicate with Twitter employees. Such channels are exactly the type of FOIA complication that needs to be clarified.
There will undoubtedly be some growing pains with complying with FOIA requests considering how many paths of communication exist, but agencies need to make transparency a paramount goal to comply both with the law and keep the trust of the American people.
Sen. Tim Scott (R-SC) is the Chairman of the Senate Banking Committee, which Senator Lummis also sits on. Hopefully Lummis’s letter requesting that FDIC, “preserve all existing materials, including documents, communications, electronic information and metadata, relating to the FDIC’s digital asset activities since January 1, 2022 that may be responsive to the Senate Banking Committee’s oversight prerogatives in the coming months.” Is an indicator that the Committee with be investigating the agency further and holding staff accountable for any wrongdoing.
These allegations are especially alarming considering how common cryptocurrency use is becoming. About 23.88 million Americans used cryptocurrency in 2023, with at least one in ten adults under the age of 30 reporting using crypto according to the Federal Reserve. President Donald Trump also said in a speech at the World Economic Forum on January 23 that the US will become the world capital of cryptocurrency, and that will have to mean giving the industry more operational confidence and certainty when dealing with regulators.
In the supervision of any economic sector, it is unacceptable for regulators to demand transparency from private firms while failing to uphold the same standards themselves. The American public should not tolerate such hypocrisy, especially when it comes to matters that directly impact their financial security and freedom. Agencies must be held to the highest standards of transparency and accountability to ensure that they are truly serving the interests of the people, not hiding behind bureaucratic red tape.