In a white paper, law firm Cooper & Kirk describes how various U.S. regulators have coordinated attacks on the crypto industry. The firm calls the measures "Operation Choke Point 2.0" - a reference to similar attacks by the FDIC on specific sectors in 2013.
According to the renowned law firm, recent reports in the financial media have revealed a strategic effort by banking regulators to push crypto companies out of the financial infrastructure. These regulators would have issued unofficial advisory documents specifically targeting cryptocurrencies and their users as a potential threat to the stability of the banking system. Comparable to the original Operation Choke Point, the regulators in question would now have targeted the crypto industry.
Unjustified actions of the banking supervisory authorities
The whitepaper aims to show how regulators have taken unconstitutional measures, known colloquially as "Operation Chokepoint 2.0." The plan, it says, was to slow the growth of the cryptocurrency industry. According to Cooper & Kirk, regulators have used their power to deny banking services to crypto companies, making it impossible for them to operate efficiently. This, they say, has led to significant revenue losses and forced many crypto companies to close.
Regulators have published guidance documents that classify cryptocurrencies and their customers as a risk to the banking system, it said. Such classifications cause companies in the crypto market to suddenly lose their bank accounts without explanation, the law firm said. Federal regulators even shut down a solvent bank (Signature) that served the crypto industry, costing the deposit insurance fund billions of U.S. dollars, it said.
The regulators' actions were unconstitutional and a clear breach of public trust, he said. The government has no right to arbitrarily deny banking services to any sector, much less one as rapidly growing as the blockchain industry, he said. This, he said, was clearly demonstrated by the U.S. Congress after the conclusion of the first Operation Choke Point.
Operation Choke Point: History repeats itself
The firm goes on to outline the history of the original Operation Choke Point 1.0 - a controversial initiative introduced in 2013 under the Obama administration. The operation was intended to prevent fraud and money laundering by targeting "high-risk" industries that were frequently involved in such illegal activities. To that end, the Department of Justice (DOJ) and the Federal Deposit Insurance Corporation (FDIC) pressured banks to stop doing business with these industries. These included payday lenders, arms dealers, and other controversial businesses. Critics, however, charged that this program resulted in the government overstepping its authority and unjustifiably restricting legitimate businesses.
As Operation Choke Point 1.0 progressed, there were increasing headwinds from lawmakers and industry associations who felt the initiative unfairly and selectively enforced the law. Opponents of Operation Choke Point claimed that the program undermined due process and deprived businesses of their right to operate within the law. These criticisms led to the suspension of Operation Choke Point in 2017 under the Trump administration. Recent actions by financial regulators point to the resurgence of a similar program called Operation Choke Point 2.0, according to the law firm.
Operation Choke Point 2.0 as a direct attack on the crypto industry
Cooper & Kirk argues that bank regulators have violated the Due Process Clause of the Fifth Amendment by using derogatory terms to crypto companies and stigmatizing them without first giving them the right to be heard. According to the lawyers, the government should not be allowed to operate in secret and stifle innovation through backroom deals. The American people have a right to know what their government decides, they say.
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It is now the responsibility of elected officials, including the U.S. Congress, to hold these regulators accountable for their illegal actions, he said. The cryptocurrency industry has the potential to revolutionize the financial sector and create thousands of jobs for Americans, he said. However, he said this is impossible if the industry is stifled by the government via Operation Choke Point 2.0.
As a result, Cooper & Kirk demands:
- Congress should require bank regulators to submit their communications with regulated financial institutions and state regulators regarding the denial or regulation of access to the financial system by crypto companies and banks serving the crypto industry.
- Congress should require federal banking regulators to explain the basis for their conclusion that the safety and stability of the financial system require insulating banks from blockchain technology, crypto customers, and state-chartered depository institutions that currently serve those customers.
- Congress should make clear to federal banking regulators and all federal agencies that the notice and comment requirements of the Administrative Procedure Act are not optional. The requirements imposed by the APA are not barriers that can be circumvented through the use of informal guidance documents.
- Congress should investigate the role of federal regulators in the New York Financial Services Authority's decision to close Signature Bank. Congress should also investigate the FDIC's role in excluding prospective purchasers of Signature Bank's digital asset business from the bidding process.
- Congress should investigate whether bank regulators are trying to stifle private sector innovation to clear the field for competition in favor of existing state-regulated banks or a government cryptocurrency alternative [CBDCs].
