Quick Facts

At least 30 tech and crypto founders in the US have been “secretly debanked” as part of Operation Chokepoint 2.0.

The Shadowy Banking System: How FDIC’s Operation Chokepoint 2.0 Affects Tech and Crypto Founders

In recent years, the cryptocurrency and tech industries have experienced rapid growth, attracting entrepreneurs and innovators from around the world. However, this growth has also raised concerns about the financial infrastructure supporting these industries. Operation Chokepoint 2.0, a secretive initiative by the Federal Deposit Insurance Corporation (FDIC), has left many tech and crypto founders feeling vulnerable and uncertain about their banking options.

What is Operation Chokepoint 2.0?

Operation Chokepoint 2.0 is a program launched by the FDIC in 2020, aimed at combating money laundering and preventing financial institutions from doing business with “high-risk” industries. The program is an extension of the original Operation Chokepoint, initiated in 2013, which targeted specific industries deemed prone to illegal activities. While the program was initially intended to target racketeering and fraud, it quickly expanded to include other industries, such as gun sellers and adult entertainment providers.

The Impact on Tech and Crypto Founders

Recent reports suggest that at least 30 tech and crypto founders in the US have been “secretly debanked” as part of Operation Chokepoint 2.0. This means that their bank accounts have been closed without warning, leaving them without access to essential financial services. This sudden loss of banking access can have devastating effects on businesses, causing delays, financial losses, and reputational damage.

The FDIC’s actions are shrouded in secrecy, with little transparency about the criteria used to determine which businesses are considered “high-risk.” Tech and crypto founders are forced to operate in the dark, without knowing whether their banks will suddenly cut them off. This lack of transparency creates an environment of uncertainty, making it challenging for entrepreneurs to plan and grow their businesses.

Coinbase’s CLO: A Concerned Signpost

Coinbase, one of the largest cryptocurrency exchanges in the world, recently released its Consolidated Banking Ledger (CLO) report, which highlights the company’s financial transactions. The report showed that Coinbase’s banking relationships have been impacted by Operation Chokepoint 2.0. Specifically, the report noted that three banks closed Coinbase’s accounts in the past year, citing “compliance concerns.”

This move has significant implications for Coinbase’s operations and the broader cryptocurrency industry. As one of the most prominent players in the space, Coinbase’s banking relationships are critical to the company’s success. The loss of three banks in a single year raises concerns about the long-term viability of the company’s banking arrangements.

FDIC’s Resistance to Transparency

Despite growing concerns about Operation Chokepoint 2.0, the FDIC has remained tight-lipped about the program. FDIC officials have refused to publicly disclose the criteria used to determine which businesses are considered “high-risk” or provide information about the number of banks participating in the program.

This lack of transparency is alarming, particularly given the program’s potentially far-reaching consequences. Tech and crypto founders are entitled to know why their banks are closing their accounts, and the FDIC has a responsibility to provide clear guidelines and protections for these businesses.

Recommendations

To mitigate the impact of Operation Chokepoint 2.0 on tech and crypto founders, we recommend the following:

Increased Transparency: The FDIC should provide clear guidelines and criteria for determining which businesses are considered “high-risk” and subject to account closures.
Fair Banking Practices: Banks participating in Operation Chokepoint 2.0 should be required to provide notice and due process to business owners whose accounts are being closed.
Alternative Banking Options: The FDIC and banking regulators should promote the development of alternative banking options for tech and crypto founders, to ensure that they have access to essential financial services.
Industry Collaboration: Policymakers and regulators should engage with tech and crypto industry leaders to better understand their concerns and develop solutions that support the growth of the industry.

By implementing these recommendations, we can create a more transparent, fair, and supportive financial environment that benefits everyone.

FDIC Faces Criticism for Lack of Transparency in Operation Chokepoint 2.0 Pilot Program with Coinbase’s Chief Lending Officer