US Banking Regulators Attempting to Drive Crypto Business Out of Financial System: Report

According to a recent white paper released by four members of Cooper&Kirk Law Firm, US banking regulators are reportedly attempting to “drive crypto business out of the financial system.”. This paper, entitled “Operation Chokepoint 2.0”, points out that U.S. banking regulators are ostensibly waging a “secret financial war” against the encryption industry. After laying the foundation for labeling legitimate companies as “reputational risk,” federal banking regulators, with the help of state officials, “have shifted to the task of clearing accounts from every bank they supervise.”.

Law Firm Paper: US banking regulators are waging a “secret financial war” against the encryption industry

Introduction

A recent white paper released by four members of Cooper&Kirk Law Firm claims that US banking regulators are trying to force crypto businesses out of the financial system. The paper, titled “Operation Chokepoint 2.0,” accuses federal banking regulators of waging a “secret financial war” against the encryption industry. According to the authors, after designating legitimate crypto companies as “reputational risk,” regulators have directed banks to close down the accounts of every company they regulate.

The Background of Operation Chokepoint

Operation Chokepoint was an initiative launched by the US Justice Department in 2013 to tackle fraudulent business practices in consumer banking. The program targeted financial institutions that provided services to fraudulent companies that posed a high risk of money laundering or other financial crimes. However, the operation was heavily criticized for being overly broad and targeting lawful businesses such as payment processors and firearms dealers.

Operation Chokepoint 2.0

The authors of the white paper claim that Operation Chokepoint has been resurrected by US banking regulators to target the crypto industry. The report alleges that regulators have labeled crypto businesses as “reputational risk” and directed banks to exit relationships with them. The ramifications of this have been felt across the crypto industry, with many businesses struggling to maintain banking relationships.
The paper highlights the example of Xapo, a Bitcoin wallet and cold storage provider, which lost its banking relationship with Bank of New York Mellon in 2019. The bank reportedly closed Xapo’s accounts without giving any reason. The paper claims that such actions by regulators effectively force legitimate companies out of the financial system.

Possible Motivations of Regulators

The authors of the paper suggest that US banking regulators are motivated by concerns over the illicit use of cryptocurrencies. They argue that this is a misguided approach, as it punishes legitimate businesses for the actions of a few bad actors. Furthermore, the paper notes that regulators have not provided clear guidance on how businesses can comply with anti-money laundering regulations, leaving them vulnerable to enforcement actions.

Responses to Operation Chokepoint 2.0

The crypto industry has responded to Operation Chokepoint 2.0 with mixed reactions. Some companies have moved their operations offshore to jurisdictions with more favorable regulatory environments. Others have attempted to comply with anti-money laundering regulations by implementing robust compliance programs. However, the authors of the paper argue that such compliance measures are expensive and time-consuming, and may still not guarantee that banks will maintain relationships with crypto businesses.

Conclusion

Operation Chokepoint 2.0 has sparked concerns among crypto businesses that US banking regulators are trying to force them out of the financial system. The authors of the white paper argue that such actions are misguided and not backed up by clear guidance on how to comply with anti-money laundering regulations. They also note that forcing legitimate businesses out of the financial system has negative consequences for the economy as a whole. Crypto businesses are left with uncertainty about their future as they face regulatory pressures and a lack of clear direction from their banking partners.

FAQs

Q1. What is Operation Chokepoint?
A1. Operation Chokepoint was an initiative launched by the US Justice Department in 2013 to combat fraudulent business practices in consumer banking.
Q2. Why is the crypto industry concerned about Operation Chokepoint 2.0?
A2. The white paper released by Cooper&Kirk Law Firm suggests that US banking regulators are trying to force crypto businesses out of the financial system. This has led to concerns among businesses in the crypto industry that they may lose their banking relationships.
Q3. How have crypto businesses responded to Operation Chokepoint 2.0?
A3. Some businesses have moved their operations offshore to more favorable regulatory environments, while others have implemented compliance programs to meet anti-money laundering regulations.