Cooper & Kirk, a law firm based in Washington D.C., published a paper titled “Operation Choke Point 2.0: The Federal Bank Regulators Come For Crypto,” accusing US regulators of weaponizing the banking system against the cryptocurrency industry. The paper delves into what Cooper & Kirk describes as an arbitrary, unconstitutional, and unlawful “backroom war on crypto” led by regulatory authorities.
In February, Nic Carter, a partner at Castle Island Ventures, tweeted about a coordinated attack on the crypto industry. The tweet was initially met with ambivalence. However, since then, several regulatory enforcement actions have followed, including Coinbase being served with an SEC Wells Notice and the CFTC suing Binance over commodities violations. Cooper & Kirk’s paper is evidence that Carter’s claims were accurate. Cooper & Kirk successfully sued the FDIC, Fed, and OCC for their involvement in the original Operation Choke Point, with a settlement reached in May 2019.
Operation Choke Point was first revealed to the public in August 2013. The program utilized the banking system to implement political views without going through the appropriate due process. Authorities targeted various “undesirable” industries such as ammunition, coin dealers, and home-based charities through their banking providers. Cooper & Kirk believes that history is repeating itself, with crypto now deemed the undesirable industry.
In summarizing the situation, Cooper & Kirk explains that there is a coordinated campaign by banking regulators to cut crypto out of the financial system. This is being done through informal top-down guidance documents that target crypto-related entities, including firms, employees, and owners, effectively de-banking those groups. This practice is seen as an abuse of authority and the weaponization of the banking system, violating constitutional rights and due process.
Cooper & Kirk mentions the seizure of Signature Bank, which occurred on March 12, as an example of this practice. The bank was closed by the New York State Department of Financial Services (NYDFS) to prevent contagion from spreading. Board member Barney Frank stated that the seizure was about sending a “strong anti-crypto message.”
In response, Cooper & Kirk called on Congress to intervene and hold the regulatory agencies accountable. They recommended six steps to achieve this, including regulators showing communications regarding the denial or regulation of banking access to crypto entities and investigating whether regulators are deliberately suppressing “private sector innovation.”
Former Coinbase CTO Balaji Srinivasan believes that the intended consequences of the attack will ultimately be repelled. However, it is still essential for the crypto industry to remain vigilant and fight against the discriminatory practices of regulatory authorities.
The attack on the crypto industry is not isolated to the US. In recent years, various countries have cracked down on the crypto industry, with some going as far as to ban cryptocurrencies altogether. In 2021, for instance, China made crypto transactions illegal and took down all crypto-related accounts on social media platforms.
Regulatory bodies worldwide have yet to find a common framework to manage the cryptocurrency industry, and this has led to different jurisdictions adopting different measures, creating confusion and regulatory arbitrage. This further complicates the regulatory landscape for the industry, making it more challenging to comply with regulations in different regions.
In conclusion, the crypto industry is facing unprecedented challenges from regulatory authorities. Cooper & Kirk’s paper brings to light the unlawful, unconstitutional, and arbitrary practices of US regulators against the industry. The crypto community, however, remains optimistic, with hopes that Congress will intervene and hold the regulatory agencies accountable. For the industry to thrive amidst regulatory crackdown, it must remain vigilant and continue fighting against discriminatory practices.