Marc Andreessen, co-founder of a16z, revealed on the Joe Rogan podcast on November 28 that 30 technology founders had their accounts closed by US banks due to crypto-related issues. To this end, on December 6, a16z crypto published an editorial discussing "Debanking: What you need to know". 0xjs@Golden Finance compiled the full text as follows:
"Debanking" (closing bank accounts) has been going on behind the scenes for many years, but now it has re-emerged as a topic of public discussion, with many individuals, policymakers, companies, and entrepreneurs who are most important to American innovation coming out to talk about the issue. As the cryptocurrency industry and specific institutions appear again and again in this discussion, here is a brief explanation of this phenomenon to help distinguish the signal from the noise.
But first, what is "debanking"?
In short, debanking is when a law-abiding person or entity unexpectedly loses a banking relationship, or is even kicked out of the banking system.
Debanking is different from when an entity loses banking services because, after some investigation or other process, it is suspected or confirmed to have engaged in fraud, money laundering, or other illegal activities.
Debanking can occur without any apparent investigation, detailed explanation, or advance notice, without providing the entity with adequate time to move the funds. Most importantly: there is no due process, appeals process, or other recourse.
Why does this matter?
We already have fair banking rules in place that try to ensure that people are not discriminated against based on age, gender, marital status, nationality, race, religion, etc. But those rules do not restrict banks (or their regulators) from arbitrarily denying or revoking someone's right to banking services.
Thus, debanking can be used as a tool or weapon by certain political actors/institutions, systematically against private individuals or industries, without due process. Imagine if the government decided who could or could not get electricity simply because of political stance or some arbitrary reason…without explanation, investigation, notification or provision of remedy. This is what debanking is all about.
Why debank?
Not all bank account closures are “debanking”. Banks can close customer bank accounts for a variety of reasons, including that they believe those customers are engaging in suspicious activity. Banks can also proactively choose to reduce regulatory compliance costs and workload by limiting exposure to certain individuals, industries or business models.
However, this legitimate activity is not what triggers concerns about debanking. Instead, many debanking concerns stem from reports of unlawful exercise of power by regulators to exert undue influence on banks to remove clients from certain industries or those with political affiliations or interests that are disliked by the political establishment. This enables these regulators to exert power over industries even though Congress never authorized such power. Banks often acquiesce to such pressure because they do not want to run afoul of their regulators. Many banks also do not want to deal with compliance issues, the extra scrutiny that banking regulators may impose on them because they do not follow regulations. Where did Operation Chokepoint come from? In 2013, the U.S. Department of Justice was caught opening a fraud and money laundering investigation into certain businesses as a policy initiative of the President’s Financial Fraud Enforcement Task Force. This marked a shift in government strategy: Instead of targeting individual companies for wrongdoing, the government would issue subpoenas to banks and payment companies for information about their clients operating risky or politically unpopular but legal businesses.
In other words, the government was using regulation to improperly “cut off” access to financial services and close accounts, with the goal of strangling businesses in industries the government didn’t like (as the then-head of the American Bankers Association, the U.S. banking trade association, observed). In a 2014 op-ed in the Wall Street Journal, Frank Keating (former president and CEO of the American Bankers Association, former governor of Oklahoma, and chairman emeritus of the board of directors of the Bipartisan Policy Center in Washington) noted:
When you become a banker, no one gives you a badge or puts you in a judicial robe. So why is the Justice Department telling bankers to act like police officers and judges?
The Justice Department’s new investigation, called “Operation Choke Point,” required banks to identify customers who might be breaking the law or just doing something government officials didn’t like.
The program was shut down the following year amid strong legal, congressional, and institutional opposition.
Today, the phrase Operation Choke Point 2.0’ is sometimes used to refer to the government’s efforts to cut off banking services to “political enemies and unpopular tech startups.” Or, as others put it, the term refers to banks “cutting ties with clients deemed politically incorrect, extreme, dangerous, or out of bounds.” However the term is defined, it’s an issue that affects entities at both ends of the political spectrum and across the political spectrum.
Which agencies were involved?
The inner workings of Operation Choke Point — and any other related or subsequent systematic efforts to deprive specific entities or industries of banking services — were previously unknown because investigations, if any, were conducted behind closed doors and Freedom of Information Act requests were pending. However, on December 6, court documents from one such FOIA case revealed that the FDIC instructed at least one bank (in a letter dated March 11, 2022): “… at this time, the FDIC has not determined what regulatory filings, if any, are required for banks to engage in such activities. Therefore, we respectfully request that you suspend all activities related to crypto assets.” A large number of FDIC letters were filed as attachments to the record in the case.
Meanwhile, we already know that the original Financial Fraud Enforcement Task Force (2013) that implemented Operation Chokehold 1.0 included the FDIC and Department of Justice (DOJ), among others. The Office of the Comptroller of the Currency (OCC)—an independent agency within the U.S. Treasury—is apparently involved, as is the U.S. central bank, the Federal Reserve Board (FRB). The Consumer Financial Protection Bureau (CFPB) is also mentioned.
Note: The U.S. government isn’t the only country to engage in debanking. Other governments, such as Canada, have used this tactic; the U.K. has also had to investigate complaints about government-led debanking.
Why do governments do this? And how effective is it?
The reasons for debanking vary, from combating payment processor fraud to preventing high-risk businesses from doing business because they may be perceived to have more links to money laundering. These reasons are often referred to as "de-risking" rather than "debanking": "the practice of financial institutions indiscriminately terminating or limiting business relationships with broad categories of customers, rather than analyzing and managing customer risk in a targeted manner."
In a broader sense, de-risking and debanking can be used as "partisan tools" to stifle legitimate businesses for political reasons alone. Another reason may be that certain government agencies want more discretion and power to decide "where and under what circumstances consumers can obtain loans, financial products and other banking services."
To be clear, the problem is not the performance of one particular government agency. The problem is excessive government intervention (or general abuse of power) over legitimate businesses - without any meaningful due process or ability to constrain their behavior, which often takes place behind the scenes. Especially because there are already sufficient laws and legal methods to regulate businesses for legitimate reasons, such as providing consumer protection, preventing money laundering, and deterring other criminal behavior.
The use of debanking strategies can have many unintended consequences. Even if the goal is to truly protect consumers and the banking system, the results can be counterproductive, hindering consumer choice, or having a chilling effect on business as a whole. These practices also undermine the U.S. government’s own policy goals, as the U.S. Treasury Department’s report on de-risking (2023) points out:
Exclude financial activities from the regulated financial system;
Hinder remittances or delay the smooth flow of international development funds and humanitarian/disaster relief funds;
Hinder low-income and middle-income groups and other underserved groups from effectively using the financial system;
Undermine the centrality of the U.S. financial system.
Finally, the use of “debanking” strategies may punish legitimate businesses and individuals by association. For example, someone’s previously approved mortgage was revoked simply because he worked for an open source foundation in the crypto industry.
For all of the reasons listed above, many have described the practice of debanking as “un-American.” When debanking indiscriminately targets emerging technologies, it is undoubtedly anti-innovation.
How widespread is debanking?
While we cannot speak for the entire industry or specific interests, as crypto VCs, we have personally witnessed at least 30 cases of debanking at our portfolio companies and founders over the past four years.Coinbase has also publicly stated that they have found at least “20 instances where the FDIC has required banks to ‘suspend’ or ‘cease to provide’ or ‘not continue’ crypto banking services.”
There are likely many more such cases. This issue has been underreported because many entrepreneurs and small businesses have been hesitant to address the issue due to fear of further retaliation or lack of resources to do so.
For our portfolio companies, much of the debanking has occurred with companies that are not yet profitable and have not yet issued a token. Their bank accounts have received venture capital money (via institutions such as pension funds and university endowments), and these companies have used this money for employee salaries and general business expenses - just like other tech startups.
So, what were these companies told about this, either in writing or (more often) verbally? The reasons cited ranged from "We do not provide crypto banking services" to, more commonly, "Your account has been closed due to compliance-related issues. Please transfer all funds immediately." These companies were also told this, but received no specific information about which "compliance" issue it was, and were unable to remedy it if there was indeed an issue. Finally, other reports we’ve received from companies include:
being told that “the business compliance backend team closed the account and prohibited us from opening any other accounts. No other reasons were given and there was no appeal process”;
being rejected due to “lack of trust in all those running crypto companies”;
receiving unfounded inquiry letters and notices, causing expensive cycles and unnecessary stress for startups – whose operations are already lean compared to larger companies.
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