Law firm Cooper & Kirk accuses US regulators of weaponizing banking

Cooper & Kirk published a paper entitled “Operation Choke Point 2.0: Federal Bank Regulators Are Coming For Crypto,” in which the Washington DC-based law firm delves deep into the illegal, unconstitutional and arbitrary “backroom war on crypto” led by US regulators.

Crypto under fire

A February tweet from Castle Island Ventures partner Nic Carter first tipped off the community to a coordinated attack on the crypto industry.

“It’s a well-coordinated effort to marginalize the industry and cut its connection to the banking system – and it’s working.”

At the time, Carter’s message was met with some degree of ambivalence. However, several regulatory enforcement actions have followed since then – including Coinbase being served with an SEC Wells notice and – most recently – the CFTC suing Binance for commodity violations.

Former Coinbase CTO Balaji Srinivasan said Cooper & Kirk’s paper is strong evidence that Carter was right all along. However, he believes the intended consequences of the attack will be rejected.

“Hard to deny now that there is a coordinated attack on Bitcoin. But freedom will push back, at the national and state level.“

The public first became aware of Operation Choke Point in August 2013. It referred to a program that used the banking system to implement political views without going through due process.

The authorities targeted various “undesirable” industries through their banking providers, including munitions, coin dealers and home-based charities.

Cooper & Kirk said history is repeating itself – with crypto considered the unwanted industry this time.

The law firm successfully sued the FDIC, Fed and OCC for their part in the original Operation Choke Point – with a settlement reached in May 2019.

History repeats itself with Operation Choke Point 2.0

To sum up the situation, Cooper & Kirk said there is a coordinated campaign by banking regulators to cut crypto out of the financial system.

This has taken the form of informal top-down guidance documents targeting crypto-related entities, including firms, customers, and crypto employees and owners – effectively de-banking these groups.

“Businesses in the cryptocurrency market are losing their bank accounts, or their access to the ACH network, suddenly, and without explanation from their bankers.”

Cooper & Kirk branded these actions abuse of authority and weaponization of the banking system. Moreover, such actions violate constitutional rights and violate due process – a specific mention was given to the seizure of Signature Bank, which occurred on March 12.

Signature Bank was closed by the New York State Department of Financial Services (NYDFS) to prevent the spread of infection. Board member Barney Frank said the bank was adequately capitalized and that the seizure was about sending a “strong anti-crypto message.”

What now?

The law firm called on Congress to step in and hold these regulatory agencies accountable. They recommended six steps to achieve this. These are:

• Regulators to display communications regarding denial or regulation of banking access to crypto entities.
• Relevant agencies to explain their rationale for cutting off crypto entities from the banking system.
• Remind regulators and federal agencies that the Administrative Process Act — which require proposed regulations to follow due process, such as public comment – are not optional.
• Examine the closing of Signature Bank – including the FDIC directive to exclude the firm’s digital asset business from the bidding process.
• Investigate whether regulators are deliberately suppressing “private sector innovation.”