J.D. Tuccille: Biden abused power to engage in Trudeau-style debanking

For Canadians, the government-mandated denial of financial services to punish political opponents and muzzle dissent is all too familiar a story after the Freedom Convoy and the extraordinary measures taken when the then-Trudeau government invoked the Emergencies Act to end protests against COVID-19 restrictions. But politically motivated debanking has been a problem in the United States, too, where government officials operating largely behind the scenes have leaned on banks to break ties with disfavoured individuals, organizations, and even whole industries.

In the U.S., discussions of debanking usually begin with the Obama administration’s Operation Choke Point. As the Inspector General for the Federal Deposit Insurance Corporation (FDIC) revealed in a 2015 report, the government targeted so-called “high-risk” industries that were legal but politically disfavoured and which regulators identified in communications to bankers. The industries included payday lenders, pawnbrokers, firearms businesses, and tobacco retailers. These “references to specific merchant types … created a perception among some bank executives that we spoke with that the FDIC discouraged institutions from conducting business with those merchants,” the Inspector General conceded. The abuses were later shown to involve top-level officials.

Operation Choke Point was discontinued amidst recriminations and lawsuits after The Wall Street Journal revealed the existence of the program. The U.S. Department of Justice, by then under the first Trump administration, conceded that “law abiding businesses should not be targeted simply for operating in an industry that a particular administration might disfavour.”

That should have been the end of such shenanigans but of course it wasn’t. Political types are loath to surrender convenient weapons for hurting foes. Two new reports show that debanking continued under the Biden administration, which revived the practice of pressuring banks to sever ties with individuals and even whole sectors of the economy.

In Operation Choke Point 2.0: Biden’s Debanking of Digital Assets, the House Committee on Financial Services reveals that “the Biden Administration sought to make it nearly impossible to engage in digital asset-related activities.” Pressures including “lack of regulatory clarity” and “rampant, ex-statutory enforcement activity” created a chilling effect among financial services companies that “resulted in the debanking of at least 30 entities and individuals engaging in digital asset-related activities.” The report includes a timeline of Biden administration warnings against dealing with cryptocurrency, followed by corresponding pressures brought on banks, leading to debanking.

The report references the Obama-era Operation Choke Point and accuses the Biden administration of quietly reviving the practice of abusing regulatory power to deny services to people engaged in perfectly legal activities that government officials only wish were forbidden. According to the report, regulators relied on vague laws and broadly defined powers to smear targets as sources of “reputational risk” or as potentially putting banks in danger of engaging in “unsafe or unsound practices” that could result in loss of access to deposit insurance. Basically, regulators have so much power over the financial industry that a mere hint of displeasure can induce banks to cut ties with companies, organizations, and individuals who rub government officials the wrong way.

But the problem extends beyond the digital assets industry. Also this month, the U.S. Office of the Comptroller of the Currency (OCC) released its own preliminary report on debanking. In a review of the country’s nine largest banks, “the OCC has observed that between 2020 and 2023, the banks maintained public and nonpublic policies restricting certain industry sectors’ access to banking services.” The reasons for denial of financial services extended beyond financial issues to reputational concerns about “how it might appear to the public if the bank provided access to financial services to these sectors.”

The sectors denied financial services included: oil and gas exploration in the Arctic, coal mining and use, firearms-related businesses, private prison companies, payday and payroll lending, tobacco companies, adult entertainment, political groups and parties, and digital asset businesses.

Oddly, the OCC report doesn’t mention governmental pressure on banks. Instead, it implies that the actions were a result of fear about media scrutiny or ideological incompatibility with bank values. But the period reviewed coincided with the Biden administration’s revival of Operation Choke Point-style pressures and the OCC notes that the FDIC now proposes “the elimination of reputation risk from their supervisory programs.” As discussed above, “reputational risk” has been a powerful political weapon.

That’s a good start, but it remains too easy for government officials to twist bankers’ arms into serving as political hit men. As the Cato Institute’s Norbert Michel warned in a 2024 column cited by the House report, federal regulators “have so much discretion that they have the authority to warn banks about dealing with certain types of customers for almost any reason they choose to justify.” And those warnings are “enough to get someone debanked.

Responding to the latest revelations, Michel’s colleague, Nicholas Anthony, adds that “to end this abuse, Congress needs to limit the discretion of regulators.” He fingers the Bank Secrecy Act as a culprit.

Barely mentioned in either the House or OCC reports are the large number of individuals, humble and prominent, who credibly claim to have been debanked over discomfort with their religious and political activities or as punishment for unproven criminal activity. They include a Muslim fundraiser, conservative activists, suspected January 6 rioters, and even First Lady Melania Trump during the interregnum between her husband’s presidential terms. The OCC is now “reviewing nearly 100,000 consumer complaints” alleging debanking.

Some people might be unsympathetic to the targets of debanking efforts. But the fact is that denying financial services has become a shorthand way of inflicting punishment or strangling industries without going through the muss and fuss of proving cases in court or shepherding legislation through Congress. Why bother with all that when you can just turn somebody into a financial unperson? Other than the serious moral and ethical problems involved, and the profound threats to liberty, that is.

The Trump administration says it’s committed to ending debanking. Hopefully, it’s serious. Denial of financial services, as was done to some Freedom Convoy protesters, shouldn’t be accepted practice on either side of the border.

National Post