FDIC Resists Transparency on Operation Chokepoint 2.0, Claims Coinbase CLO

The Federal Deposit Insurance Corporation (FDIC) is facing growing criticism for its lack of transparency regarding its role in Operation Chokepoint 2.0, a covert effort during the Biden administration that allegedly saw tech and crypto founders denied banking services. Paul Grewal, the Chief Legal Officer (CLO) of Coinbase, has been vocal about the FDIC's refusal to provide clarity on its involvement in the operation, despite multiple legal requests.

What Is Operation Chokepoint 2.0?

The term Operation Chokepoint 2.0 emerged in the wake of the collapse of several crypto-friendly banks in early 2023. Critics, including venture capitalist Nic Carter, have described the initiative as a government-backed effort to pressure banks into severing ties with cryptocurrency firms. The operation came to light after tech and crypto industry leaders reported being “secretly debanked” by financial institutions under significant regulatory pressure.

Though the initiative is not officially recognized, many believe that it was a coordinated effort by US agencies to curtail access to banking services for companies in the crypto and tech sectors.

Coinbase’s Legal Efforts for Transparency

In a March 8 post on X (formerly Twitter), Grewal expressed frustration over the FDIC's resistance to transparency efforts. Coinbase has been trying to get the FDIC to disclose how it conducted its “due diligence” regarding Operation Chokepoint 2.0, specifically to ensure that no documentation related to the event was destroyed. However, according to Grewal, the agency has “repeatedly refused” to comply with these requests.

Grewal's comments came just a day after the Office of the Comptroller of the Currency (OCC) eased its stance on how banks could engage with crypto companies. This shift occurred just hours after former US President Donald Trump pledged to end the crackdown that had restricted crypto firms' access to banking services during the operation. At the White House Crypto Summit, Trump announced he was “ending Operation Chokepoint 2.0,” signaling a shift toward more supportive policies for the crypto industry.

Issues with the FDIC’s FOIA Compliance

In addition to its lack of transparency regarding the investigation into Operation Chokepoint 2.0, Grewal also accused the FDIC of failing to cooperate with Coinbase's Freedom of Information Act (FOIA) requests. According to Grewal, the FDIC has only produced “snippets” of documents that seem irrelevant to the specific policies or practices Coinbase has challenged in its amended complaint.

Further, the agency allegedly redacted a substantial portion of the documents, with some pages so heavily redacted that they were rendered “unintelligible.” Grewal questioned the reasoning behind the heavy censorship, asking, "What exactly are they hiding?"

Coinbase has also requested that the FDIC provide “sworn testimony” in court regarding the agency’s practices during Operation Chokepoint 2.0. This request has yet to be fulfilled, and the lack of cooperation continues to raise concerns about the FDIC's involvement in the operation.

Broader Regulatory Shifts

While the FDIC’s resistance to transparency continues, recent developments in the regulatory landscape offer hope for the crypto industry. As mentioned earlier, President Trump’s remarks at the White House Crypto Summit were a key moment, as he voiced his intention to end the prolonged efforts to restrict banking access for crypto firms. This came just after the OCC clarified its stance on how banks can work with crypto firms, signaling a shift towards a more accommodating approach.

Additionally, Trump signed an executive order in January 2024 aimed at addressing some of the banking challenges Web3 companies face. This order called for clearer regulations around digital assets and excluded the Federal Reserve and the FDIC from working groups tasked with developing crypto policies. This exclusion marks a potential end to the controversial efforts of Operation Chokepoint 2.0 and could pave the way for more stable and transparent regulatory practices.

Conclusion

The battle for transparency surrounding Operation Chokepoint 2.0 continues to intensify, with the FDIC under scrutiny for its role in allegedly pressuring banks to sever ties with crypto firms. Coinbase’s legal efforts to uncover more details about the operation have highlighted the agency’s resistance to providing full disclosure. While the regulatory landscape is shifting, with agencies like the OCC and Trump’s

executive order signaling a move toward greater cooperation with the crypto industry, the FDIC’s reluctance to comply with transparency requests raises critical questions about the future of regulatory oversight in the sector. As the situation unfolds, it will be important to see whether further actions will be taken to hold agencies accountable for their role in Operation Chokepoint 2.0.