Paul Grewal asserted that the letters obtained through FOIA requests confirm the existence of Operation Chokepoint 2.0.
FDIC Letters Reveal Pushback on Crypto Services
Coinbase Chief Legal Officer Paul Grewal has unveiled correspondence from the Federal Deposit Insurance Corporation (FDIC) sent to banks in 2022, advising them to cease or avoid activities related to cryptocurrency.
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Dating back to March 11, 2022, these communications, referred to as “pause letters,” consistently recommended that financial institutions suspend or steer clear of offering crypto services.
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FDIC’s Stated Concerns
The FDIC cited several issues in these letters, including the agency’s lack of regulatory clarity regarding cryptocurrency activities. One excerpt highlighted:
“At this time, the FDIC has not yet determined what, if any, regulatory fillings will be necessary for a bank to engage in this type of activity.”
Many portions of the documents were heavily redacted, possibly to protect the proprietary nature of the products or services discussed. The FDIC also underscored the need for further details about the banks’ crypto offerings to ensure they would function “in a safe and sound manner.”
The letters also questioned the legal analyses conducted by banks regarding the permissibility of these activities under Part 362 of the FDIC Rules and Regulations, which governs insured state banks. This indicates that some state-chartered banks considered offering crypto-related services in 2022.
Operation Chokepoint 2.0
The release of these documents resulted from Coinbase’s Freedom of Information Act (FOIA) request filed on Oct. 18, seeking clarity on an alleged 15% deposit cap imposed on crypto-friendly banks.
Paul Grewal contended that the letters substantiate claims of “Operation Chokepoint 2.0,” an alleged initiative by the Biden administration to suppress the crypto industry. He dismissed suggestions that these claims were mere conspiracy theories and criticized the FDIC for extensive redactions and releasing only a limited portion of the relevant materials.
He urged the incoming U.S. administration to overturn what he characterized as “regulatory decisions driven by political motives.”
According to Grewal:
“The incoming administration has the opportunity to reverse so many poor crypto policy decisions, chief among them politically motivated regulatory decisions like Operation Chokepoint 2.0.”
Others in the industry have also criticized the letters, raising additional concerns about the Federal Reserve’s involvement, as it was copied on many of the communications sent to banks.
Caitlin Long, CEO and founder of Custodia Bank, argued that the Federal Reserve’s inclusion in the letters indicates that the pause directives were coordinated efforts. She further described the so-called pause letters as indefinite measures designed to deter legitimate crypto activities.
“These weren’t ‘pause letters’ bc the pause was indefinite. These were really ‘cease & desist’ letters cloaked in legalese…designed to crush law-abiding #crypto.”
The letters regarding the pause, which extend over a period of almost two years and nine months, indicate a concerted initiative among regulatory bodies to restrict banks’ involvement in activities related to cryptocurrency. Detractors contend that these actions hinder the industry’s potential for innovation and growth within the framework of the US financial system.
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