FDIC Tried to Cover Up its Actions to Debank Crypto Clients

On January 6, 2025, Coinbase CLO Paul Grewal took to According to Grewal, the FDIC abused FOIA exemption 8 to suppress court-mandated information.

Coinbase filed a lawsuit against the Federal Deposit Insurance Corporation to enforce the Freedom of Information Act. The request was initially denied by the FDIC. According to Grewal, the Federal Deposit Insurance Corporation failed to provide all the court-mandated documents in a timely manner and added more documents only after additional legal pressure. Moreover, the FDIC used FOIA exemption 8 to largely redact the resulting documents (so-called “pause letters” sent to financial institutions) without legally justified reason.

The 8th exemption of the Freedom of Information Act “is designed to protect matters contained in or relating to investigations, activity or condition reports prepared by, on behalf of, or for the use of an agency responsible for the regulation or supervision of financial institutions.” .”

Why did the FDIC release the documents?

One excuse for withholding certain details in the disclosed documents was that the disclosure of this information would cause “reasonably foreseeable harm” to the recipients of these letters. Allegedly, if the institutions’ names, specific operations, and other details were made public, it would damage relations between the banks in question and the regulatory agency (i.e., the FDIC). Interestingly, the letters were not even confidential until September 2022, when the FDIC began adding notices that banks must keep the letters confidential.

TL; Dr: FDIC lied. I don’t say this lightly. However, it is clear that the corrections are not related to protecting confidential supervisory information. They were about to cover up BTC transactions, the development of blockchain technology, and even evidence that they were trying to kill a bank account.

— paulgrewal.eth (@iampaulgrewal) January 6, 2025

Some of the initially corrected information was revealed on January 4. Grewal claims that the newly revealed data does not harm recipients of the pause letters and that the FDIC is making excuses to cover up an ongoing Operation Choke Point 2.0 (a colloquial name). It emerged as a result of a series of efforts by the FDIC, the Federal Reserve, and other agencies to block services to customers who engage in cryptocurrency-related transactions, religious groups, customers with ties to African countries, and other law-abiding customer groups.

Senator and former prosecutor John E. Deaton expressed support for efforts to stop Operation Choke Point 2.0, stating that he was willing to conduct a pro bono investigation against the officials involved.

As a former prosecutor and Special Assistant to the United States Attorney, I am very serious about volunteering to help lead a federal investigation into ChokePoint 2.0. I would accept the position without taking a salary. The American people deserve the truth more than me or anyone else… https://t.co/LFdhpCixnr

— John E Deaton (@JohnEDeaton1) January 4, 2025

In post X, Deaton emphasized the importance of Choke Point 2.0 in the ongoing lawsuit against Ripple. He warns that the example of “unelected bureaucrats…arbitrarily denying access to basic financial infrastructure” goes far beyond the cryptocurrency industry.

“Pause letters” summary

The letters sent by the FDIC to financial institutions were aimed at preventing banks from providing services to customers related to cryptocurrency activities. The letters state that services may not be provided pending advice from the regulator, but it is not known whether this advice has been given. In many cases, customers were unable to provide coherent explanations as to the reasons for service discontinuation. In some cases, banks admitted that they blocked accounts due to “unexpected activity” or something similar.

The 25 letters disclosed were sent between 2022 and 2023. Among the types of activities that financial institutions were asked to suspend indefinitely were:

Bitcoin-backed lending NFTs and cryptocurrency storage by banks Deployment of decentralized “ecosystems” Products that allow customers to buy or sell cryptocurrencies Private and public blockchain exchange networks Mining of permissioned stablecoins Stablecoin warehouses Bitcoin cashback Issuing debit cards that support

Other known cases include the blocking of accounts of cryptocurrency hedge funds.

Another 2022 document issued by the FDIC is an internal memo requesting FDIC-supervised banks that will launch their own crypto-related products to notify the FDIC’s regional director in advance and provide all necessary information for review.

Is Operation Choke Point 2.0 real?

There are several cases where banks have stopped providing services to cryptocurrency-related customers. If this is not enough to verify the existence of the operation, we can also include letters from the FDIC. Although they have not encouraged banks to completely close customers’ accounts, they have created problems due to indefinite account holds, creating uncertainty for US entrepreneurs in the crypto sector. If there is any doubt that Operation Choke Point 2.0 is real, we can say that the FDIC’s recommendations to indefinitely close the bank accounts of companies that do not violate the law are real.

Activists writing about Operation Choke Point 2.0 claim that the FDIC participated in a covert disinformation campaign launched against them.

As the battle continues, new facts will shed light on the true nature of allegedly illicit anti-cryptocurrency efforts, and we will learn whether the FDIC’s actions are more of an act of caution or open hostility.