A New York Times article on May 15 noted something any American with an ounce of political savvy should worry about: No, the headline reads, you don’t have a right to a bank account.
Other than sanctions on rich Russians, most people were recently banned because those in power at the institution, or the government they are aligned with, saw them as a political opposition. There is no other explanation. Their “debanking” wasn’t a mistake.
Good news. There is bipartisan support to kill this practice.
Sen. Tim Scott, R-S.C., is leading the effort to stop the scourge of debanking based on “reputational risk” — a risk that often means an account holder was on the wrong side of a political dispute.
Scott introduced legislation instructing federal banking agencies to stop using reputational risk in an assessment of any bank. A companion bill has been introduced in the House.
Debanking often comes with serious economic consequences.
The concept of reputational risk is not consistently clear. For a lender, it is often considered ancillary to credit risk, business risk, and other geopolitical factors.
Reputational risk is present in every facet of banking. And government regulators can find reputational risk wherever they look. Attorneys say the concept was ripe for the creation of debanking.
And for that reason, banks have become a more obvious system of political and social control.
Most Americans heard about this during COVID. Recall the Canadian truckers from the January 2022 “Freedom Convoy” protesting lockdown policies. Around 200 of them had their Bitcoin and traditional banking accounts frozen. Canadian banks were granted immunity by the state from account holder lawsuits.
During a Senate Banking Committee hearing in February, Federal Reserve Chairman Jerome Powell told Scott he was “happy to commit” to working with the committee to end debanking and revise the Federal Reserve’s rules to remove reputational risk as a tool to weigh in on political topics.
Debanking became a hot topic in November when Joe Rogan interviewed tech investor Marc Andreessen. He said politically disfavored businesses were targeted for debanking first under President Barack Obama, such as gun shops and gun manufacturers, in a move codenamed Operation Choke Point between 2013 and 2017. Then came “Choke Point 2.0” — as dubbed by the big cryptocurrency players, which debanked fintech founders because they were “political enemies. We’ve had like 30 founders debanked in the last four years,” Andreesen said.
That argument centers on those operating in the world of decentralized finance, a budding rival to traditional finance. However, debanking goes way beyond crypto. Should it continue, one can envision a government-issued digital currency that can easily be used to punish political actors.
A number of major banks have figured in debanking controversies. JPMorgan Chase, Bank of America, and Wells Fargo have been accused of closing accounts over political beliefs or lawful but disliked businesses.
Debanking is a Western phenomenon. It is used by governments to exert pressure on political opponents. Banks must comply. Sometimes, they act on their own, too.
NatWest Group became the poster child of debanking in the United Kingdom after it closed opposition leader Nigel Farage’s bank account in 2023. Since then, Barclays and HSBC have quietly reviewed their client lists to avoid similar PR disasters, reinstating debanked accounts and issuing assurances that they do not practice ideological exclusion.
After Farage’s case against NatWest was settled in March, there were calls in Parliament for a “royal commission” into debanking on political grounds.
Europe is where most of the politically exposed persons, or PEPs in anti-money laundering regulatory lingo, are subject to debanking because of sanctions.
Even among the PEPs, debanking is full of holes. Reuters and Bloomberg have run numerous articles about how even “ordinary Russians were shunned by banks” unjustifiably.
Politicians, part-time activists, company executives and managers, and entrepreneurs in new finance industries are in the crosshairs. For people on the PEP lists, decisions about whether they are a reputational risk are often based on low-trust news articles. U.S. and Europe also make some of their sanctions decisions based on open-source intel. Lawsuits have been won over this.
Banks should question these stories. If the government rules that someone cannot bank with the United States, citing articles from the media, there is nothing a bank can do about it.
For those not sanctioned from our financial system, however, like the ridiculous (albeit brief) debanking of Melania Trump, bank compliance desks should be held accountable for acting on misinformation by political spin doctors. Without such recourse, unjust debanking will continue.
Every company and private person needs a bank account. As cash has long been replaced by electronic money, using finance as a control tool is easier than ever. This exposes banks to the political whims of the government.
Some states are taking action.
Florida enacted a “Fair Access to Financial Services” law in May 2023. It stops banks from denying or terminating services based on a customer’s political or religious beliefs.
Tennessee passed a law in April 2024 imposing fair access requirements on banks above a certain size. These state laws effectively attempt to ban viewpoint-based debanking — although enforcing them on large, federally regulated national banks may prove difficult.
Senate Finance Committee Chairman Mike Crapo, R-Idaho, said the Feds cannot use reputational risk to punish banks into compliance. That will remove the risk of fines, but only if the FIRM Act becomes law.
Kenneth Rapoza is a senior contributor to Forbes covering big business, billionaires, and investing in emerging markets since 2011. He is a former WSJ staff reporter from Sao Paulo, Brazil. He wrote this for InsideSources.com.
Reprinted with permission from DC Journal by Kenneth Rapoza.
The opinions expressed by columnists are their own and do not necessarily represent the views of AMAC or AMAC Action.
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