The DOJ’s Choke Hold on Bitcoin

Starting in 2013, the Obama administration ramped up an effort to drive predatory payday lenders out of business. Since payday lenders are legal, and going after them for legitimate abuses is costly and time consuming, the DOJ decided on a different tact. Why prosecute when they can persecute?

The DOJ began to ramp up requests for information, investigations, and subpoenas at banks and payment processors. This made having payday lenders costly and troublesome. It was the DOJ’s plan that banks would just decide to drop the business of anyone they targeted. The strategy was given the apt name of Operation Choke Hold.

It doesn’t stop there, though. It was recently revealed that JP Morgan Chase has been closing the accounts of those involved in the porn industry. Hundreds of accounts have been closed according to some reports. In this op-ed for the Wall Street Journal (paywall), American Banking Association CEO Frank Keating states that the Department of Justice is telling bankers to behave like policemen and judges.

Going after payday lenders with these questionable tactics is one thing, but turning these tactics on the porn industry, and on the on-screen talent, seems quite another. Some have argued that payday lenders provide a real service for poor areas as they keep people in desperate straits out of the grip of loan sharks. Others say that there is little difference between the payday lenders and the sharks. It hardly matters. The businesses are legal. If the government wants to drive them out of business, they should find an actual, legal reason to do so or pass laws to make it happen.

Going after porn actresses seems even less justified. Some might find their line of work unsavory, and for sure the business has long been associated with certain types of crime. However, many of the people complaining of closure on not the people meeting in the back room with the mob bosses, but the actresses who seem, other than their controversial line of work, to be merely trying to get on with their lives and not victimizing, or being victimized by, anyone. Unless, of course, you count the DOJ.

It’s often said that the path to hell is paved with good intentions, and it seems to us that the original idea of Operation Choke Hold was to protect those who are too week to protect themselves from fraudsters. This is a legitimate role of the government. But by choosing a certainly questionable and probably illegal way of going about it, they have opened up a Pandora’s box. Once they stopped using the law and started acting on extra-legal morality, it becomes all too easy to start using the same tools on others.

Currently there are 30 categories in the list of things that banks should watch for:

  • Ammunition Sales
  • Cable Box De-scramblers
  • Coin Dealers
  • Credit Card Schemes
  • Credit Repair Services
  • Dating Services
  • Debt Consolidation Scams
  • Drug Paraphernalia
  • Escort Services
  • Firearms Sales
  • Fireworks Sales
  • Get Rich Products
  • Government Grants
  • Home-Based Charities
  • Life-Time Guarantees
  • Life-Time Memberships
  • Lottery Sales
  • Mailing Lists/Personal Info
  • Money Transfer Networks
  • On-line Gambling
  • PayDay Loans
  • Pharmaceutical Sales
  • Ponzi Schemes
  • Pornography
  • Pyramid-Type Sales
  • Racist Materials
  • Surveillance Equipment
  • Telemarketing
  • Tobacco Sales
  • Travel Clubs

Admittedly, there are a lot of things on this list that seem ripe for a lot of scrutiny and regulation. Some are already simply illegal. And, of course, it is made clear that this list is not exhaustive. By asking banks to judge for themselves what may be an unsavory business and cut ties, the government has passed off its responsibility and made victims of innocent people.

These revelations, though, give something of an answer to the Bitcoin community: Why have banks been closing the accounts of people who have bought or sold bitcoins? Why have Bitcoin businesses been unable to create stable banking relationships? Bitcoin is often called a Ponzi scheme, a pyramid scheme, a get-rich-quick scheme. There are coin dealers, on-line gambling, and of course, the drugs.

One bitcoiner going by the name mrstickball on Reddit reported that her Chase account had been closed after purchasing some ASIC equipment. After a little wrangling, mrstickball was able to get a direct response from the bank: Chase has deemed any activity involving Bitcoin as high-risk, and therefore is banned from our company. This includes both selling Bitcoins, and Bitcoin related hardware.

Government overreach is nothing new, but it is nothing to stand for either. I applaud their attempt to protect people from fraud and despise their delegating their responsibility to banks and making this a moral, rather than a legal judgment. And all the while that they are persecuting porn actresses and bitcoiners, the DOJ has done precious little to track down and prosecute the fraudsters who caused the economic crash of 2009. If they did, they might find them in the same offices at JPMorgan Chase where they discuss how great it would be if the banks could lend a hand with Operation Choke Hold.

Right now one of the great challenges for the bitcoin community is how to create stable, safe, and cheap on-ramps and off-ramps to fiat currencies. The DOJ does not look like they want to make that very easy. In the long run, though, Bitcoin is going to change the way the banks do business, and greatly lessen their importance and impact. It will allow people to free transact business however they like without the fear of these moral judgments.

Mark Norton of April 29, 2014