The Federal Deposit Insurance Corporation Agrees to Cover Related Costs and Drops FOIA Lawsuit Over Cryptocurrency "Pause Letters"
The Federal Deposit Insurance Corporation (FDIC) of the United States has agreed to pay $188,440 in legal fees and to drop its defense against disclosing cryptocurrency-related “pause letters,” thereby reaching a settlement in a Freedom of Information Act (FOIA) lawsuit related to banking restrictions alleged to be part of “Operation Chokepoint 2.0.” The conclusion of this case has also forced the regulator to disclose records showing that banks were reportedly pressured to halt or restrict cryptocurrency-related activities.
Last Friday, the FDIC submitted a joint status report to the United States District Court for the District of Columbia, stating it would fully cover the legal fees incurred by the Historical Research Group—the research firm commissioned by the cryptocurrency trading platform Coinbase to file the records request. The FDIC will also amend certain FOIA operational procedures.
The status report shows that the FDIC, in its letter dismissing the appeal, acknowledged that its “decision to withhold relevant records was based on a determination that the types of records requested were exempt from disclosure, rather than evaluating each document individually for exemption.”
The disclosure of these records stems from a report published by the FDIC Office of Inspector General in October 2023. The report revealed the existence of these documents and criticized the agency for sending letters to several banks, “demanding that they pause or refrain from expanding already planned or ongoing cryptocurrency-related business.”
Prior to the settlement, the court ruled in November last year that the FDIC had indeed violated the FOIA: the agency initially withheld all these pause letters as a whole and “redacted information in the pause letters that did not fall under the FOIA Exemption 8 category or would not harm the interests protected by Exemption 8 if disclosed.”
Joe Ciccolo, founder and president of cryptocurrency anti-money laundering consulting firm BitAML, told news media that this ruling shows that cryptocurrency regulation during the previous administration was shaped not just by traditional safety and soundness analyses, but also deeply influenced by “political and reputational considerations.”
Ciccolo said, “The FDIC’s actions are truly disgraceful—the agency has a statutory duty to protect consumers and insure public deposits, and it should serve as a model of transparency.”
“Operation Chokepoint 2.0” refers to allegations that the FDIC, the Federal Reserve, the Office of the Comptroller of the Currency, and other banking regulators coordinated actions to restrict cryptocurrency companies’ access to banking services. The name is borrowed from a policy during the Obama administration, when U.S. regulators pressured banks to cut ties with gun dealers and payday lenders.
When Coinbase requested these letters in November 2023, the FDIC rejected the request on the grounds that the letters “essentially qualify for exemption from disclosure,” later stating that its decision was based on the type of records, rather than individual review for exemption.
After the Historical Research Group filed a lawsuit in June 2024, U.S. District Judge Ana Reyes ordered the FDIC to submit the letters, later criticizing the agency for “not acting in good faith” during its redaction process, and demanding more careful handling of redactions.
The FDIC eventually made all relevant submissions after four court orders and six document submissions.
“Years of litigation have finally paid off.” After the settlement, Coinbase’s Chief Legal Officer Paul Grewal wrote on X, “We succeeded in disclosing dozens of cryptocurrency ‘pause letters,’ which are conclusive evidence that ‘Operation Chokepoint 2.0’ was real and that regulators coordinated to crack down on the crypto industry.”
According to the settlement agreement, the FDIC has promised to implement several policy changes, including adding provisions to training materials to guide staff to interpret FOIA requests “with leniency,” and clarifying that the agency does not have a blanket policy of exempting all bank regulatory documents from disclosure under FOIA Exemption 8.
Ciccolo believes that financial regulation should adhere to “principles of transparency, risk orientation, and be based on clear regulatory standards,” rather than exerting informal pressure through vaguely worded “pause letters.” He also warned that behind-the-scenes regulatory actions could erode market trust in the regulatory system.
Once the FDIC completes payment, both parties to the lawsuit will submit a formal motion for dismissal. As of now, the regulator has not responded to media requests for comment.
Editor: Li Zhaofu
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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