Commentary
In recent years, the financial sector has become a key target of progressive activists seeking to implement their agenda. Activists have used a variety of methods to persuade and pressure financial institutions to do their bidding. They have successfully pressured the financial sector to adopt standards on environmental impact, social impact, and broader corporate governance, collectively referred to as ESG standards; they have targeted the financial sector for remaining accessible to industries deemed to conflict with ESG standards, such as oil, natural gas, and firearms.
Following 9/11, the United States Congress passed the USA PATRIOT Act, which, among other things, 1) required financial institutions to establish due-diligence mechanisms to detect and report money laundering through private bank accounts; and 2) encouraged regulatory agencies and law enforcement to share information with financial institutions if an individual or entity is engaged in or reasonably suspected of engaging in terrorist acts or money laundering. Western nations followed the United States government’s leadership in broadening anti-money-laundering rules to include anti-terrorist-financing measures. Since the 2008 global financial recession, financial institutions have been heavily scrutinized for their role in exacerbating the economic collapse. To prevent intense scrutiny, financial institutions have since stayed more in line with regulators’ goals. This “partnership” has seemingly meant that financial institutions mostly succumb to regulatory demands on topics ranging from climate risk to social issues and other sensitive topics.
As financial institutions have become more captured by the state, decentralized digital currencies have become increasingly popular. In the late 2000s, bitcoin emerged as a decentralized digital currency that can be sent from user to user without the need for financial intermediaries. Over time, crypto assets like bitcoin have ballooned to enormous popularity. As of Feb. 23, bitcoin’s market capitalization was well over $700 billion. As the crypto-asset market continues to grow, governments and regulators have debated the best approach to constraining its utility in escaping government oversight. The Ontario Securities Commission reported tweets by the CEOs of two major crypto-asset exchanges that informed crypto users about ways to avoid the government’s ability to seize crypto-assets. As Canadian protesters recently learned, the financial system could become a weapon against them if the current government finds their political views to conflict with the its current priorities.
On Feb. 19, NBC News reported that hundreds of police officers in riot gear retook control of Ottawa after weekslong protests “occupied” the city’s streets. This forceful action comes days after Canadian minister of finance Chrystia Freeland announced a government crackdown on the Freedom Convoy. In fulfilling Prime Minister Justin Trudeau’s Emergencies Act declaration, the Ottawa interim police chief threatened the remaining protesters with “financial sanctions and criminal charges.” According to NBC News, Canadian authorities seized 76 bank accounts totaling around $3.2 million in connection with the protesters.
The Canadian government’s seizure of those bank accounts follows the Emergency Economic Measures Order, which was published on Feb. 15. Trudeau and Freeland’s stated intent was to require crowdfunding platforms and payment service providers to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and disclose to the Royal Canadian Mounted Police or the director of the Canadian Security Intelligence Service “the existence of property in their possession or control that they have reason to believe is owned, held or controlled by or on behalf of a designated person; and any information about a transaction or proposed transaction.” In addition, the Emergency Economic Measures Order requires applicable entities to cease 1) dealing with designated persons or individuals acting on behalf of designated persons; 2) facilitating any transactions with those designated persons; 3) making funds or virtual currency available to the designated person or an individual acting of the behalf of the designated persons; and 4) providing any financial or related services for the benefit of a designated person. In broadening Canada’s anti-money-laundering and anti-terrorist-financing law, Trudeau has all but designated the Freedom Convoy protesters as terrorists, or as David Sacks refers to them, “a caste of untouchables.”
On Feb. 16, CoinDesk reported that the Ontario Provincial Police and Royal Canadian Mounted Police “ordered all regulated financial firms to cease facilitating any transactions from 34 crypto wallets tied to funding trucker-led protests.” Freeland told reporters on Feb. 17 that “the names of both individuals and entities as well as crypto wallets have been shared by the [Royal Canadian Mounted Police] with financial institutions and accounts have been frozen and more accounts will be frozen.” Kraken CEO Jesse Powell tweeted that Kraken would be forced to comply with any demands by the Canadian government; however, he noted that those worried about it should not keep their crypto funds “with any centralized/regulated custodian. We cannot protect you.” Kraken is a popular crypto-asset exchange with more than 6 million customers. Similarly, Coinbase CEO Brian Armstrong tweeted an insightful thread about the necessity of protecting the freedom to transact. According to reporting, the Ontario Securities Commission has reported both Powell’s and Armstrong’s tweets to law enforcement, as both CEOs recommended storing crypto assets in noncustodial, off-exchange wallets. “The asset freezes serve not to end an emergency but to incapacitate and intimidate protesters after the fact,” writes the editorial board at The Wall Street Journal.
Why does any of this matter? For one, financial institutions and payment service providers can cease doing business with anyone deemed a designated person by the Canadian government without due process. Second, the Emergency Economic Measures Order states that “no proceedings under the Emergencies Act and no civil proceedings lie against an entity for complying with this Order.” Third, these actions run in direct contradiction to the promise of mainstreaming crypto assets. As Protocol writes, “Crypto wallets may not have personally identifiable information, but wallets hosted on a centralized exchange are linked to an identifiable user account. And transactions on the blockchain can be traced from point to point.” Lastly, the financialization of the broader economy has led to the increasing importance of access to financial institutions and payment service providers; this importance has made threats of financial censorship much more serious.
Crypto assets and decentralized finance (DeFi) have emerged as a potential workaround to the possibility of financial censorship. DeFi uses a secure distributed ledger to break the banking sector’s near-monopolistic control of money, financial products, and financial services. “There are no centralized authorities who can block payments or deny you access to anything,” writes Ethereum’s webpage. The potential of DeFi appears limitless as banks continue to face pressure to deny access to specific individuals and industries.
The financial sector’s submission to the activist agenda has allowed activists to, successfully, in some situations, target the financial sector’s funding of private prisons, oil and natural gas, other politically disfavored industries, and even right-wing political figures. Activist shareholders have become increasingly vocal about using their leverage to change corporate policy on issues ranging from climate change to guns. The Obama administration’s Department of Justice was caught using its regulatory authority to force financial institutions to cut off banking services to politically disfavored industries, threatening those that did not with prosecution. Just a few weeks ago, the Los Angeles County district attorney urged Visa, Mastercard, and American Express to “show responsible corporate citizenship by stopping online payments for the purchase of ghost gun kits.” As we have seen, these financial intermediaries continue to face pressure from government agencies and activists, with many of these pressure campaigns resulting in less freedom to transact.
The past few weeks have demonstrated that financial institutions and payment service providers play a critical role in our economic freedom. While the Toronto Star reported that the Canadian government is working with financial institutions to “unfreeze” bank accounts, the assistant deputy minister of finance noted that “some bank account holders may still be subject to other court orders freezing their assets,” even after Trudeau ended the Emergencies Act declaration. The aftermath of these draconian measures will likely lead to further use of the financial sector as a weapon against political opponents. If Trudeau’s recent tyrannical actions are any indication, the future of political warfare is financial.
by Mitch Nemeth
