On June 10, the Louisiana House of Representatives unanimously voted to adopt H.R 316– a resolution commending the Trump Administration’s efforts to stop financial institutions from debanking customers over reputational risk concerns and excessive regulatory pressure. It further urges Congress to pass Senator Tim Scott’s (R-SC) FIRM Act, which would remove commonly abused risk categories from regulators’ consideration.
The bill acknowledges the harmful effects of debanking, undermining the integrity of free-market institutions that have contributed to America’s prosperity. Debanking emerged as an issue under Operation Chokepoint during the Obama administration. Regulators such as the FDIC pressured banks to cut ties with businesses in industries deemed reputationally risky, such as the firearms industry and crypto dealers.
Laws such as the Bank Secrecy Act and Anti Money Laundering Act require surveillance of customer activity to report suspected financial crimes. Banks file suspicious activity reports (SARs) and currency transaction reports (CTRs) to raise awareness among regulators and law enforcement.
SARs and CTRs are problematic and ineffective. The sheer volume of reports filed mostly turn out to be false alarms, costing banks time and money.
According to the Treasury Financial Crimes Enforcement Network, 4.6 million SARs were reported by banks in 2023, of which 0.3% resulted in an active FBI or IRS investigation. Between 2014 and 2023, 170 million CTRs were filed-yet only 5% of these reports wound up being accessed by law enforcement.
Banks face penalties for failing to catch crimes even when SARs are filed. As a result, many financial institutions err on the side of debanking customers to avoid regulatory fines.
Thinly veiled threats of “non-binding” guidance issued by regulators have contributed to pressure on financial institutions that have preemptively cut ties with long-standing customers to minimize the risk of incurring unwanted regulatory costs.
While regulators must enforce measures to prevent money laundering and fraudulent activities, licit businesses have become targets of politically motivated agendas pushed by agency bureaucrats during the Biden years. The resolution calls for increased accountability for regulators to ensure agencies do not overstep the bounds of their statutory authority and unfairly victimize law-abiding businesses and customers.
Legislative solutions are currently under consideration that would rectify the issue of overzealous regulators. The FIRM Act would remove reputational risk justifications often used as a pretext for arbitrary debanking.
At the World Economic Forum conference in January, President Trump raised the issue of debanking and unfair discrimination against traditionally conservative industries, calling on banks to change their policies.
Louisiana’s resolution rightfully recognizes the Trump administration’s efforts to protect citizens’ access to financial services without fear of discrimination or penalization. ATR H.R 316 and encourages lawmakers in Louisiana to support its passage.
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Author: James Erwin
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