Lawmakers discuss ‘debanking’ in crypto, raise concerns about Musk’s access to Treasury systems

Lawmakers debated why banks are suddenly closing customer accounts, a phenomenon they call “debanking,” at a hearing Feb. 5, where several Democrats raised concerns about Elon Musk and his team’s access to the Treasury Department’s payment systems.

“It is incredibly alarming and disheartening to hear stories about financial institutions cutting off services to digital asset firms, political figures and conservative-aligned businesses and individuals,” Senate Banking Committee Chair Tim Scott, R-S.C., said in his opening statement for the hearing, which was titled “Investigating the Real Impacts of Debanking in America.”

Nathan McCauley, CEO and co-founder of Anchorage Digital, an institutional cryptocurrency platform, told lawmakers that his company’s corporate bank account, “which held client fees from custody and other services, along with general corporate funds for day-to-day expenses like payroll and administrative expenses,” was suddenly closed in 2023 because of its crypto clients and transactions. He said that many in the crypto industry are facing similar challenges, likely because of pressure from regulators.

However, Sen. Jack Reed, D-R.I., said he believes “the bank regulators are trying to react to a relatively new phenomenon,” referring to crypto, which is seemingly used as a frequent vehicle for “financing of illicit activities,” according to the senator.

Regulators are likely taking crypto's recent history into account, according to Mark Hays, associate director of cryptocurrency and financial technology for the Americans for Financial Reform Education Fund and Demand Progress Education Fund.

The hearing had “no mention of the $2 trillion crypto crash caused by widespread malfeasance throughout the entire crypto industry — the very kind of risky behavior regulators are meant to address, lest they crash the financial system,” Hays said in an emailed statement.

Jack Inglis, CEO of the Alternative Investment Management Association, said in an emailed statement that it’s “encouraging” to see the committee “finally take seriously the concerns raised by AIMA” regarding debanking in the crypto industry.

“AIMA’s research found that the majority of crypto hedge fund managers questioned had suffered issues with accessing or growing banking services for their funds,” Inglis added. “This pernicious undermining of a growing industry threatens to stifle innovation and undermine the competitiveness of the U.S. digital assets sector.”

Given the timing of the hearing, many Democrats on the committee raised concerns about reports that Musk and his “Department of Government Efficiency” team have gained access to the Treasury Department’s payment systems.

Sen. Mark Warner, D-Va., was first to bring it up, telling witnesses, “if any of your institutions suddenly let somebody into your payment system that had no background in banking, that had no understanding of money flows, that suddenly gets an ability, without any screening, to look at all of your customers’ personal banking information, that would cause reputational risk, and that’s exactly what is happening in the United States Treasury at this moment in time.”

Sen. Chris Van Hollen, D-Md., said the committee, which has partial jurisdiction over the Treasury, “should have an urgent hearing on this.”

The Alliance for Retired Americans, along with the American Federation of Government Employees and Service Employees International Union, sued the Treasury Department to halt Musk and his team from accessing Treasury’s payment systems in a Feb. 3 lawsuit.

The groups alleged that Treasury Secretary Scott Bessent broke federal law when he allowed Musk and his team access to those systems, which include “sensitive and personal information” on anyone who has made a financial transaction with the government, according to the lawsuit.

In response to Warner, Scott read aloud part of a letter the Treasury Department sent to lawmakers Feb. 4, which states that “Treasury staff members working with Tom Krause, a Treasury employee, will have read-only access to the coded data of the Fiscal Service’s payment systems.”

Krause, CEO of Cloud Software Group, was hired as “an expert/consultant by the federal government,” according to the letter, and is reviewing the payment systems as part of an “operational efficiency assessment.”