State Laws Barring ‘Debanking’ Could Harm National Security, Treasury Says
Story by Richard Vanderford, The Wall Street Journal, 7/19/24
The U.S. Treasury Department said state laws targeted at stopping banks from dropping customers over their politics could harm national security, singling out Florida legislation recently signed by Gov. Ron DeSantis.
Banks need to be able to probe customers so they can prevent money laundering and counter terrorist financing, Treasury Undersecretary Brian Nelson said in a letter to lawmakers sent Thursday.
“State laws interfering with financial institutions’ ability to comply with national security requirements heighten the risk that international drug traffickers, transnational organized criminals, terrorists and corrupt foreign officials will use the U.S. financial system to launder money, evade sanctions and threaten our national security,” Nelson said.
The Associated Press earlier reported on the letter, which was sent in response to a bipartisan request from several House lawmakers earlier this month.
Florida Gov. Ron DeSantis has been at the center of a political fight that has pitted conservatives against financial institutions seen as too left-leaning, which he has derided as “woke capital.” A law that DeSantis signed in May, House Bill 989, bars institutions from looking outside quantitative factors and into their “affiliations” when deciding whether to do business with customers.
The letter extensively criticized that legislation. A representative for DeSantis declined to comment. DeSantis’s communications director on his personal feed on social-media site X said the Biden administration opposes the law because it threatens the administration’s political agenda.
The law is meant to prevent, for example, a bank from deciding not to do business with a legal firearms dealer. Tennessee has also passed similar legislation.
“We are not going to allow big banks to discriminate based on someone’s political or religious beliefs, and we will continue to fight back against indoctrination in education and the workplace,” DeSantis said when he signed the bill.
But the Treasury Department warned Thursday that banks need to be able to look closely at customers when assessing risks.
Florida’s law against looking into a customer’s affiliations might, for example, stop a bank from considering their connection to a terrorist group, Treasury said.
The law also bars banks from considering factors “related to the person’s business sector,” which some banks might interpret as prohibiting them from taking a close look at high-risk sectors that trade in goods Russia could use for its war effort and the sale of fentanyl precursors, the Treasury Department said.
U.S. officials have increasingly used the financial sector as a tool to pursue geopolitical goals, including through the extensive sanctions imposed on Russia following its invasion of Ukraine, and to fight transnational crime, such as the flow of illicit fentanyl.