Capital One says it shut down 385 Trump accounts over money-laundering red flags — Trump's lawyers call the bank 'disgraceful'

Trump’s trust, his companies and his son Eric Trump filed a lawsuit against Capital One last year, alleging the accounts were closed for political reasons following public backlash to the Jan. 6 attacks on the U.S. Capitol. The accounts included businesses such as a winery, a bottled-water company and a golf course developer.

A spokesperson for Trump’s legal team told The Associated Press that the lawsuit “holds Capital One accountable for its disgraceful conduct.” Trump has also sued JPMorgan Chase for debanking him in 2021.

Lawyers for Capital One, on the other hand, said in a court filing on July 31 that the closures “were the result of months of analysis and a careful review by Capital One’s AML team in accordance with bank policies and regulatory guidance.”

The money laundering review was only made public because of Trump’s lawsuit against the bank.

What exactly is debanking?

Debanking occurs when a bank or financial institution closes a customer’s account or stops providing services. Often, this happens with little or no explanation, since bankers are bound by confidentiality laws.

However, the reasons typically involve legal, regulatory, financial or reputation risk to the bank. Since they need to follow strict regulations, like AML, they may choose to close accounts with unusual or high-risk transaction patterns.

Indeed, on Jan. 15, 2021, before Capital One closed Trump’s accounts, the firm was charged with a massive penalty — $390,000,000 — by the Financial Crimes Enforcement Network (FinCEN) for “willfully failing to implement and maintain an effective Anti-Money Laundering (AML) program to guard against money laundering.”

Capital One also admitted that it failed to file thousands of suspicious activity reports (SARs) from 2008 through 2014 connected to the Check Cashing Group, with proceeds of suspicious transactions linked to organized crime, tax evasion, fraud and other financial crimes.

Months later, Capital One closed 385 accounts connected to Trump.

At the same time, banks have the right to close accounts, especially if their data reveals the potential for regulatory noncompliance — which can lead to hefty penalties. For example, in Capital One’s court filing, the firm states it has the right to close an account “at any time, for any or no reason and without notice.”

JPMorgan, too, has stated that it closes accounts that create “legal or regulatory risk.”

But debanking isn’t new — and, according to one study, it’s government debanking that’s the bigger problem.

A broader issue

Fewer than 1% of customers who filed debanking complaints with the U.S. Consumer Financial Protection Bureau over the past 13 years did so for alleged political or religious discrimination, according to a review by Reuters of 8,361 account closure complaints during that period.

A study from the CATO Institute, a nonpartisan public policy research organization, found that “the majority of debanking cases stem from governmental pressure” where government officials directly or indirectly tell banks how to run their business — rather than operational, political or religious discrimination.

Government debanking refers to government officials or organizations pressuring a financial institution into closing a customer’s account. For example, the Federal Deposit Insurance Corp. (FDIC) sent private letters to more than 20 financial institutions in 2022 and 2023 asking them to ‘pause’ cryptocurrency-related activities.

But, according to the CATO Institute, government debanking can also take a more indirect form, involving “the use of laws and regulations to make it increasingly more difficult to serve customers.”

For example, Operation Choke Point in 2013 initially targeted fraudulent businesses, but quickly began to target legitimate businesses, too — such as payday lenders, gun shops, state-licensed cannabis dispensaries.

Financial institutions doing business with those businesses could face “higher scrutiny, higher compliance costs and a higher chance of enforcement actions,” according to the CATO Institute. By making it “economically infeasible” to serve those customers, it resulted in an indirect form of government debanking.