The tech sector’s pivot to Trump was an especially odd aspect of a decidedly odd American Presidential election.

Silicon Valley’s tech sector had previously seemed populated by centrist Democrats – Peter Thiel aside.

Having encouraged what was at least a riot, and arguably an attempted insurrection, after losing the 2020 election, Trump ought never to have been selected as a candidate again. At least in my view.

The rule of law matters. If elections do not reliably result in a peaceful transition of power, the rule of law is hard to maintain.

Last week, American tech entrepreneurs started sharing horror stories about their experiences with American financial regulation. Then, the tech sector’s shift toward Trump started making more sense. Many in that sector had already lost the protection of the rule of law. They hoped for an end to the arbitrary exercise of state power through the banking sector.

The issue matters for New Zealand because parts of our financial regulation regime were imposed on us by the American government. If the United States unwinds some of those rules, New Zealand might have room to set less onerous regulations as well.

It all started when tech venture capitalist Marc Andreessen explained ‘debanking’ during his interview on Joe Rogan’s podcast.

For those unfamiliar with the term, ‘debanking’ is when your bank, and other banks, determine that you or your company are too risky to deal with. They close your accounts, and no other bank will open one for you.

If banks only decided that persistent fraudsters were terrible to have as customers, that would be one thing. It would be like a supermarket deciding to trespass recidivist shoplifters and others who cause grief for staff and other customers.

But when debanking happens because the government has had a quiet word with your bank, that’s something else entirely.

After Andreessen’s interview, tech entrepreneurs started sharing their stories – which Andreessen retweeted.

The common thread across those stories? The debanked companies and individuals had mentioned crypto or had gotten too close to it. They hadn’t violated any rules that anyone knew about, nor had they been given any chance to defend any accusations against them. Banks were generally forbidden from even telling debanked customers why they had been debanked.

The banking regulators had simply made clear to the banks that dealing with those customers was not in the banks’ interest, because, if they did, the regulators would make life very difficult for them.

You may remember that, a few years ago, Meta (Facebook) wanted to build a payments system. It was called Libra.

David Marcus, who ran that project, explained what happened to Libra – a story he said he had never shared publicly before Andreessen “opened the floodgates.”

As he explains things, Meta had worked with regulators to address all possible concerns about financial crime, money laundering and more. They had piloted the project  with the support of some members of the Federal Reserve’s Board of Governors.  Fed Chair Powell was ready to let the project proceed.

That is, until (according to Marcus) Treasury Secretary Yellen told Powell not to.

Marcus claims that the Federal Reserve’s General Counsel then read a prepared statement to each of the banks with which Meta had been working. The statement said, “We can’t stop you from moving forward and launching, but we are not comfortable with you doing so.”

And that was the end of Libra. Banking regulators can impose effectively infinite costs on banks. Taking their steer is safest.

Those particularly keen on more of these stories can simply check Andreessen’s retweets. Or other long-form pieces.

This is not some right-wing hallucination. New York Congressman Ritchie Torres, a Democrat who sits on the House Financial Services Committee that oversees banking regulators, said in response to Andreessen’s tweets:

“I am aware of no real limitation on the ability of banking regulators to de-bank law-abiding citizens and businesses without due process of law. The federal government’s unfettered powers of de-banking represents an insidious threat to civil liberties in America. Marc Andreessen raises a real issue that transcends partisanship.”

The lack of due process is also a reason that these stories were largely bottled-up until Andreessen made it safe to talk about them. Admitting to having been debanked can scare other banks away from dealing with you and can worry investors.

When one of the most influential venture capitalists explains that the fault lies with the regulators rather than with the debanked, and when there is some chance an incoming administration will change the system, those risks are lower.

The strongest argument against supporting Trump is that his actions after losing election were fundamentally inconsistent with democracy and the rule of law. But much of Silicon Valley considered that it had already lost the protection of the rule of law. Rather than setting regulation with appropriate due process protections, regulators could made banks offers that the banks couldn’t refuse. That is the raw exercise of administrative power, not the rule of law.

American-style anti money laundering regulation is scoped too broadly, is too costly, and provides too much room for regulators to pressure banks.

Worse, it is a real example of American imperialism. The banking system is international. If a country does not do enough to satisfy American regulators’ preferences, they can threaten to cut off access to international networks. But enforcing American-style regulation in poor countries can be far too costly; banks then withdraw services instead.

New Zealand is hardly immune.

Most recently, cryptocurrency businesses here have lobbied to be regulated. Why? Because they cannot access banking services in New Zealand. That is not because there is any law against banking a crypto company. As BusinessDesk’s Peter Griffin reported, banking compliance managers have debanked those companies because they see them as too risky.

The problem is not new. Almost a decade ago, ham-fisted application of anti money laundering rules killed off New Zealand’s election stock market, iPredict. As University of Canterbury Professor of Finance Glenn Boyle, who helped set up iPredict, put it at the time,

“When we were setting iPredict up between 2005 and 2008, all the holdups were technological and financial, not regulatory. Liam Mason and others at the Securities Commission were generally helpful and tried to eliminate roadblocks rather than put them in our way, and there certainly didn’t seem to be any impediments thrown at us by ministers.

I recall the money laundering bogeyman coming up only once, and then only in jest. I don’t remember the exact wording, but it was something along the lines of “you’ll probably get hit with money laundering charges if the Americans invade or we ever elect a communist government.” Ouch…

This wasn’t taken seriously at the time though. Looking back through all the various memos etc I prepared during the 3+ years iPredict was being set up, I can’t find any reference to money laundering regulation at all. I guess we were naive!”

Laundering more than a thousand dollars at iPredict would have been effectively impossible. But New Zealand was coerced into heavy-handed regulation because of perceptions of  American regulators’ demands.

The Trump Presidency is liable to do far more harm than good to New Zealand, particularly when it comes to trade policy. And take the American stories of tech sector debanking with any sized grain of salt you like.

But if Trump’s supporters convince his administration to set more sensible financial sector regulations, it could provide New Zealand with an opportunity. Setting rules that suit New Zealand would have less risk of drawing punishment from the United States, and we should take that chance.

It would be one minor, but important, bit of good from that otherwise strange election.

To read the full article on the Newsroom website, click here.