JPMorgan Chase has reportedly frozen bank accounts linked to two venture-backed stablecoin startups, BlindPay and Kontigo, after identifying their exposure to sanctioned and high-risk jurisdictions, sparking renewed concerns within the cryptocurrency community about the intersection of traditional finance, digital assets, and global compliance. The move, initially reported by The Information, highlights the complex challenges financial institutions face as they navigate the burgeoning stablecoin market while adhering to stringent anti-money laundering (AML) and sanctions regulations.

The affected accounts belonged to BlindPay and Kontigo, both emerging stablecoin startups that have received backing from the prestigious Y Combinator accelerator. Their primary operational focus lies across Latin America, a region where stablecoins have found significant utility due to economic volatility and a high demand for efficient cross-border payments. These companies accessed JPMorgan’s extensive banking services indirectly through Checkbook, a digital payments firm that acts as an intermediary, partnering with large financial institutions to provide various payment solutions. This indirect relationship complicates the oversight process, yet ultimately places the compliance burden on the underlying financial institution, JPMorgan.

According to the report, the freezes were not an arbitrary decision but followed a thorough internal review by JPMorgan, which flagged business activity tied to Venezuela and other locations currently subject to US sanctions. Venezuela, in particular, has become a hotbed for cryptocurrency adoption, driven by hyperinflation, a collapsing national currency (the Bolívar), and tight government controls, pushing its citizens towards digital assets as a means of preserving wealth and facilitating daily transactions. However, this very utility in sanctioned regions presents a significant compliance risk for banks operating under US jurisdiction.

A spokesperson for JPMorgan was quick to clarify the bank’s stance, reportedly telling The Information that the decision was not driven by an inherent opposition to stablecoins themselves. “This has nothing to do with stablecoin companies,” the spokesperson asserted, aiming to dispel any notion of an anti-crypto bias. “We bank both stablecoin issuers and stablecoin-related businesses, and we recently took a stablecoin issuer public,” they added, underscoring JPMorgan’s efforts to demonstrate its engagement with the digital asset space, albeit under carefully managed conditions. This statement reflects a delicate balancing act by the financial giant: embracing the innovation and potential of digital assets, particularly for institutional clients, while rigorously enforcing compliance against financial crime and sanctions evasion, which remains a paramount concern for regulators.

The situation was further illuminated by Checkbook CEO PJ Gupta, who reportedly disclosed that BlindPay and Kontigo were among several firms linked to a surge in chargebacks that ultimately prompted JPMorgan to close their accounts. Chargebacks, which occur when a customer disputes a transaction with their bank, can be a red flag for potential fraud, unauthorized transactions, or customer dissatisfaction, leading to significant financial losses and reputational damage for banks if not managed effectively. According to Gupta, the spike in chargebacks was attributed to a rapid, somewhat uncontrolled customer onboarding process. “They opened the floodgates and a bunch of people came in over the internet,” he explained, suggesting that the speed of expansion might have outpaced the robustness of their KYC (Know Your Customer) and AML procedures, especially in high-risk areas.

This incident resonates with broader concerns within the crypto industry about a potential “Operation Chokepoint 2.0.” The original Operation Chokepoint was an initiative by the US Department of Justice from 2013 to 2017, which pressured banks to cut ties with certain industries deemed "high-risk" by regulators, even if those businesses were legal. These industries included payday lenders, gun dealers, and various other cash-intensive businesses. Crypto advocates fear a modern iteration where traditional financial institutions, under pressure from regulators, de-bank legitimate cryptocurrency businesses, citing vague "risk" factors rather than specific legal violations. The debanking of Strike CEO Jack Mallers by JPMorgan, which Lummis sounded an alarm about, serves as a recent example that fuels these fears, suggesting that even established crypto figures can find their access to traditional banking services curtailed.

The account freezes come at a peculiar time, as JPMorgan and Checkbook are actively deepening their partnership. In November 2024, the two companies jointly announced that Checkbook would officially join the J.P. Morgan Payments Partner Network. This strategic alliance is designed to enable corporate clients to seamlessly send digital checks, leveraging Checkbook’s technology and JPMorgan’s vast financial infrastructure. Earlier in 2024, Checkbook had also expanded its B2B payment offerings, targeting a diverse array of sectors including legal services, government, and banking. The incident with BlindPay and Kontigo, therefore, presents a critical test for this burgeoning partnership, highlighting the inherent risks in integrating fintech innovation with the rigorous compliance demands of a global financial powerhouse.

The broader context of cryptocurrency adoption in Venezuela cannot be overstated. As Cointelegraph previously reported, cryptocurrencies are increasingly becoming a core part of the economy in Venezuela. Citizens, grappling with astronomical inflation rates that erode the value of their national currency, widespread shortages, and tight capital controls, are turning to digital assets like stablecoins to shield their savings, facilitate remittances from abroad, and conduct daily commerce. For many Venezuelans, stablecoins pegged to the U.S. dollar offer a crucial lifeline, providing a stable medium of exchange and a store of value that the Bolívar cannot. However, for banks like JPMorgan, transactions originating from or destined for Venezuela automatically trigger heightened scrutiny due to long-standing U.S. sanctions aimed at the Venezuelan government. This creates a fundamental conflict: the humanitarian and economic utility of stablecoins for ordinary citizens in distress versus the imperative for financial institutions to prevent sanctions evasion.

JPMorgan’s relationship with the crypto world has been complex and, at times, seemingly contradictory. While its CEO Jamie Dimon famously called Bitcoin a "fraud" in 2017, the bank has since evolved its stance, embracing various aspects of blockchain technology and digital assets. The bank itself has launched JPM Coin for wholesale payments, signaling its belief in the underlying technology. Furthermore, as Cointelegraph reported, JPMorgan has been actively exploring crypto-backed loans and is weighing plans to offer crypto trading, including spot and derivatives products, to its institutional clients. This shift reflects a pragmatic adaptation to growing institutional interest and a more favorable U.S. regulatory environment for digital assets, particularly for well-capitalized, regulated entities. This dual approach — engaging with crypto at an institutional level while maintaining a cautious, compliance-driven stance on retail-facing or high-risk crypto operations — highlights the nuanced strategy of many traditional financial giants.

The banking giant has also faced accusations of anti-competitive behavior from within the crypto industry. In July, Gemini co-founder Tyler Winklevoss publicly claimed that JPMorgan Chase had paused the crypto exchange’s re-onboarding process. Winklevoss alleged that this action was in direct retaliation for his public criticism of the bank’s new data access policy, which he argued could harm fintech and crypto firms by restricting their ability to innovate and compete. Such accusations, whether substantiated or not, underscore the immense power that established banks wield over the nascent cryptocurrency industry’s access to the traditional financial system, often making them gatekeepers whose decisions can significantly impact the operational viability of crypto businesses.

The incident with BlindPay and Kontigo serves as a potent reminder of the ongoing tension between innovation, financial inclusion, and regulatory compliance in the digital asset space. As stablecoins continue to gain traction globally, particularly in emerging markets and regions facing economic instability, the pressure on financial institutions to develop robust frameworks for managing their associated risks will only intensify. The challenge for banks like JPMorgan is to navigate this evolving landscape, balancing the opportunities presented by digital assets with their fundamental responsibility to prevent financial crime and adhere to international sanctions, all while avoiding the perception of unfairly "choking off" legitimate, albeit innovative, businesses. The outcome for stablecoin startups operating in challenging jurisdictions will likely depend on their ability to implement best-in-class compliance protocols, demonstrating to their banking partners that they can effectively mitigate the inherent risks.