Trump is weaponizing financial payments: here's what you can do.

Steal This Post. Please.

Update 2: It looks as though Citibank would have had to approve the clawback.

Update: from Felix Salmon in comments below, it appears that Citibank did not, in fact, have anything to do with the clawback. Below: Felix’s explanation of how this apparently happened. What this suggests is that the problems described in the main post are not as urgent as they appeared from the initial reporting - the initial clawback appears to have been (ab)use of the current ACH system, and it is not clear how/whether the EPA can actually claw back money in the same way.

I've spent all day reporting out what happened with the FEMA/Citibank money, and only a tiny bit of that reporting is going to make it onto axios dot com, so I'll share what I know here.

Basically, there was a point at which the NYC Comptroller, for reasons I'm a bit unclear about, *thought* that the money arrived in the account via Fedwire, which is irreversible. But that's not the case, in fact it arrived via ACH on Feb 4, and those transactions are reversible within 5 business days, which is what happened: The fifth business day after Feb 4 was Feb 11, and that's when the transaction was reversed. If Elon had waited one more day, he couldn't have done what he did.

That said, Lander is probably correct that this was not a legal move. There are only very narrow reasons that are acceptable under the NACHA rules for reversing a transaction -- things like duplicate payments or literally sending it to the wrong account. "I don't think this money was properly appropriated" is nowhere near an adequate reason under 31 CFR § 210.6(f). So if you want to make the case that this is massive government overreach, I would totally agree with you.

On the other hand, Citibank was really not involved in this at all, and didn't get forced to do anything. The money just left the account automagically, much as it arrived, and Citi was just as surprised as anyone else. In that sense the $80 million is very very different from the $20 billion, which is going to have to be actively returned to the government *by someone*, if it is returned at all. (And that is what would have had to have happened if the FEMA money arrived by Fedwire, which it didn't.)

I do hope to resume talking about normal weirdness (cybernetics, technocracy, AI etc) in this newsletter, at least some of the time. But right at the moment, I think that I can best provide value added by explaining complex things that are going bad to make them actionable. So that is what I am going to do here.

The short version. The Trump administration has swiftly graduated from trying to weaponize internal payment systems (the Department of Treasury systems that allow the federal government to pay monies across its different parts, and to the outside world). Now it is trying to weaponize external payments too. It has seized back $80 million that was paid to New York, and is now trying to do the same with $20 billion paid out by the Environment Protection Agency. This is money that was already paid out by the federal government, and is now sitting in other entities’ regular bank accounts. The Trump administration wants to get the banks where the accounts are located (Citibank is the one we know about) [see update from Felix Salmon above] to reverse these payments.

If this happens, it is a massive escalation, potentially weaponizing the entire banking and payments system against organizations that the Trump administration opposes for political reasons. That is not something that you, as a U.S. citizen want to happen. If you are not a U.S. citizen, there are reasons why you do not want it to happen either, but that’s a topic for a later post.

There are things you can do, especially if you are a customer with an account in a U.S. bank. I will explain below.

Before I get into the nitty-gritty, two things. First, if what I say seems useful to you, please steal it. Grab the entire newsletter, or whatever bits seem useful, and send it/them to people. If things I say seem to you to be wrong, or not to be useful for your particular circumstances, change ‘em (though obviously, I cannot be responsible for any mistakes that you make). Repackage it completely and send it out under your own name if you like. I will be happy so long as the word spreads. But if you can take action, take it.

Second, my background: Together with Abe Newman, I have written a book about how the U.S. weaponized global payment systems, for better (sometimes) and for worse (sometimes). If you want to buy the book, I will be selfishly grateful, but it won’t give you any very actionable information about what is happening now. I only mention it to give you some sense as to my expertise and its limits. I’ve seen worrying things happen to other payment systems, but I don’t have the kind of expertise about U.S. payment systems that an actual financial industry professional would. I’m hijacking other people’s expertise below, especially in my recommendations about what you ought do next.

Here is what I think is happening.

Some people in the new administration really want to remake U.S. politics on a very large scale. They are limited in what they can do by the laws and the limits of a federal system in which Congress, constitutionally, has the “power of the purse” (the power to raise money and control what it is spent on. So these figures are looking for unorthodox ways to circumvent these barriers. One of the methods that they have hit on, perhaps semi-accidentally, is technical payment systems.

Few people except for specialized bureaucrats and industry professionals pay much attention to payment systems, which are the plumbing of the financial system and boring by design. The purpose of a payment system is to get money from place A to place B with minimum fuss and overhead. Payment systems do, for sure, have controls to make sure, for example that the people or organizations looking to transfer money are the kinds of people you want to be transferring it (i.e: not druglords or terrorists), that they are rightfully in charge of the money they are transferring, and that the money is going to the right place. But since most people are transferring money for legitimate reasons (they are not terrorists, and are not engaged in fraud), they usually don’t have to worry about these controls (there are exceptions, where people or transactions are incorrectly flagged, or are viewed as riskier than they shouldn’t be). This is why nobody who isn’t paid to cares much about payment systems.

What the Trump administration has done

First, people working for Elon Musk have tried to take over the internal payment systems of the U.S. government. The official in charge of the Bureau of the Fiscal Service, the part of the U.S. Department of Treasury that handles government payments, was forced to resign, and Musk operatives tried to get access to the computer code that manages these payments. Reports suggest that they wanted the power not simply to look at payments but to control who they went to.

Second, other government officials look to be trying to assert power over external private payment systems. Yesterday, New York city officials noticed that $80 million was missing from their bank accounts. The Department of Homeland Security apparently clawed back the money, which had been transmitted to New York city by FEMA, after an apparent fake scandal, drummed up by Elon Musk, claiming that this money had been used to pay for “high end hotels” for migrants. The same day, Lee Zeldin, the acting administrator of the EPA, announced plans to “claw back” $20 billion in grants from the bank accounts of eight non profits that had been contracted to administer greenhouse gas reduction programs. In Zeldin’s description:

“Shockingly, roughly $20 billion of your tax dollars were parked at an outside financial institution by the Biden EPA … This scheme was the first of its kind in EPA history, and it was purposely designed to obligate all of the money in a rush job with reduced oversight.”

It’s not clear how the Department of Homeland Security clawed back the $80 million (according to The Bulwark, “Citigroup’s public affairs department did not respond to a request for comment” UPDATE - SEE FELIX SALMON COMMENT AT TOP). It is clear that Zeldin wants to force the bank holding the organizations’ money (apparently: also Citibank) to return it to the Trump administration, regardless of the organizations’ wishes. In his words:

The financial agreement with the bank needs to be instantly terminated and the bank must immediately return all of the gold bars that the EPA toss[ed] off the Titanic,”

What this involves

All this money appears to have been sent under the usual procedures through which the U.S. federal government provides grants and pays organizations to do work on its behalf. Four FEMA employees were summarily fired for “circumventing leadership” by making the payments - if there is evidence supporting this accusation beyond Elon Musk’s Twitter account, it has not been made public.

So here, as best as I can see is what is happening. The Trump administration is taking the position that payments that it didn’t want to to be made are actionably unlawful, even if they were according to procedure and legal (e.g. authorized by the previous administration, or by Congress). It is demanding that banks or other financial institutions reverse these payments on the basis that they were unlawful. And in one case at least, the New York FEMA funds, it appears to have already gotten its way.

Banks can reverse fraudulent or mistaken transactions, at least some of the time, through means such as ACH reversals, though they are understandably hesitant to do it unless it is absolutely clear what has happened, for fear of getting caught up in complex legal disputes. So what seems to be happening here is that the Trump administration is pressing banks to use these means to reverse politically inconvenient transactions: that is, transactions that appear to be perfectly legal and aboveboard, but that the Trump administration doesn’t like, even if they reflect the will of the previous administration that authorized it, or the will of Congress that designated funds for a particular purpose.

Put more bluntly: the Trump administration is trying to turn private banks into enforcers for its own particular political agenda. If banks give in, it will be an enormous and dangerous step.

What this may mean

A lot of what the U.S. government ‘does’ is not done by the U.S. government at all. Instead, it is done by contractors, non profit organizations and the like, who are paid by the U.S. government. There are laws and principles that encourage this kind of outsourcing. And there are some people who are closely associated with the Trump administration (e.g. Chris Rufo) who appear to want to use this to attack the non-profit sector, which they see as a bastion of the enemy.

If banks acquiesce, these figures will have a new tool. They will be able to demand that banks hand over money from organizations’ bank accounts on the basis that the U.S. government gave them money that it shouldn’t have at some point in the past. Notably, for the $80 million, there appears to have been no visible legal process. The New York City comptroller seems to have figured out what happened when it became clear that there was $80 million less in the the city’s accounts than there should have been. At least on the basis of current information, the bank does not appear to have informed the city before sending back the money, so that there was no notice, let alone any opportunity to push back and present contrary evidence.

This is terrible news for nonprofits with any financial reliance on the U.S. government. They are potentially liable to get their bank accounts cleaned out without notice or obvious means for appeal. There could be knock-on consequences. Will such non-profits find it harder to get bank accounts, on the basis that they are politically risky clients? Very possibly. Will they find it harder to get loans, on the basis that their apparent assets may evaporate unexpectedly, if the political regime so decides? Almost certainly.

It is also terrible news for the U.S. banking system. Payments are supposed to be boring and predictable, with certain highly specific exceptions. Now, a huge amount of politics and arbitrariness is being injected into the system. Organizations cannot rely on U.S. payments as they used to. Nor is there any guarantee at all that this is the limit of political interference. The one big lesson that emerges from Abe’s and my book is that once a precedent has been set, it is liable to be built on. Not because there is any grand master plan or secret conspiracy, but because a political appointee, perhaps with an entirely different agenda, sees that banks have been forced to reverse payments for x reason, and asks themselves, why can’t we do that for y as well.

I can safely say that banks will not like being put in this position. There are no obvious profits in it, and many obvious downsides and risks.

More generally, if this goes unchallenged - and in particular if it spreads to other uses and areas - it will make everyone much worse off than they were before. A realm of things that Just Used To Get Done Unproblematically will suddenly become riddled with political risk, unpredictability, and opportunities for threats, corruption and peculation. What has happened to the global economy, as payments become politicized will happen to America’s domestic payments system too.

What you can do

In contrast to many of the things that the Trump administration is up to, there are things that you (if you are a U.S. citizen, or better, lead an organization or business) can do. Specifically, you can tell your bank how unhappy you are. You can make it clear you want the bank to have explicit, enforceable policies in place to make sure that the U.S. government cannot reverse or control payments without specific legal authority and appropriate procedures for appeals, and say that if they don’t do this, you will withdraw your custom, and start looking for another bank that will promise to keep your account safe.

Some crucial advice: Do Not Call Your Bank’s Helpdesk to express your unhappiness. Visiting your branch is a little better, but probably not much. Instead, look for other channels of complaint.

Here, I rely on Patrick McKenzie, whose politics are not mine (I have no idea whether he agrees or disagrees with what the Trump administration is doing, and he Absolutely Has Not Approved My Specific Message), but whose wisdom about how banks and payments systems work is profound. As he explains the futility of talking to the bank’s helpdesk:

The reason you have to “jump through hoops” to “simply talk to someone” (a professional, with meaningful decisionmaking authority) is because the system is set up to a) try to dissuade that guy from speaking to someone whose time is expensive and b) believes, on the basis of voluminous evidence, that you are likely that guy until proven otherwise. … Due to the deskilling of the bank branch, the people at a bank branch, including the branch manager in many firms, can only offer solutions to relatively straightforward problems. For the other ones, they also have to call into a support phone tree.

You can escalate and eventually talk to someone but it is difficult by design to get to them (banks economize on the attention of expensive people who can actually make decisions). Equally, as he says (about another problem, identity theft, but the lessons travel), there are side-channels. To use these side-channels well .

write a bespoke, artisanal letter … Write clearly and concisely. … Showing anger decreases the perception of risk of you filing a regulatory action or a lawsuit [or in this case, actually closing your account or whatever] … you want a resolution, no more no less. … Be very clear about what you want. What you do not want is to give someone the excuse to read your letter and conclude that no further action is required or that a form letter trivially answers it. You want a specific set of actions, you want those actions to be confirmed to you in writing, and you want them done by a specific date. … You do not want to send to the Department Of Fobbing People Off … If you cannot route letters to the legal department, go as high up as required. Pro-tip: virtually every major US company has a department called Investor Relations which is trivially discoverable, very well-funded, publicly routable, and very bored during 80% of the year. You can excuse any letter to Investor Relations with: “I am a shareholder in BigBank. I was therefore profoundly displeased when I learned…” No help from investor relations? Try the highest part of the company you can find an address for; this can be named e.g. the Office of the President / CEO or similar.

Patrick recommends that you write a formal letter rather than use an online submission form. Given the urgency of the situation, I would urge that you do both.

The goal here is to make it clear to banks that they face real, long term reputational damage if they reverse legitimate payments. Customers who have accounts in these banks Do Not Want a World in which the government can arbitrarily help itself to what is in other people’s and organizations’ bank accounts. If a bank gives in, it will be hurting itself as well as the account holder.

So in summary. What the Trump administration is doing seems mind numbing and difficult to focus on, because it involves really boring financial infrastructure. But if it gets away with it, this infrastructure will not be boring any more. Instead, the ordinary payments systems on which everyday economic transactions depend will become weaponized. And if that gets going, there is no good way to know when it will stop. There are things that U.S. citizens with bank accounts (or with shares in banks, or other connections) can do, to stop it. Find the right decision maker in your bank to lobby, and send them an individualized firmly worded and calmly ruthless letter, explaining what is at stake (they risk their core business becoming completely politicized), what you want them to do (introduce clear and binding policies to prevent that happening), and what you will do if they don’t act immediately (close your account; go to the next shareholder’s meeting and introduce a motion; whatever else you are willing to do).

And please - if this is useful advice, share it! Take whatever seems useful, and send it to whoever you think may act on it. Adapt it and circulate under your own name. Figure out variants and share them. Banks almost certainly do not want to be put in this position. Give them reasons to say no, and get other people to give them reasons too.

Update: if you’ve taken action, feel encouraged to provide information about who you contacted at your bank, how others can contact them, how they responded and similar in comments.