As Washington weighs crypto, ethics concerns crop up over 'revolving door' industry hires

Alongside a change in presidential administrations, a barrage of new hires from the highest echelons of federal regulators directly into the crypto industry has made headlines in recent months. 

The crypto industry has heralded the stream of hiring news as a vindication of the technology and its importance to the future. But the trading of personnel between industries and government figures in charge of overseeing those industries is a longstanding tradition in Washington, DC, often called the revolving door. 

The revolving door is bipartisan and durable, long predating crypto, the internet, or even electricity. 

But by stepping into it, crypto takes on the obligation of coming to terms with serious questions over ethics and government independence.

Industry demand for government experience

There have been too many major hires out of government to list. Among more noteworthy heavy hitters, Jay Clayton left the chair of the Securities and Exchange Commission (SEC) last December and months later took on a role advising One River’s new digital assets fund. Clayton was swept up in a broader political scandal last year which sank earlier plans for him to take over as prosecutor in the Southern District of New York.

Brett Redfearn, a former SEC director, signed on with crypto exchange Coinbase to run its capital markets division a month ago. And an Obama-era SEC Chair, Mary Jo White is currently the attorney defending Ripple Labs in its legal brawl with the SEC over XRP’s status as a security. 

Ripple, incidentally, is a client of Wilkie Barr, where former CFTC Chairman Chris Giancarlo was working when he penned an op-ed similarly defending XRP against labeling as a security months before the SEC began its case. And many moons ago, Ripple launched its own lobbying outfit in D.C. culled from former congressional staffers and Treasury officials, a project that dispersed leading up to the SEC suit.

Another particularly egregious industry participant is the Diem (formerly known as Libra) Association, a firm whose primary holdups have been regulatory but which maintains that it has ended its lobbying activity in the U.S. 

CEO Stuart Levey and chief of staff Christy Clark both came from the Treasury’s Office of Terrorism and Financial Intelligence. The rest of the executive masthead — though recent change-ups have rendered it unclear who is and is not still working there — include Steve Bunnell and Kiran Raj, formerly of the Department of Homeland Security. 

Ripple and Diem have not responded to numerous requests for comment. 

Another prominent example of the revolving door is Binance.US’s recent hire of Brian Brooks. At the end of last month, news broke that Binance.US had hired former OCC leader Brian Brooks as its new CEO. 

A torrent of pro-crypto rule interpretations that Brooks spearheaded while serving as Acting Comptroller of the Currency defined his time at the agency. And there's no question that Binance.US could use him.

The American offshoot of the global Binance brand has had a tough time convincing U.S. regulators of its good intentions, partially due to the reputation of that global brand. The Commodity Futures Trading Commission is reportedly investigating the global exchange, which has also hired a former U.S. Senator and two former FATF members in an effort to redeem its brand. 

Outgoing Binance.US CEO Catherine Coley did not respond to requests for comment. A representative for the crypto exchange noted that “I don’t believe she’s with the company anymore” while declining to provide more details. 

Binance.US also declined to comment as to whether hiring talks with Brooks began while he was still at the OCC.

The inverse: government picks up the industry

But a revolving door goes both in and out. Presidents appoint — and agencies hire — from candidate pools heavy on private industry. Most of the names listed above cut their teeth in various non-crypto industries before reaching powerful positions in government. Brooks, for example, came to the OCC from Coinbase, though his work as Vice Chairman at the Steve Mnuchin-founded OneWest Bank was certainly a factor.

Another example is that of Michael Mosier, who left the Treasury's AML watchdog FinCEN to work at blockchain analytics firm Chainalysis, where he spent less than a year. He recently returned to FinCEN to become acting director. 

New SEC Chair Gary Gensler has also been a lightning rod for attention and speculation from the crypto industry, but his crypto creds come from his stint in academia. Though he spent 18 years at Goldman Sachs, Gensler has remained primarily in politics since the late Clinton years. After leaving the Obama-era CFTC, he taught courses on blockchain and digital assets at MIT. 

Insight or insider influence?

There is a fine line between acquired expertise and ethical risk, however. For a crypto firm in the U.S., many of the most pressing business concerns pertain to compliance with laws and regulations. A big part of what they are paying for when hiring, say, Clayton or Levey, is intimate knowledge of those laws and regulations. On the surface that seems fairly benign — even a smart expense. 

But it would be less benign if the idea is to buy internal knowledge of a regulator or even relationships with regulators who remain in office. Perhaps more concerning still is a case like Brooks, whose brief time at the OCC consisted so heavily of greenlighting the crypto industry. Eleanor Eagan, who has followed the Brooks saga with the Center for Economic Policy Research's Revolving Door Project, told The Block:

"It's a really egregious example of the revolving door. I think that it is a good illustration of how this works, especially when you have an official like him who is really just there for a few months. It's very transparently transactional."

When the revolving door swings the other way, à la Michael Mosier’s new role at FinCEN, there is an inverse concern that a firm like Chainalysis — already a major government contractor for its cryptocurrency investigations — can get a leg up in its relationship with the government for future contracts. 

In Mosier’s case, a representative for Chainalysis confirmed that “Michael Mosier was hired for an indefinite period and that Chainalysis had no knowledge that he would eventually return to FinCEN.”

Correction (5/27): This report has been updated to clarify that former SEC chairman Jay Clayton is an advisor to One River.