In recent months, JPMorgan Chase has reportedly frozen the accounts of at least two stablecoin startups, Blindpay and Kontigo, due to compliance concerns arising from their activities in countries with high legal and sanctions risks, particularly Venezuela. Both startups, focused on the Latin American market, are backed by venture capital firm Y Combinator and connected to JPMorgan through the digital payments company Checkbook, which joined JPMorgan's payment partner network last year.
The decision to freeze the accounts was triggered by the stablecoin firms' operations in jurisdictions with strict sanctions, raising concerns related to U.S. financial regulations. Banks like JPMorgan are obligated to verify their clients and the origin of funds to comply with "Know Your Customer" (KYC) and Anti-Money Laundering (AML) requirements. One of the stablecoin firms reportedly promoted the ability for users to transact without providing identity information, a practice that clashes with these obligations. A second startup, Kontigo, allegedly cut off users in higher-risk jurisdictions like Venezuela after JPMorgan moved to freeze its accounts.
Stablecoins have gained popularity, especially overseas, as they provide a means to move and hold dollars faster in countries with volatile currencies, capital controls, or limited access to traditional banking systems. They are designed to maintain a stable value by being tied to assets like the U.S. dollar.
A JPMorgan spokesperson stated that the account freezes "has nothing to do with" the nature of the stablecoin companies. The spokesperson added that JPMorgan banks both stablecoin issuers and stablecoin-related businesses and recently took a stablecoin issuer public.
PJ Gupta, CEO of Checkbook, stated that Blindpay and Kontigo were among the firms responsible for a sharp rise in chargebacks, which led JPMorgan Chase to close their accounts. Gupta added that the chargebacks were caused by new customers of the stablecoin companies. Kontigo's co-founder, Jesus Castillo, said that his company was facing issues through Checkbook and refuted claims that Kontigo was helping move money out of Venezuela without identification checks, stating that the company had launched legal action against the organization that made the claims. BlindPay reportedly did not provide comment.
The account closures highlight the increasing compliance pressures faced by banks dealing with crypto transactions and the inherent risks associated with operating in high-risk jurisdictions. Banks must navigate the complexities of AML and counter-terrorist financing rules, monitoring transactions and screening against sanctions lists. Stablecoin companies that fail to implement these controls pose a high level of risk, potentially leading banks to limit their exposure.
