In the wake of this weekend's violence in Charlottesville, Va., payments brands are working hard to disassociate themselves from the myriad groups promoting hate. A question that should come to mind right away is: Why were these hate groups even able to work with banks and payments companies as recently as last week?

Financial services companies are heavily regulated and notoriously risk-averse when it comes to working with groups that could be categorized as terrorist or treasonous. It shouldn't take a major news event to spur them to action. And the fact is, it didn't.

Groups like the neo-Nazi blog The Daily Stormer have long struggled to accept donations despite being cut off by banks, PayPal and other providers. What's happening now is those providers are closing off the last loopholes — and these moves raise strong concerns for anyone who moves money electronically.

Demonstrators outside Trump Tower
Demonstrators hold signs and shout during a rally outside of Trump Tower in New York, U.S., on Monday, Aug. 14 , 2017. Hours ahead of President Donald Trump's return to his midtown Manhattan apartment for the first time since taking office, thousands of people took to the city streets to protest his response over the weekend to violence at a white nationalist rally in Charlottesville, Va. Bloomberg News

For example, The Daily Stormer reported in February that it had been cut off by Coinbase, a digital currency exchange; at the same time, the publication also got cut off by the building at which it had been receiving mailed donations. (The Daily Stormer has been taken offline as of this writing, but the original post is archived here. Warning: strong language.)

Supporters were still able to use Coinbase to send bitcoin donations, even though The Daily Stormer wasn't able to work with Coinbase to receive them. As of this week, Coinbase has reportedly started targeting donors.

In a Tuesday tweet on one of its now-deleted accounts, The Daily Stormer said: "Bitcoin has slowed to a trickle. Coinbase is canceling the accounts of anyone who transfers to us."

Below the surface

Don't just take the neo-Nazis' word for it. In an emailed statement, Coinbase said: "Although we do not comment on specific individuals, Coinbase prohibits use of an account which would abuse, harass, threaten, or promote violence against others. Coinbase continues to take action to enforce this policy across our platform, including to restrict access to Coinbase services and to close accounts."

When asked to clarify Coinbase’s policy, a spokesperson told VentureBeat: “A donation to any site that would abuse, harass, threaten, or promote violence against others would violate our terms of service.”

The bitcoin community has long struggled with legitimacy. The semi-anonymous digital currency was designed to be equivalent to cash in that it would not directly identify users; this drew the attention of people selling drugs and illegal activities. The Daily Stormer went so far as to praise bitcoin as the Nazi currency (Warning: strong language) for operating outside the traditional banking system.

Thus, it's ironic that a company from within the bitcoin sphere is reportedly going further than most banks do to cut off funding to hate groups.

That said, PayPal, Visa, Mastercard, Discover and other mainstream payments brands have been doing more to cut off such donations in the wake of Charlottesville. There may still be more action to come; on Wednesday, Color of Change announced a new site, bloodmoney.org, that shames payments networks that it alleges still permit funding to numerous hate groups.

What about altcoins?

Bitcoin isn't the only cryptocurrency out there, but so-called altcoins have had issues with sustainability and trust. It would be trivial to develop a new currency to fund hate groups, but any new currency would face the same hurdles that bitcoin donations confront today.

The biggest issue with bitcoin and other digital currencies has been getting money into the system. A niche industry of bitcoin ATMs allows people to fund bitcoin wallets with cash, but otherwise users must link a bank account or another digital currency wallet for electronic funding — a process that enables providers to block the movement of funds.

Altcoins also suffer from trust issues. Even the most popular ones, such as Dogecoin, have fallen apart based on single points of failure (in that case, the dogetipbot fund transfer service).

Ultimately, it seems that bitcoin never was the Nazi currency that The Daily Stormer wanted it to be. And as recent events have shown, it's likely that no digital currency could last long in that role.

What about banks?

Few would shed a tear for the hate groups that can't receive donations through the traditional banking system. But law-abiding companies are also vulnerable to the same sort of crackdown.

The legalized marijuana industry is no stranger to these issues. Even in mature legalized pot markets like Amsterdam, stores find themselves lying to risk-averse banks to secure a banking relationship. Perhaps the most mainstream example — and thus the most extreme form of bank censorship — was JPMorgan Chase's 2014 refusal to handle payments for Lovability, a condom seller. At the time, that move was seen as a consequence of Operation Choke Point, a program by the Department of Justice that sought to block payday lenders and other fraudsters by going after the banks that service them. Tiffany Gaines, president of Lovability, told American Banker at the time that small banks were more willing to work with her.

If the white nationalist demonstrators in Charlottesville wanted to draw more attention to their cause, they may have gotten more than they bargained for. In doing so, they drew attention to the few ways they were still tapped into the payments system, and emboldened providers to cut them off completely.

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Nick Holland

Nick Holland

Nick Holland is a Senior Analyst at PaymentsSource. He has previously held analyst roles at Javelin Strategy & Research, Yankee Group and Aite Group.