Government Operation Choke Point –vs- the people

Operation Choke Point was created by the Justice Department to “choke out” companies the Administration considers a “high risk” or otherwise objectionable, despite the fact that they are legal businesses.  The goal of the initiative is to deny these merchants access to the banking and payments networks that every business needs to survive.

 

· Operation Choke Point has forced banks to terminate relationships with a wide variety of entirely lawful and legitimate merchants.  The initiative is predicated on the claim that providing normal banking services to certain merchants creates a “reputational risk” sufficient to trigger a federal investigation.  Acting in coordination with Operation Choke Point, bank regulators labeled a wide range of lawful merchants as “high-risk” – including coin dealers, firearms and ammunition sales, and short-term lending.  Operation Choke Point effectively transformed this guidance into an implicit threat of a federal investigation.

 

·         The Department is aware of these impacts, and has dismissed them.  Internal memoranda on Operation Choke Point acknowledge the program’s impact on legitimate merchants.  Senior officials informed Attorney General Eric Holder that as a consequence of Operation Choke Point, banks are exiting entire lines of business deemed “high risk” by the government.

 

·         The Department lacks adequate legal authority for the initiative.  Operation Choke Point is being executed through subpoenas issued under Section 951 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.  The intent of Section 951 was to give the Department the tools to pursue civil penalties against entities that commit fraud against banks, not private companies doing legal business.  Documents produced to the Committee demonstrate the Department has radically and unjustifiably expanded its Section 951 authority.

 

·         Contrary to the Department’s public statements, Operation Choke Point was primarily focused on the payday lending industry.  Internal memoranda and communications demonstrate that Operation Choke Point was focused on short-term lending, and online lending in particular.  Senior officials expressed their belief that its elimination would be a “significant accomplishment” for consume

 

Can the government shut down legal but politically disfavored businesses? If an ongoing federal regulatory campaign continues, that may be precisely what happens. In recent months, a federal government regulatory initiative called Operation Choke Point has gained increased public and media attention.  Operation Choke Point is ostensibly a joint effort by various regulatory entities—the Department of Justice (DOJ), Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation (FDIC) most prominent among them—to reduce the chances of Americans falling victim to fraud in a variety of “high-risk” industries, predominantly payday lending. It uses existing regulatory powers to provide heightened supervision of banks that do business with the third party payment processors that provide payment services to these industries.

 

However, this seemingly laudable aim conceals a worrying reality. There is nothing illegal about most of these industries (at least not yet). But because they have been designated high-risk, banks are cutting off dealings with many processors and companies preemptively. As a result, many companies and individuals that have done nothing wrong have been frozen out of banking services.Without the links to banks, their financial lifeblood is choked off indeed.

 

Operation Choke Point echoes—and may in fact be modeled on—the federal government’s takedown of the otherwise legal American online poker industry in 2011. In that instance, regulators targeted payment processors that dealt with gambling businesses. As a result, banks became wary of doing business with those targeted payment processors. Finding their lifeblood cut off, some companies had no choice but to turn to less scrupulous processors or disguise transactions with them, leading to criminal liability—which in turn allows DOJ to close down the industry. Operation Choke Point appears to be heading down this road.

 

The development of Operation Choke Point appears to have begun with a 2011 FDIC circular that noted “an increase in the number of deposit relationships between financial institutions and third-party payment processors and a corresponding increase in the risks associated with these relationships,” including “greater strategic, credit, compliance, transaction, legal, and reputation risk.”

 

The circular also explained how certain industries appeared to be at greater risk of fraud than others, including: ammunition sales, cable box de-scramblers, coin dealers, credit card schemes, credit repair services, dating services, drug paraphernalia, escort services, firearms, fireworks, home-based charities,  lifetime guarantees, lifetime memberships, lottery sales, money transfer networks, online gambling, payday loans, pornography, tobacco, travel clubs, and many others.

 

The list of high-risk payment types was broadly drawn, with no indication as to the criteria inclusion on the list. Since then, a series of actions by the agencies participating in Operation Choke Point, led by the Department of Justice, have sought to crack down on these politically disfavored industries by choking off their access to the financial system

 

The National Shooting Sports Foundation, the trade association for firearms and ammunitions manufacturers, said that several of its members have had banking relationships wrongfully terminated as a result of Operation Choke Point.

 

   http://www.blogtalkradio.com/sisterthundershow/2014/09/08/government-operation-choke-point-vs-the-people