The land of the free was nice while it lasted.
http://www.washingtonpost.com/news/volokh-conspiracy/wp/2014/05/24/operation-choke-point/The ability to destroy legal industries through secret actions to deprive them of banking services has obvious political consequences. For example, it was reported last week that firearms shops are alleging that Operation Choke Point is being used to pressure banks into refusing to providing financial services. There are also reports that porn stars (and here) have had their bank accounts terminated for “moral” reasons related to the “reputation risk” of banking individuals in the porn industry. IRS officials must already be salivating about ways to apply Operation Choke Point to tea party groups.
In principle, of course, the logic of Operation Choke Point could be extended to groups not currently targeted. Notably absent from the FDIC’s hit list, for example, are abortion clinics, radical environmental groups, or, well, marijuana shops, for that matter. Something similar was done to cut off credit-card payments to support the operation of WikiLeaks.
The larger legal and regulatory issue here is the expansive use of the vague and subjective standard of “reputation risk” to target these industries. In a letter to Janet Yellen, the chair of the Federal Reserve, last week, House Financial Services Committee Chairman Jeb Hensarling expressed concern over the growing use of “reputation risk” as a vehicle for attacking legal businesses. Is there any discernible principle as to why, for example, a payday lender or firearms dealer poses a “reputation risk” and an abortion provider does not?
Slideshow.
Timeline: Operation Choke Point
http://www.americanbanker.com/gallery/timeline-operation-choke-point-1066360-1.htmlJustice Department Puts Banks On Alert
On March 20, 2013, federal prosecutor Michael Bresnick gave a little-noticed speech to the Exchequer Club in Washington in which he said that that Justice Department planned to crack down on banks that allowed online scammers to access the payments system. "Sadly, what we've seen is that too many banks allow payment processors to continue to maintain accounts within their institutions, despite the presence of glaring red flags indicative of fraud," said Bresnick, who was then the executive director of the Financial Fraud Enforcement Task Force. Bresnick has since gone into private law practice.
In August, New York Financial Services Superintendent Benjamin Lawsky instructed 117 banks, including the nation's four largest, to develop safeguards aimed at preventing unlicensed online lenders from accessing the payments system. Lawsky also filed suit against online lenders that he said were violating New York's interest-rate cap. "We're really trying to take a shock-and-awe strategy," Lawsky said. "We want to make payday lending into New York, over the Internet, as unappetizing as possible."
Meanwhile, the Federal Deposit Insurance Corp. also stepped its reviews of banks' relationships with online lenders and other businesses that might pose heightened risk for banks.
Related Article: Banks Drafted into N.Y.'s Battle with Online Payday Lenders
http://www.breitbart.com/Big-Government/2014/05/29/House-Committee-Report-DOJ-Must-Disavow-and-Dismantle-Operation-Choke-Point
The Justice Department's “Operation Choke Point” is so flagrantly illegal it cannot continue in any form under the law, the House Oversight and Government Reform Committee Charman Darrell Issa's staff said in a new report, setting up a constitutional confrontation between the legislative and executive branches of the federal government.
"In light of the Department's obligation to act within the bounds of the law, and its avowed commitment not to 'discourage or inhibit' the lawful conduct of honest merchants, it is necessary to disavow and dismantle Operation Choke Point,” the report said.
The controversial Obama administration initiative known as Operation Choke Point was launched in 2013.
DOJ has said the program is targeted at fraud, but the oversight committee report provided evidence the program was "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."
Many business executives have publicly expressed concern that the list of targeted industries has steadily expanded beyond the payday loan industry. The staff report confirmed those concerns, nothing that manufacturers, distributors, and dealers of firearms and ammunition, and coin dealers are now also being targeted by the Department of Justice.
The program's lack of statutory authority was also addressed.
"Operation Choke Point," the report said, "is being executed through subpoenas issued under Section 951 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989."
Noting that "[t]he 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," the report concluded that "[d]ocuments produced to the Committee demonstrate the Department has radically and unjustifiably expanded its Section 951 authority."
This approach, the report said "fundamentally distorts Congress' intent in enacting the law, and inappropriately demands that bankers act as the moral arbiters and policemen of the commercial world."
