History and Criticism of Operation Choke Point

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This initiative has negatively affected honest business owners and even some individuals and there is evidence of personal motivations for ‘choking out’ certain businesses and industries. Without any reasonable cause, individual American citizens, perfectly legitimate businesses, and people’s livelihoods are being destroyed. This sample essay highlights how because of this, many feel that Operation Choke Point is a major violation of boundaries and the law set by the government in the first place.

Operation Choke Point was a project started by the United States Department of Justice and the Federal Deposit Insurance Corporation. The initiative was created allegedly just to monitor and investigate banking institutions in the United States; specifically, the business they do with industries deemed ‘high-risk’ for fraud, such as firearms, tobacco, and online gambling.

Despite seemingly honorable intentions, many feel that Operation Choke Point is being used to force banks to deny banking services to companies and individuals in these industries. Because it bypasses due process and allows the government to investigate and cut off businesses from banking industries without any evidence of law-breaking, Operation Choke Point has been widely criticized.

Basics of Operation Choke Point

It is believed that the United States Justice Department created Operation Choke Point in an attempt to cut off businesses in specific industries from banking services; without these services, the businesses would be unable to operate and be forced to close. This intimidation is carried out even when there is no proof of any illegal activity, without any special approval or permission needed.

In 2013, Michael Bresnick, a United States federal prosecutor stated that the plan was simply an attempt to crack down on banks that continue to do business with companies that are showing signs of committing fraud. However, once Operation Choke Point was underway, over fifty subpoenas were sent from the Justice Department to banks across the United States, ranging from local banks to nationwide institutions (“Timeline: Operation Choke Point”).

These subpoenas were issued under the Financial Institutions Reform, Recovery, and Enforcement Act, Section 951. Section 951, executed in 1989, was originally written to allow government bodies to pursue legal action against businesses that were proven to have committed fraud against American banking institutions. Section 951 allows the Attorney General to subpoena documents and dispositions of witnesses to corroborate claims of fraud. Now, however, it is being used to justify a gross overstepping of boundaries on the part of the Federal Deposit Insurance Corporation and the Department of Justice “DOJ’s Operation Choke Point” 2014).

They have taken the original intent of the bill and twisted it to fit their own agenda. Interpreting Section 951 in this way is being justified because the law says that the Attorney General can subpoena any documents they decide are “relevant or material to the inquiry”. Without any legitimate explanation, the government has chosen to move forward with it, much to the horror and dismay of American business owners all across the country.  

This affected countless businesses and companies in these so-called ‘high-risk’ industries, as they were suddenly cut off from all financial services. In order to avoid further negative attention from the government, many banks and payment processing firms were forced to end all business relations with companies within certain industries. Many businesses to suffer were completely legitimate and legal operations with no suspicious activity, financial or otherwise, and gave no reason to be suspected of fraud (Isaac 2014).

Several financial institutions, including the nation’s four largest banks, saw what was happening and feared that they would be next. In response, they began denying access to their systems to similar businesses. Some businesses, like travel clubs, rare coin dealers, and home-based charities, are also taking a hit, as they, too, are on the list of industries with ‘high-risk’ for fraud. More and more of these companies are reporting being denied banking services, as they would be considered a ‘reputational risk’ (Zywicki 2014).

The government is forcing people out of business simply because of the type of industry their business happens to fall into, whether the business is 100% law-abiding or not. As time goes on, and this initiative and the people who execute it go unchecked, the numbers of affected businesses are growing.

Operation Choke Point negatively effects innocent people

Operation Choke Point has proven to have negative effects on a wide range of the kinds of businesses on the government’s ‘high-risk’ list. In order to discourage banking institutions from doing business with these ‘high-risk’ industries, it has been communicated that providing them with regular banking services is sufficient enough to trigger an investigation by the federal government.

Simply doing business with these companies creates what is called a ‘reputational risk’, giving the government cause to monitor and examine the relationship between the bank and the business itself. President and CEO of the American Bankers Association and former United States Attorney General Frank Keating has called Operation Choke Point “legally dubious” and goes on to explain,

“[The Department of Justice] is pressuring banks to shut down accounts without pressing charges against a merchant or even establishing that the merchant broke the law… [The Department of Justice] is now blurring these boundaries and punishing the banks that help them fight crime. If a bank doesn’t shut down a questionable account when directed to do so, Justice slaps the institution with a penalty for wrongdoing that may or may not have happened” (“DOJ‘s Operation Choke Point” 2014).

American banks are being bullied and strong-armed into terminating accounts for no valid reason just to satisfy the whims of the FDIC and Department of Justice. 

The FDIC and the Department of Justice are using intimidation and fear to bully banks into refusing business to perfectly legal businesses. When businesses are cut off from banking services, they are unable to operate, meaning that they are forced to shut down. One business owner owned a hookah company that is now failings because the business was cut off from all of their banking services all of a sudden.  

The business owner said that the payment processor at his bank had asked him, “Have you heard of a little thing called Choke Point? …They’re taking aim at industries like you and others to eliminate you from business by choking off your payment processing.” (Limits 2015).

Operation Choke Point has the ability to completely shut down totally legitimate businesses. As time goes on, more businesses are coming forward claiming that their businesses were wrongly targeted by Operation Choke Point, specifically firearms and ammunition dealers (Harkness 2014). In addition, the negative impact is reaching individuals instead of just businesses as a whole. Several porn stars have made reports of their bank accounts being unexpectedly terminated.

When asked for the reason, each one was told that it was determined that they were a ‘reputational risk’ and that to continue business with these individuals would damage the bank’s reputation (Zywicki 2014). Individual American citizens are now at risk for being cut off from banking services, even if they have never violated any laws in their lives. Innocent businesses and citizens should not be targeted or singled out when they have done nothing to deserve the suspicion in the first place.

Abuse of power

As stated previously, neither the Department of Justice nor the FDIC has the approval or authority to carryout Operation Choke Point. The FDIC in particular has described the situation in a round-bout way without ever really explaining themselves; the ‘high-risk’ list was created as a list of potentially illegal activities from a list of categories that was previously, “noted by the FDIC” (FDIC’s Involvement 2014).

There has yet to be found a legitimate law, bill, or other documentation in the U.S. Constitution that justifies Operation Choke Point and the things that are being done in the name of it. It seems as though there may not be anything in place that allows the Department of Justice and FDIC to carry out this initiative.

It has come to light that some of the motivations behind Operation Choke Point may not have been as admiration and honorable as it was originally perpetuated to be. It has been reported that some of the policymakers for the Federal Deposit Insurance Corporation have personal issues with payday lenders. Documents and notes from previous mention of Operation Choke Point in Congress show that there was a lot more focus on short-term lending and online lending in particular as opposed to other businesses on the ‘high-risk’ list.

Officials at the Department of Justice purportedly have gone on record to state that it should be considered a huge accomplishment for the United States economy to entirely eliminate this kind of money-lending (“DOJ’s Operation Choke Point” 2014). Furthermore, according to personal emails that were presented before Congress, one FDIC senior bank examiner was quoted as saying that they “literally cannot stand” payday lenders, another industry on the ‘high-risk’ list.

Also, these senior members have expressed interest in finding a way to force banks to end their business relationships with companies in these industries. In another case, an official from the Division of Depositor and Consumer Protection instructed Martin Gruienberg, Chairman of the FDIC, to fit the word ‘pornography’ into every speech he made regarding payday lenders (FDIC Involvement 2014).

The goal was to manipulate Congress into feeling negatively about payday lending. There is clearly an overwhelming disdain for these kinds of businesses among senior officials at both the Department of Justice and the Federal Deposit Insurance Corporation and obvious attempts to cut off these companies from their banking services. 

Conclusion

Operation Choke Point seemingly began with positive intentions that we could all agree with; to monitor suspicious banking activity done by businesses in industries with a high risk for fraudulent activity. However, as time passes, it appears that this initiative is little more than some petty, personal vendettas being carried out by a couple of people who happen to have a lot of power.

Though the operation was supposed to apply to a wide number of businesses across many industries, it seems that the focus is on a few select industries that the Department of Justice and the Federal Deposit Insurance Corporation have deemed objectionable. Operation Choke Point has been used to intimidate banks into terminating the accounts of various businesses. While doing so, there has been absolutely no requirement for evidence or reasonable doubt that illegal activity may be occurring before the government decides to ‘choke out’ these companies.

In addition to affecting businesses across the country, no matter how legal or legitimate they may be, Operation Choke Point’s tall shadow has also been cast upon individual Americans who just happen to work in these industries, whether they own and run the business in question or merely work in it. Not only does this behavior violate the laws of due process, but it creates a dangerous and terrifying example that certain officials and organizations are above the laws that the rest of us are held to. Operation Choke Point is an abuse of power with overwhelmingly negative consequences for, not just business owners or individuals, but the very precedent that the United States was built on.

Works Cited

“Timeline: Operation Choke Point”. The American Banker. SourceMedia. Web. 3 Mar. 2015. 

113th Cong., HR Rept. “The Department of Justice’s “Operation Choke Point”: Illegally Choking Off Legitimate Businesses?” Government Printing Office. Washington, DC., 29 May 2014. Web. 2 Mar. 2015. 

113th Cong., HR Rept. “Federal Deposit Insurance Corporation’s Involvement in “Operation Choke Point””. Government Printing Office. Washington, DC., 8 Dec. 2014. Web. 3 Mar. 2015.

Harkness, Kelsey. “Meet Four Business Owners Squeezed by Operation Choke Point”. The Daily Signal. The Heritage Foundation, 12 Aug. 2014. Web. 4 Mar. 2015.

Isaac, William M. “Operation Choke Point: Way Out of Control”. American Banker. SourceMedia, 22 Aug. 2014. Web. 4 Mar. 2015. 

Limits, Cultural. “Operation Choke Point: Owner of Another Victimized Business Speaks”. DC Gazette. USA Liberty Media LLC, 2014. Web. 4. Mar. 2015.

Zywicki, Todd. “Operation Choke Point”. The Washington Post. The Washington Post, 24 May 2014. Web. 2 Mar. 2015.