Operation Choke Point is Under Attack

Jul. 16, 2014
by Bob Adelmann

Something remarkable is taking place in Washington this week. While the headline news is all about the border crisis, a little-known program designed to do an end run around the Second Amendment is being exposed to daylight. The House had two hearings on Tuesday – one by the Oversight and Investigations Subcommittee entitled “The Department of Justice’s ‘Operation Choke Point’” and the other by the House Committee on Financial Services to consider a bill to shut the whole thing down – and another one is scheduled for Thursday by the House Judiciary Committee entitled “Guilty until Proven Innocent? A Study of the Propriety and Legal Authority for the Justice Department’s Operation Choke Point.”

The pressure for such exposure has been building for months. As mission creep has illegally expanded the mandate to “root out and expose” various investment scams in the wake of the start of the Great Recession, the Financial Fraud Enforcement Task Force, created by executive order early in Obama’s first term, has deliberately and unilaterally expanded that mandate to include at least 30 other industries. They are now targeting cable-box descramblers, coin dealers, credit repair services, dating services, debt consolidation services, escort services – the list goes on and on.

But at the top of the list is the real target: ammunition sales and firearms sales. This is an industry populated largely by small mom-and-pop stores that are dependent upon regular financing to maintain their inventory. Credit lines are crucial and are carefully nurtured over the years by the successful ones.

To the Justice Department, however, this looks like an oxygen hose that it could step on just by declaring that it can. By working closely with a number of different agencies, banks lending to those stores can be intimidated into ending those relationships under threat of subpoena for doing business with “high” or “reputational” risk customers. The cast of criminals involved in the blackmail is impressive and extensive: involved in the scam are the Department of Justice, the FBI, the Securities and Exchange Commission, the U.S. Postal Service, the IRS, the U.S. Commodity Futures Trading Commission, and the U.S. Secret Service.

To a banker, this looks like an army of intimidators. Richard Riese, a senior VP at the American Bankers Association calls it the “regime”:

We’re being threatened with a regulatory regime that attempts to foist on us the obligation to monitor all types of transactions. All of this is predicated on the notion that the banks are a choke point….

And it’s working. Secretly launched in March 2013, banks have been coerced into terminating relationships going back years, even decades, forcing business owners into finding other sources. When the Financial Services Centers of America asked its members about it, they learned that 14 of the 61 banking relationships they had had been terminated just since last November. This left borrowers high and dry, and mad. Kelly McMillan of McMillan Group International, a gun maker in Phoenix, said the Bank of America abruptly ended their 12-year relationship, and she knew why:

This is an attempt by the federal government to keep people from buying guns and a way for them to combat the Second Amendment rights we have.

There’s T.R. Liberti, the owner of Discount Ammo-N-Guns in Florida, whose bank closed his accounts in March. There’s Black Rifle Armory in Henderson, Nevada, whose bank closed its accounts until the bank could run a check on transactions to see if any of them were “suspicious” or not. The list goes on.

Pushback against OCP began in earnest when Senator Ted Cruz published his list of “76 Lawless Obama Actions” back in May, which listed, at position No. 8, the following:

Government agencies are engaging in “Operation Choke Point,” where the government asks banks to “choke off” access to financial services for customers engaging in conduct the Administration doesn’t like, such as “ammunition sales.”

A “demand” letter from Darrell Issa, chairman of the House Oversight and Government Reform Committee added to the pushback. He wrote to Eric Holder, the head of the DOJ:

The extraordinary breadth and depth of [your] Department’s dragnet prompts concern that the true goal of Operation Choke Point is not to cut off actual fraudsters’ access … but rather to eliminate [businesses to] which [your] Department objects….

The bandwagon exposing OCP was now underway. It was helped along when Issa’s committee published its report on the task force’s actions, accusing it of deliberately choking off the flow of financing to those businesses, charging that the DOJ “lacks adequate legal authority” for its behavior. The report claimed that OCP has “effectively transformed the [original] FDIC guidance into an implicit threat of a federal investigation. Suddenly, doing business with a ‘high-risk’ merchant is sufficient to trigger a subpoena by the Department of Justice.”

The report concluded that OCP had to go:

The Department’s radical reinterpretation of what constitutes an actionable violation … fundamentally distorts Congress’ intent in enacting the law, and inappropriately demands that bankers act as the moral arbiters and policemen of the commercial world….

It is necessary to disavow and dismantle Operation Choke Point.

Momentum to dismantle continued to grow. On June 5th, the Community Financial Services Association and Advance America filed suit against the FDIC, claiming that it exceeded is statutory authority, that its actions were “arbitrary and capricious,” that it failed to follow the rule of law under due process.

A week later, Senator Rand Paul filed an amendment to prevent funds given to either the FDIC or the DOJ from being used to operate OCP. Paul’s amendment particularly referred to any effort to “discourage the provision or the continuation of credit … to a manufacturer, dealer, or importer of firearms or ammunition….”

Along came a bill to get rid of the operation altogether. Rep. Blaine Luetkemeyer, a Republican from Missouri, submitted it, saying “It is time to stop these backdoor attempts by government bureaucrats to blackmail and threaten businesses simply because they morally object to entire sectors of our economy.”

Add to that the extreme displeasure voiced by the former head of the FDIC, and one has the feeling that OCP’s days are numbered, that it has reached the tipping point of its existence. Wrote William Isaac:

Operation Choke Point is one of the most dangerous programs I have experienced in my 45 years of service as a bank regulator, bank attorney and consultant, and board member.

Operating without legal authority and guided by a political agenda, unelected officials at the DOJ are discouraging banks from providing basic banking services … to lawful businesses simply because they don’t like them. Bankers are being cowed into submission by an oppressive regulatory regime. 

With the tsunami of disgust breaking over Operation Choke Point and accelerating into this week of hearings, its existence is in serious doubt. All this sudden attention will prove the rule once again: the best cure for corruption is the bright light of the noonday sun.

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Sources:

Daily Signal: Lawmakers Throw Light on Secretive ‘Operation Choke Point’

Issa’s Oversight Committee Report: DOJ’s Operation Choke Point Secretly Pressured Banks to Cut Ties with Legal Business

Issa’s Committee’s Report: The Department of Justice’s “Operation Choke Point”: Illegally Choking Off Legitimate Businesses?

House Financial Services Committee meeting scheduled for July 15, 2014, Oversight and Investigations Subcommittee Hearing Entitled “The Department of Justice’s ‘Operation Choke Point’”

July 15, 2014, Financial Institutions and Consumer Credit Subcommittee Hearing entitled “Examining Regulatory Relief Proposals for Community Financial Institutions, Part II”

Luetkemeyer Files Bill to End Operation Choke Point-Style Attacks on Private Sector

House Judiciary Committee Hearing: Guilty until Proven Innocent? A Study of the Propriety & Legal Authority for the Justice Department’s Operation Choke Point

The New American: Rand Paul Protects Guns, Ammo From Obama's Operation Choke Point

The New American: Obama Administration Choking Off Bank Lending to Gun Dealers

Operation Choke Point

Washington Post: “Operation Choke Point”

William Isaac: Congress needs to choke off Operation Choke Point

COMMUNITY FINANCIAL SERVICES ASSOCIATION OF AMERICA, LTD. And DVANCE AMERICA, CASH ADVANCE CENTERS, INC. vs. FDIC

Group to spend $5 million to break Operation Choke Point stranglehold

United States Consumer Coaltion on Operation Choke Point

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