Thursday, October 09, 2014

Taking Your Breath Away: Operation Choke Point

I wanted to follow-up on yesterday’s post about my bank of nearly 11 years -- Fifth Third Bank -- without warning and with no explanation deciding to close my account. I don’t anticipate writing again about this topic, but after writing yesterday I was able to learn something useful regarding what happened and thought I’d share it.

With some difficulty I was today able to speak once more with my (former) local branch of Fifth Third. As I expected, they had no further information for me, and were surprised Customer Service (to whom they had directed me) had sent me back to them. I’d been sent around in a circle, no more informed at the end than when I’d begun.

Meanwhile, I very much appreciated the comments to yesterday’s post as well as those I received via Twitter. Among those responding to the post was Grange95, a lawyer, who very helpfully pointed me to a document describing a recently begun initiative by the U.S. Department of Justice called “Operation Choke Point” that appears a very likely explanation for why my account was closed.

The report comes from Darrell Issa, a Republican from California who chairs the House Committee on Oversight and Government Reform. It’s dated May 29, 2014 and is titled “The Department of Justice’s ‘Operation Choke Point’: Illegally Choking Off Legitimate Businesses?

The report begins by explaining how the initiative was created by the DOJ late last year to “choke out” businesses considered by the Administration to be “‘high risk’ or otherwise objectionable,” with the nominal purpose being “to combat mass-market consumer fraud.” Following the initiative, bank regulators have identified a number of different businesses, industries, merchant types, and activities as “high risk,” strongly suggesting to them that if they continue to serve those involved in the activities on the list they could be subject to federal investigation.

In other words, you might say there are two varieties of “pressure” (or “choking”) happening here. One is the Administration pressuring banks to review customers’ account activity, to track and flag those involved with anything having to do with activities on the “high-risk” list, and to close those accounts or be subject to federal investigation. The other is the “choking out” of the businesses by removing their means to conduct financial transactions.

The report (compiling the Committee’s findings) goes on to explain how “Operation Choke Point has forced banks to terminate relationships with a wide variety of entirely lawful and legitimate merchants,” how the DOJ “is aware of these impacts, and has dismissed them,” and how the DOJ “lacks adequate legal authority for the initiative.” For these reasons and others, Issa -- speaking for the Committee -- is calling for the dismantling of Operation Choke Point, flatly calling it “illegal.”

The report includes quotes from letters sent by banks to customers informing them that their accounts were being closed. The quotes resemble language appearing in the letter I received (discussed yesterday), and in fact there is one from Fifth Third Bank which specifically tells the customer -- someone whose business is making payday loans -- that their business is the cause of the account’s closure.

“During recent reviews of the payday lending industry, we have determined that the services provided by clients in this industry are outside of our risk tolerance,” says the letter. “As such, we will no longer be able to provide financial services to businesses that operate in that industry.”

By comparison, my letter lacked such specificity, only referring vaguely to “federally mandated requirements” as guiding Fifth Third Bank in its reviews of account activity. But from reading the quotes I do think it is probably safe to assume my bank was similarly encouraged simply to close my account rather than have to deal with the threat (real or imagined) of any type of federal investigation as suggested by my apparent connection with one of the “high-risk” activities.

Speaking of, also included in the report is a list of 30 different examples of such “high-risk activity.” For a time the list was posted on the Federal Deposit Insurance Corporation’s website as a warning, although I see from a Wall Street Journal article dated July 28th that the list was removed.

Among the items included is “On-line gambling” (sic), which appears the only one with any possible relevance to my situation. I’ll mention again that the only account activity I might have had that could be construed as meaningful here would be to have received payments via wire transfer from businesses located outside the U.S. whose interests include poker (live and online) and gambling. In other words, my “business” is not even “online gambling,” but rather writing, editing, and reporting as a freelancer.

The list is interesting, and even though it has been removed from the FDIC site the WSJ article points out how the FDIC continues to tell banks they “should still take caution in handling transactions for payment firms, due to the potential risk of illegal activity.” Here’s that list:

  • Ammunition Sales
  • Cable Box De-scramblers
  • Coin Dealers
  • Credit Card Schemes
  • Credit Repair Services
  • Dating Services
  • Debt Consolidation Scams
  • Drug Paraphernalia
  • Escort Services
  • Firearms Sales
  • Fireworks Sales
  • Get Rich Products
  • Government Grants
  • Home-Based Charities
  • Life-Time Guarantees
  • Life-Time Memberships
  • Lottery Sales
  • Mailing Lists/Personal Info
  • Money Transfer Networks
  • On-line Gambling
  • Payday Loans
  • Pharmaceutical Sales
  • Ponzi Schemes
  • Pornography
  • Pyramid-Type Sales
  • Racist Materials
  • Surveillance Equipment
  • Telemarketing
  • Tobacco Sales
  • Travel Clubs
  • Some company to be in, eh? However you feel about some of the “activities” on this list -- and some are most certainly objectionable -- it’s easy to see how for nearly all of them merely having such a business or being involved in some fashion doesn’t automatically make one guilty of mass-market fraud, money laundering, or any other unlawful behavior.

    Issa’s report notes how despite the DOJ’s public statements, Operation Choke Point “was primarily focused on the payday lending industry” before being expanded to include these other activities. “Internal memoranda and communications demonstrate that Operation Choke Point was focused on short-term lending, and online lending in particular,” explains Issa. However, the DOJ seized an opportunity with the initiative to curtail many other types of activities without having even to identify or prove any type of unlawful behavior beforehand.

    Having no answers from Fifth Third, I still cannot be sure my account was closed because of Operation Choke Point, although it seems highly probable. The initiative reminds me a little of how the Unlawful Internet Gambling Enforcement Act of 2006 similarly targeted the means of making financial transactions to play poker and/or gamble online and not the actual playing -- another kind of indirect “choking.”

    It also makes me think about the many examples of corruption in government I’ve been reading about constantly over the last many months as part of my “Nixon studies.” I was telling Vera how when I read about Watergate and all of the illegal machinations and maneuvers conducted by the Nixon Administration to continue the cover-up, part of me always regards it all as somehow entirely separate from my own experience -- as though it were fiction, almost, thanks to the seeming distance between past and present.

    But the fact is, there are obviously many contemporary (and similarly astonishing) examples of our government acting in ways we should question and about which we should be concerned, with Operation Choke Point -- as grievous as it appears to be -- hardly the most troubling.

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