House Republicans are accusing the Justice Department of pushing banks to cut ties with legitimate businesses operating in unsavory areas.
In a new report, the House Oversight Committee blasted the Justice Department for its “Operation Choke Point.” The secretive initiative, begun in 2013, is aimed at pushing banks to shut off services to legally questionable fields as a way of stifling fraud.
But Chairman Darrell Issa (R-Calif.) and other panel Republicans say the plan forces banks to “act as the moral arbiters and policemen of the commercial world.” They called on the Justice Department to scrap the program, saying it is locking entirely legal businesses out of banking services due to government pressure.
{mosads}“If the administration believes some businesses should be out of business, they should prosecute them before a judge and jury,” said Issa. “By forcibly conscripting banks to do their bidding, the Justice Department has avoided any review and any check on their power.”
The Justice Department is reportedly pushing banks to stop serving as financial intermediaries for a number of businesses that could be engaging in fraud, reaping fees while remaining ignorant, possibly deliberately, of the bad behavior from their customers.
Issa’s report claims the Justice Department has issued more than 50 subpoenas to banks and payment processors under the program, seeking information about their handling of “high risk” clients.
Departments provided to Issa’s committee show the government, as of November, had opened civil investigations with more than 10 banks and payment processors, and criminal investigations into four payment processors, a bank and “responsible bank officials.”
“Several banks and payment processors — after receiving our subpoenas and understanding our concerns — have stopped processing payments for entities they believe or suspect are fraudulent merchants, thereby providing immediate and enduring relief to millions of consumer fraud victims and would-be victims,” the memo stated.
But the committee argued that the end result of such a push is to force banks to close their doors to legitimate businesses in a host of scrutinized “high risk” areas, ranging from online payday lenders to firearms dealers and pornography.
The report contends that the Justice Department is over-interpreting its legal authority to crack down on fraud by bringing such pressure on banks. And it claims that internal Justice documents make clear the primary target of such pressure is the short-term lending industry, which Issa points out is “indisputably lawful.”
Issa said that placing the onus on businesses to prove they are not fraudulent to keep their banks is “patently absurd,” and equivalent to requiring a person to prove they are not a witch.
The banking industry has been openly critical of the Justice Department’s push. In April, Frank Keating, the head of the American Bankers Association, called the program “legally dubious,” and said it effectively forced banks to cut ties to “unpopular but perfectly legal industries.”
“Operation Choke Point’s goal to fight financial fraud is admirable. But forcing banks to make judgments about criminal behavior and then holding them accountable for the possible wrongdoing of others is not a legal or effective way to do so,” he wrote in The Wall Street Journal.
The Justice Department did not respond to a request for comment on Issa’s report.
—This post updated at 1:27 p.m.