Justice Puts Banks in a Choke Hold

[StreetScooby 5]

From yesterday's WSJ, full article is listed below.
This administration is out of control.

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Bank regulators—particularly the FDIC—have joined in the action, warning banks away from serving more than 22 categories of businesses, including "Get Rich Products," "Ammunition Sales," "Pharmaceutical Sales," "Home Based Charities," and even "As Seen on TV" businesses. Some of these businesses may indeed be risky. But that doesn't justify pre-emptively declaring them all criminals and freezing their access to the payments system.

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Full article:

Justice Puts Banks in a Choke Hold
A new probe goes after the lenders that help law enforcement fight fraud.

By
Frank Keating
April 24, 2014 7:21 p.m. ET

When you become a banker, no one issues you a badge, nor are you fitted for a judicial robe. So why is the Justice Department telling bankers to behave like policemen and judges? Justice's new probe, known as "Operation Choke Point," is asking banks to identify customers who may be breaking the law or simply doing something government officials don't like. Banks must then "choke off" those customers' access to financial services, shutting down their accounts.

Justice launched the effort in early 2013 as a policy initiative of the president's Financial Fraud Enforcement Task Force, which includes the Federal Deposit Insurance Corp., the Consumer Financial Protection Bureau and other regulatory agencies. Though details are scant—much of the investigation has been conducted in secret—the probe aims to crack down on fraud in the payments system by focusing on banks that service online payday lenders and other services deemed suspicious by the government.

Justice's premise is simple: Fraudsters can't operate without access to banking services, and so the agency is going after the infrastructure that questionable merchants use rather than the merchants themselves. Most of these merchants are legally licensed businesses on a government list of "risky profiles." These include payday outfits and other short-term lenders.

Unfortunately, the strategy is legally dubious. Justice is pressuring banks to shut down accounts without pressing charges against a merchant or even establishing that the merchant broke the law. It's clear enough that there's fraud to shut down the account, Justice asserts, but apparently not clear enough for the highest law-enforcement agency in the land to prosecute.

Banks, which need a reliable and safe payments network to survive, have always worked with law enforcement to fight fraud and even terrorism in the financial system. Banks provide tips to law enforcement when a customer's behavior seems fishy, and they assist in investigations when asked. In the past year alone, banks have filed nearly a million suspicious activity reports with regulators, including suspicions of mortgage fraud, identity theft, counterfeit debit and credit cards, tax evasion and wire-transfer fraud.

But law-enforcement agencies and courts, not banks, are responsible for determining criminal violations. The 1970 Bank Secrecy Act spells out the proper partnership for banks and law-enforcement agencies. The law established record keeping and reporting requirements for banks so that law-enforcement agencies would have the evidence needed to prosecute criminals effectively. That is the division of labor and responsibility envisioned by Congress: drawing upon each other's strengths to fight crime.

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. The government is compelling banks to deny service to unpopular but perfectly legal industries by threatening penalties. This puts them in a difficult business position.

Bank regulators—particularly the FDIC—have joined in the action, warning banks away from serving more than 22 categories of businesses, including "Get Rich Products," "Ammunition Sales," "Pharmaceutical Sales," "Home Based Charities," and even "As Seen on TV" businesses. Some of these businesses may indeed be risky. But that doesn't justify pre-emptively declaring them all criminals and freezing their access to the payments system.

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. Banks contribute significantly to the law-enforcement mission and remain committed to helping agencies detect terrorist financing, money laundering and fraud. Justice shouldn't turn that commitment against them.

Mr. Keating is president and CEO of the American Bankers Association. He also is a former FBI agent, U.S. attorney and associate attorney general of the United States.

We are all engines of karma

[GeorgiaDon 380]

This is messed up. Whatever happened to the presumption of innocence until proven guilty? I'm reminded of civil forfeiture laws, where your property can be seized based on only a "suspicion", with no need to even file charges, much less obtain a conviction.

I don't know if Justice actually runs these sort of initiatives past constitutional experts first, but if so maybe they should also consider a "focus group" of citizens as well, because this initiative doesn't pass the "smell test".

Don

_____________________________________
Tolerance is the cost we must pay for our adventure in liberty. (Dworkin, 1996)
“Education is not filling a bucket, but lighting a fire.” (Yeats)

[StreetScooby 5]

Agreed re: civil forfeiture. I recall reading about a long running scam by the Louisiana State Police in Hammond, LA(IIRC) where they would have dogs sniff over money. Of course, there was always a hit detected for cocaine. The folks could go on there way, as long as they left the money...

On another note, you're not hearing a lot of this in the news, but Republican Attorney AGs are winning many cases taken to Federal Courts against the administration. It's striking, IMO.

We are all engines of karma

[quade 4]

So the president and CEO of the American Bankers Association (a lobbying group) wrote an opinion piece published in the Wall Street Journal about how banks are put upon by unjust regulation.

I'm not certain that proves, "This administration is out of control."

It would be interesting to see the various justifications for the various classifications of businesses involved. Pity Mr. Keating, didn't leave a trail of bread crumbs to follow so we could check this out a bit better.

Here's what I've found on the ABA's own web site as a backgrounder.
http://www.americanbanker.com/gallery/timeline-operation-choke-point-1066360-1.html

Seems as if it was going along swimmingly until...

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Investigation Becomes Politicized

In recent months, Operation Choke Point has increasingly become a political football. Rep. Darrell Issa, R-Calif., who chairs the House Oversight Committee, wrote to Attorney General Eric Holder in January, requesting a slew of documents and suggesting that the probe was a veiled effort to eliminate even legal online lending. Around the same time, an anonymous online campaign, "Stop the Choke," sought to persuade conservative lawmakers to attack Justice's investigation. Then in February, Rep. Elijah Cummings of Maryland, the top Democrat on the House Oversight Committee, and 12 other congressional Democrats wrote to Holder urging the Justice Department not to cave in the face of Republican opposition.

So, what I think we're really seeing here might actually have a lot more to do with Issa and his continuing hard on for Holder.

quade -
The World's Most Boring Skydiver

[StreetScooby 5]

Quote

So the president and CEO of the American Bankers Association (a lobbying group) wrote an opinion piece published in the Wall Street Journal about how banks are put upon by unjust regulation.

So, you're questioning the ABA's and the author's creditability. That's fair. Not sure how to help you get through that one.

Quote

Here's what I've found on the ABA's own web site as a backgrounder.
http://www.americanbanker.com/...point-1066360-1.html

Good link, thanks for posting it. Even by their own admittance, Justice is trying to scare folks into accepting fines for things that are just now being deemed "bad", as Justice sees it today. These companies really have no economical recourse, and those that settle are being used as "templates" for further steps by Justice. This isn't what the rule of law should look like, IMO.

NY State justice, which has hopped on the band wagon, is simply putting on shakedowns, left and right. It is blatant, and there is no other way to look at it. From Donald Trump's "college" to banks that bought "bad mortgage companies", they are showing no limits, and nothing remotely reasonable. It has become an indiscriminate abuse of prosecutor power.

It's interesting how Justice's focus has seemed to significantly expand over the initial one on payday lenders. I'm sure there is more to come on this, and it will be interesting to see how Justice explains their expansion to the 22 "business types" listed in the opinion article. Full disclosure - I take WSJ opinions as written. I no longer try and verify them through external means.

We are all engines of karma

[quade 4]

StreetScooby

Full disclosure - I take WSJ opinions as written. I no longer try and verify them through external means.

That seems like a dangerous policy. Who said, "Trust, but verify"?

quade -
The World's Most Boring Skydiver

[swisschris62 0]

Or maybe he's got a hard on for Holder because Holder's a dirt bag and totally disrespecting the committee over Fast and Furious and not doing anything about the IRS targeting the tea party....
And who knows what else.
Just to be clear, I don't care what "party" is messing up.

[StreetScooby 5]

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That seems like a dangerous policy. Who said, "Trust, but verify"?

Agreed. It took me years to reach that point with this source, though. FYI.

We are all engines of karma

[StreetScooby 5]

Quote

Or maybe he's got a hard on for Holder because Holder's a dirt bag and totally disrespecting the committee over Fast and Furious and not doing anything about the IRS targeting the tea party....
And who knows what else.

Many other reasonable people have the same view, myself included. Granted not every one here thinks I'm reasonable, but I do subscribe to this view.

We are all engines of karma

[kelpdiver 2]

StreetScooby

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That seems like a dangerous policy. Who said, "Trust, but verify"?

Agreed. It took me years to reach that point with this source, though. FYI.

Did you reach that point before or after the sale of the paper to Murdock?

Bias is a clear aspect of the WSJ opinion section. Doesn't mean you have to reject it all, but I cannot take it on faith, either.

[kelpdiver 2]

quade

So, what I think we're really seeing here might actually have a lot more to do with Issa and his continuing hard on for Holder.

Just because one dick has a hardon for another dick doesn't mean Dick #1 is wrong.

That said, if a would be ammunition dealer got brushed off by a bank, I'd expect we'd hear about it when that entity contacts the NRA-ILA and has a field day. So did it actually happen?

[StreetScooby 5]

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Did you reach that point before or after the sale of the paper to Murdock?

It was before Murdoch bought it. I had my antenna up for a little while after that, but have since come back to a reasonable comfort zone. Did the political tenor change some? Yes. I've never found it as blatant as say, NYTimes editorials.

We are all engines of karma

[kelpdiver 2]

StreetScooby

Quote

Did you reach that point before or after the sale of the paper to Murdock?

It was before Murdoch bought it. I had my antenna up for a little while after that, but have since come back to a reasonable comfort zone. Did the political tenor change some? Yes. I've never found it as blatant as say, NYTimes editorials.

I find it more brazen (less subtle). Which is perhaps preferable - they're not trying to sneak it past you as the NYT might. But it's too substantial to take as factual. It is an opinion section, after all.