The Justice Department’s investigation, now named Operation Choke Point, was first disclosed in March 2013. The operation was designed to fight corruption by examining connections banks maintain with legal companies and industries. These companies are considered to be at high risk for money laundering. The DOJ and bank regulators are pressuring banks and other third-party payment processors to refuse banking services to companies and industries thought to pose a “reputation risk” to the bank. Merchants are being dropped suddenly with little to no notice, being told to seek a high risk merchant account provider and are forced to find a replacement.
Firearms shops are claiming that Operation Choke Point is being used to pressure banks into refusing to provide financial services. The Federal Deposit Insurance Corp. urged banks back in 2011 to better manage the risks of their merchant customers who employ payment processors. The FDIC then listed gun retailers as high risk, along with porn stars and drug paraphernalia shops.
Firearms merchants say their businesses are being targeted. Thousands of small gun shop owners were dropped by banks, had their accounts frozen, or denied the processing of their online sales. The American Banking Association said businesses deemed “risky” would be frozen out of the financial system if Operation Choke Point were continued. This is because the regulatory burden and risk of investigation would be too great for less specialized banks to bear.
In an article written by Kelly Riddell for The Washington Times, Bankers of America association states the DOJ’s operation threatens to, “close access to the financial system to law-abiding businesses, because the mere prospect of an enforcement action is sufficient to cause financial institutions to restrict access to their payment systems to only established companies that present low risks.”
FDIC Chairman Martin Gruenberg said during the Tuesday hearing on Choke Point that some banks appear to have misinterpreted regulatory guidance. That misinterpretation led them to bar entire categories of businesses from using bank services.
The government memorandum to its supervisory staff stated that it would now be required that examiners put their recommendation to terminate the account into writing, which the financial institution must review before the account is ended.
Small business owners are being victimized by Operation Choke Point, and are hoping to find a middle ground. Just because there are a few “bad apples” within a legal industry doesn’t justify targeting the entire industry.