A controversial federal law enforcement program that critics say
targeted businesses the Obama administration didn't like is about to
face a new wave of congressional scrutiny, with Capitol Hill hearings
set to begin Tuesday.
Under the program, called Operation Choke Point, banks and other
financial institutions were reportedly pressured to cut off accounts for
targeted businesses. This included gun stores, casinos, tobacco
distributors, short-term lenders and other businesses.
Critics claim the program -- overseen by the Justice Department,
Federal Deposit Insurance Corporation and other agencies -- was used to
squeeze legal companies that some politicians considered morally
objectionable.
"Our concern is you have agencies in the Obama administration that
are using government as a weapon and they going after industries and
people that they don't like," said Republican Rep. Sean Duffy, who
co-chairs the Financial Services Subcommittee on Oversight and
Investigations. "This is not the old Soviet Union or Venezuela or Cuba. I
think it's important for all Americans to stand up and push back on
policies that are an abuse of government."
The subcommittee hearings are expected to begin midday Tuesday. More may be scheduled in the future.
Brennan Appel, owner of Global Hookah Distributors, said he realized
he was a victim of Operation Choke Point after he got a letter from Bank
of America telling him that after 12 years of working together, it was
closing all his business and personal accounts.
"I thought that it had to be a mistake," he said. "How could
something like this happen when you've been with a bank since 2002 and
you've had such a great relationship? With no explanation as to what you
did wrong, you can only make assumptions. I'm running a legal business.
I'm not doing anything wrong. I'm following the laws so why are my
accounts being closed like this for absolutely, in my opinion, no
reason?" Appel said.
Appel said a few months later, his payment-processing company also
dropped him. "I started this business when I was 18 years old, funded my
way through college with it and have continued on growing the company
into what it is today. And I feel like, why do you get punished when you
are growing a company?"
Appel began recording his conversations with Alex Bacon, the
president of EFT which was his payment processor. He wanted to prove he
was the target of Operation Choke Point.
An excerpt from one conversation showed the program being specifically mentioned:
Bacon: "Have you heard of a little thing, you know, called Chokepoint, you know the CFPB?"
Appel : "Yes ... yes."
Bacon : "They're taking aim at
industries like you and others to eliminate you from business by choking
off your payment processing."
Another conversation seems to underscore the fear among the financial
industry (financial institutions reportedly were told they would face
increased audits and scrutiny if they kept accounts for targeted
businesses):
Bacon: "I'm an independent, third-party
payment processor, and I, I, I act at the will and directive of my
processing bank. If my processing bank says, 'no, you can't do this,'
there's nothing I can do."
Appel: "Yeah."
Bacon: "There's literally nothing I can do."
Appel: "And they're the one that's getting forced ..."
Bacon: "Well, they're the ones that are
on the front line, they're the ones that uh, that the Chokepoint people
are going after."
Appel: "Yeah, because they probably tell them, if you don't do this, we're going to make your life ..."
Bacon: "We're going to make your life
miserable. Instead of auditing you once a year, we're going to audit you
four times a year, and then we're going to come in and look at all of
this and then if we find anything negative, we're going to write it up
and then you're going to incur increased costs, increased uh focus with
your board of directors, and from other banking regulators. And they all
run scared because they're all sheep."
Appel turned the recordings over to the U.S. Consumer Coalition,
which has taken on the Operation Choke Point issue. The coalition, which
is not a government entity, began working with members of Congress on
it.
Several members of Congress have openly called Operation Choke Point a
blatant abuse of power, and an example of government bureaucrats
appointing themselves morality police so they could operate around the
law.
Duffy and other lawmakers plan to question FDIC Chairman Martin Gruenberg about Operation Choke Point and its intention.
In response to the controversy, the FDIC put out a statement which
said in part: "It is the FDIC's policy that insured institutions that
properly manage customer relationships are neither prohibited nor
discouraged from providing services to any customer operating in
compliance with applicable law ... the FDIC has a responsibility to
cooperate with other government agencies and to ensure that the banks we
supervise are adhering to laws, including those governing anti-money
laundering and terrorist financing."
Initially, the FDIC put out a list of 30 high-risk businesses, but that list has since been rescinded.
The U.S. Consumer Coalition claimed taking down that list only
removed a guideline, and without a specific list of businesses, the
subjectivity of who gets targeted was increased.
Brian Wise, with the U.S. Consumer Coalition, points out the irony.
"By shutting down the bank accounts of these legally operating
businesses, what they're actually doing is forcing these businesses to
deal solely in cash, which is completely opposite of what they have said
their intention is," he said. "It's a whole lot easier to launder money
with cash than having to go through a financial institution."
Wise said questioning the chairman of the FDIC is a good start, but
the problem doesn't end there. "We know that it doesn't just stop with
the FDIC. This is a program that includes the CFPB, FDIC, Department of
Justice and may lead all the way up to the president," he said.
Appel has found a new bank to handle his businesses for now, but has
opened several backup accounts in case his new bank drops him as well.