Dept. of Justice Shuts Down Operation Choke Point
WASHINGTON – The U.S. Department of Justice has ended a five-year-old program aimed at reducing commerce in adult entertainment and other “high risk” businesses by choking off the flow of money.
Operation Choke Point, launched in 2012 by the DOJ in cooperation with the Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau, originally sought to shut down internet-based payday lending services that charged inflated interest rates in violation of several states’ usury laws. In a glaring example of “mission creep,” the dragnet rapidly expanded to snare other disfavored industries including gun dealers, debt consolidators, credit repair services, online dating services and adult entertainment.
The program’s goal was to financially starve businesses the government claimed were rife with fraud and money laundering by pressuring the financial industry to cut off access to banking and other services. The plan worked, at least in part. A handful of financial institutions including CommerceWest Bank in California settled criminal and civil prosecutions after investigations uncovered they provided services to fraudsters.
Under increased federal scrutiny, other banks and financial institutions closed some existing accounts, froze others and declined to open new ones in order to avoid a similar fate.
From the beginning, the program was criticized as both unconstitutional and an abuse of power. The federal agencies involved put the onus on banks to avoid due process issues, critics charged.
In May 2014, after a contentious hearing by the U.S. House of Representatives Financial Services Committee, the House Oversight Committee published a severely critical report about Operation Choke Point.
“The [DOJ’s] radical reinterpretation of what constitutes an actionable violation under § 951 of [the Financial Institutions Reform, Recovery and Enforcement Act] fundamentally distorts Congress’ intent in enacting the law and inappropriately demands that bankers act as the moral arbiters and policemen of the commercial world,” the report concluded.
The committee recommended Operation Choke Point be dismantled. The DOJ pulled back but never entirely shut down the program.
On Aug. 17, Assistant U.S. Attorney General Stephen Boyd officially confirmed Operation Choke Point’s end. In a letter to House Judiciary Committee chairman Rep. Robert Goodlatte [R-Va.], Boyd called the program “a misguided initiative.”
“Law-abiding businesses should not be targeted simply for operating in an industry that a particular administration might disfavor,” Boyd wrote. “All of the Department’s bank investigations conducted as part of Operation Chokepoint [sic] are now over, the initiative is no longer in effect, and it will not be undertaken again.”
Next: What does this mean for the adult industry? Insiders and attorneys provide perspective.
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