It’s no secret that there are plenty of policymakers who would love to see soda and sugary snack food banned altogether. But what if instead of Congress voting to pass laws against the products directly, federal agencies simply acted on their own to pressure stores to stop selling such products altogether, “choking off” the manufacturers’ ability to do business?
Sound like executive overreach? A case of the federal government serving as our “national nanny?” While the U.S. Department of Justice isn’t going after food manufacturers through retailers yet, it has targeting legitimate businesses by pressuring banks not to process their financial transactions under an initiative known as “Operation Choke Point.”
DOJ, with help from the Federal Deposit Insurance Corporation (FDIC), has systematically pressured banks to cut off financial services for a number of industries that the Obama administration disagrees with, including gun dealers, fireworks sellers, and payday lenders. Ostensibly, DOJ is using its authority to stop businesses from engaging in fraud, but a number of business owners have written Congress to complain that they’ve been targeted despite an absence of wrongdoing.
Take fireworks for example. In all of 2013, eight people died from fireworks. While it’s certainly a tragedy when anyone is killed using a product, when operated safely fireworks generally aren’t dangerous. The number of fireworks deaths is dwarfed by the number of automobile deaths — about 30,000 per year. Yet the Obama administration isn’t cracking down on automobile manufacturers; they actually gave money to bail out prominent American carmakers.
To bully banks into cutting ties with undesirable industries, DOJ has served financial institutions with more than 50 subpoenas. As members of Congress in charge of DOJ oversight have pointed out, complying with a subpoena is a costly and burdensome process for banks, making it easier to simply yield to DOJ’s wishes and drop clients regardless of the evidence against them.
As the House Committee on Oversight and Government Reform chairman Darrell Issa has pointed out, DOJ’s practice of pressuring banks forces financial institutions to police commercial activities. Thinking back to our snack food example, that would be like forcing grocery stores to look at every product it sells and deciding whether or not it complies with a set of politically correct nutritional criteria.
Operation Choke Point has drawn intense fire from Republicans in Congress who accuse the agency of politically motivated attacks on law-abiding businesses. FDIC’s published list of “high-risk” businesses certainly bolsters the claim that the administration is targeting entire industries rather than individual bad actors. It was only after intense pressure that the FDIC recently revoked its list of merchant categories that could engage in “higher-risk activity.”
So who’s been affected by Operation Choke Point? Small business owners. Take Powderhorn Outfitters, a Massachusetts sporting goods store — after 36 years of working with TD Bank, the company was suddenly denied a loan. The company wasn’t denied funding because of poor credit, but because along with fishing equipment, the company also sells firearms. Gun dealers are one of the FDIC-named “high risk” industries.
TD Bank commented that the company seeks to “ensure that we are operating within our risk appetite and only taking risks we can understand and manage.” Essentially, even companies that sell firearms in accordance with federal and state laws are a “risky” enterprise.
And it’s not just gun dealers that have become too risky for banks. DOJ has targeted businesses like coin dealers, ammunition sellers, and even online dating sites. Documents from the agency show that Attorney General Eric Holder is well aware that small businesses are being pushed out of business and that banks are refusing to work with entire industries—not just those individual businesses found to be operating outside of the law.
Though Operation Choke Point may have scaled back for now, the Obama administration has made its position as the national nanny abundantly clear — the administration intends to try to shut down businesses it disagrees with.
Businesses that flout the law should certainly be prosecuted, but they should be tried by judges or juries — not banks or bureaucrats. Putting financial institutions in their role hurts the many law abiding businesses that rely on banks to process transactions.
Jeffrey H. Joseph is a business professor at The George Washington University School of Business.
