Issa: FDIC Cooperated with DOJ’s Operation Choke Point to Target Legal Businesses

House Oversight and Government Reform Committee Chairman Darrell Issa (R-Calif.) today sent a letter to Chairman Martin J. Gruenberg of the Federal Deposit Insurance Corporation (FDIC) regarding FDIC’s pressure on banks to terminate relationships with legal businesses, in conjunction with the Department of Justice’s Operation Choke Point, which targets businesses the Obama Administration deems objectionable.  In April, the FDIC’s Acting General Counsel, Richard J. Osterman, testified at a House Financial Services Committee hearing on federal financial regulatory policy.  Over the course of the hearing, Osterman repeatedly disclaimed any substantive involvement by the FDIC with Operation Choke Point. However, documents produced to the Committee by the Department of Justice counter Osterman’s testimony.

Issa stated in today’s letter: “The Committee has obtained substantial evidence suggesting that as a result of coordinated actions by the FDIC and the Department of Justice, banks are terminating relationships with entirely legitimate and licensed businesses…. Documents produced to the Committee by the Department of Justice call into question the sincerity and truthfulness of Mr. Osterman’s testimony.  In fact, the FDIC has been intimately involved in Operation Choke Point since its inception. “

Internal DOJ documents reveal that copies of the FDIC banking guidance were served on targeted banks alongside a subpoena, with the explicit intent to “assist the banks to understand the nature of our investigation.”  Furthermore, according the DOJ’s Four Month Status Report on Operation Choke Point, the FDIC volunteered two attorneys from its Division of Depositor and Consumer Protection to assist DOJ with the initiative.

In 2011, the FDIC Division of Risk Management Supervision published an article entitled “Managing Risks in Payment Processor Relationships.” The article advises financial institutions to adequately monitor and address the risks associated with certain categories of merchants.  However, vague standards outlined by the FDIC provide no explanation for equating legitimate and regulated activities as coin dealers and firearms and ammunition sales with such pernicious or patently illegal activities as Ponzi schemes, racist materials, or drug paraphernalia.

A previous report by the Oversight Committee found that the ostensible goal of DOJ’s Operation Choke Point is to combat mass-market consumer fraud by foreclosing fraudsters’ access to payment systems.  However, today’s report finds the true goal of Operation Choke Point is to target industries deemed objectionable by the Administration.

On January 8, 2014, Chairman Issa and Subcommittee Chairman Jordan requested documents and communications from the Department of Justice related to Operation Choke Point.

The Committee’s report on Operation Choke Point is here, documents here and here.

Read today’s letter to FDIC here.