TODD ZYWICKI on “Operation Choke Point.”

The Justice Department’s “Operation Choke Point” initiative has been shrouded in secrecy, but now it is starting to come to light. I first heard about the program in January through this article and since then it has been difficult to discover details about it. It is so named because through strangling the providers of financial services to the targeted industries, the government can “choke off” the oxygen (money) needed for these industries to survive. Without an ability to process payments, the businesses – especially online vendors — cannot survive.

The general outline is the DOJ and bank regulators are putting the screws to banks and other third-party payment processors to refuse banking services to companies and industries that are deemed to pose a “reputation risk” to the bank. Most controversially, the list of dubious industries is populated by enterprises that are entirely, or at least generally, legal. Tom Blumer’s extremely informative post summarizing what is known to date about Operation Choke Point reproduces the list, which includes things such as ammunition sales, escort services, get-quick-rich schemes, on-line gambling, “racist materials” and payday loans. Quite obviously, some of these things are not like the other; moreover, just because there are some bad apples within a legal industry doesn’t justify effectively destroying a legal industry through secret executive fiat.

Especially ironic, of course, is that while the DOJ and bank regulators are choking off financial services to legal industries, they are also encouraging banks to provide banking services to illegal marijuana sales. . . . The larger legal and regulatory issue here is the expansive use of the vague and subjective standard of “reputation risk” to target these industries. In a letter to Janet Yellen, the chair of the Federal Reserve, last week, House Financial Services Committee Chairman Jeb Hensarling expressed concern over the growing use of “reputation risk” as a vehicle for attacking legal businesses. Is there any discernible principle as to why, for example, a payday lender or firearms dealer poses a “reputation risk” and an abortion provider does not?

I don’t understand why this isn’t simply a conspiracy to deprive people of their civil rights, and actionable as such.