FDIC Operation “Choke Point” – Could Bitcoin be the Answer?

The U.S. House of Representatives committee on oversight and government reform released a staff report on the Federal Deposit Insurance Corporation’s (FDIC) involvement in the “Operation Choke Point” on December 8th, 2014. This report details how the FDIC is bullying payment processors and banks to stop working with many legitimate services that the FDIC doesn’t approve of, such as ammunition, payday loans, pornography, coin dealers and dating services.

Some of the key findings of this committee are quoted as follows:

  1. The Federal Deposit Insurance Corporation, the primary federal regulator of over 4,500 banks, targeted legal industries
  2. FDIC equated legitimate and regulated activities such as coin dealers and firearms and ammunition sales with inherently pernicious or patently illegal activities such as Ponzi schemes, debt consolidation scams, and drug paraphernalia.
  3. FDIC achieved this via “circular argument” policymaking: there was no articulated justification or rationale for the original list of “high-risk merchants.” Yet a list of “potentially illegal activities” included in FDIC’s formal guidance to banks justified itself by claiming that the categories had been previously “noted by the FDIC.”
  4. FDIC’s explicitly intended its list of “high-risk merchants” to influence banks’ business decisions. FDIC policymakers debated ways to ensure that bank officials saw the list and “get the message.”
  5. Documents produced to the Committee reveal that senior FDIC policymakers oppose payday lending on personal grounds, and attempted to use FDIC’s supervisory authority to prohibit the practice. Personal animus towards payday lending is apparent throughout the documents produced to the Committee. Emails reveal that FDIC’s senior-most bank examiners “literally cannot stand payday,” and effectively ordered banks to terminate all relationships with the industry.
  6. In a particularly egregious example, a senior official in the Division of Depositor and Consumer Protection insisted that FDIC Chairman Martin Gruenberg’s letters to Congress and talking points always mention pornography when discussing payday lenders and other industries, in an effort to convey a “good picture regarding the unsavory nature of the businesses at issue.” FDIC actively partnered with Department of Justice to implement Operation Choke Point, and may have misled Congress about this partnership.

The article concludes by stating:

At a minimum, Operation Choke Point is little more than government-mandated de-risking. FDIC, in cooperation with the Justice Department, made sure banks understood–or in their own language, “got the message” – that maintaining relationships with certain disfavored business lines would incur enormous regulatory risk.

The effect of this policy has been to deny countless legal and legitimate merchants access to the financial system and deprive them of their very ability to exist. Accordingly, Operation Choke Point violates the most fundamental principles of the rule of law and accountable, transparent government.

Here is a clip about a legal Maryland ammunition company being targeted by Operation Choke Point and how it is affecting their ability to conduct legal business.

It is probably about time for these industries to start looking into cryptocurrencies such as Bitcoin and Monero for payment processing.

Official Document can be downloaded here: Operation Choke Point

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