Operation 'Choke Point': Small business RIP

Last fall, I got a strange request from the bank I've been doing business with for more than 10 years. For the first time ever, this bank asked to see our books. When we asked why, they told us that they needed to review our risk profile.

It seemed odd to me, because we do everything by the book and are about as low-risk as a grocery store or a dry cleaning service. Not to mention the fact that, through all of the various fees we have to pay, our company generates tens of thousands of dollars in revenue for our bank each month.

With nothing to hide, we complied with the request. And naturally, we passed our unexpected risk assessment with flying colors. The bank thanked us for our cooperation, but never really explained the situation to my satisfaction.

A month later we were going through our semi-annual anti-money laundering (AML) training. This is another way we make sure our business is squeaky-clean at all times. Our employees are all trained to spot and report anything that has the appearance of illegality.

I casually mentioned to our AML trainer that our bank had put us through this bizarre risk assessment a couple of months earlier.

"Oh, that's because of Operation Choke Point" he said, as if it was common knowledge.


"Operation What Point?!" I replied.

He went on to tell me the full story, and it was so frightening that it literally caused the hair on my neck to stand on end. Though he didn't use these exact words, the point of what he was telling me was that the US government is waging a new war. It's an undeclared war. It's an underground war. It's a covert war. But now, slowly but surely, more Americans are becoming aware of this war because they are finding out that they are the targets in this war. They have become the enemy of the state. That's because this war is a war on small business in America.

If this power grab by the executive branch of our government is allowed to continue, Americans soon won't be able to buy gold, guns, or a variety of other goods and services, because the businesses that sell them won't exist. Operation Choke Point is a war on liberty that's using ideological intimidation to put certain small businesses out of business.

In early 2013, unbeknownst to Congress and the American public, the Justice Department launched its first sneak attack of this war under a program called Operation Choke Point. It issued 50 subpoenas to banks asking for information on their relationships with Third Party Payment Processors (TPPPs). TPPPs process payments for a number of types of small businesses.

The purpose of the subpoenas was to notify the banks that they are now full-time regulators in the fight against money laundering and other types of financial fraud. Although banks have always had to report suspicious transactions to authorities they now have to "Know their Customers" like never before.

In much the same way that FATCA has turned every international financial institution into de facto IRS agents, Operation Choke Point is turning every domestic bank into the president's own secret morality police force. And just as international banks are now refusing to service American customers due to the high cost of compliance, many domestic banks are closing the accounts of companies, which have been with them for years, because of the new compliance costs. In other words, the cost of defying the president's whims and wishes is so high that the banks have to cave in and stop doing business with these customers.

Operation Choke Point is an unconstutional backdoor way of closing otherwise legal companies by cutting off their access to the banking system and capital. If they can't deposit their revenue in a bank account or accept credit card payments they are effectively shut down.

There are three problems with Operation Choke Point

The first is procedural. The President, through the DOJ, the FDIC, and the new Consumer Financial Protection Bureau, implemented new regulations without Congress passing any law or even being informed of what was going on. This executive action was an end run around the legislative process and it prevented any type of public discussion or input on it.

The second is market oriented. The new rules require the banks to collect so much information about their business customers, the cost of compliance not only makes it unprofitable for the banks to service the accounts, it also puts tremendous financial strain on the companies who are forced to spend time and money gathering the information and filling out forms. The end result is that the banks turn them away, thereby cutting off or choking their access to the banking system or they fail because their profit margin is eaten up by the regulations.

The third problem is that even if criminal activity, like money laundering or other fraudulent activity are being committed by some of the targeted businesses, there are many more innocent and legal firms that have become collateral damage. They are being unjustly and economically harmed by the government, even though they haven't broken any laws.

There is ample evidence that proves many of the types of companies being targeted are included on the list for ideological reasons. The administration doesn't like what they sell or the services they provide so they are nothing more than political targets of an ideological war. Not surprisingly, the list includes businesses that generally attract the small government, rugged individualist crowd, or in other words, the types of people who the administration sees as a threat to its power.

Furthermore, the fact that the operation was rolled out in secret and its very name Choke Point suggest that the executive branch and the Justice Department knew exactly what they were doing when they designed it. There is little doubt in many people's minds that the program is specifically intended to shut these companies down even though most of them are perfectly legal and operate within the law.
The Fourth Amendment to the Constitution protects citizens and private enterprises from unreasonable searches and seizures by requiring a search warrant that is approved by a judge, based on probable cause, and limited to very specific parameters. The Fifth Amendment is supposed to guarantee them due process if they are charged with a crime, but Operation Choke Point violates both of these protections. First, it requires banks to collect all kinds of information on their customers without any probable cause of a crime, and secondly it incentivizes banks to close their customers accounts based on spurious claims of "reputational risk" without any form of due process.

The design of Choke Point is as genius as it is sinister. It forces companies that the government dislikes to close without ever being accused of any crime, without a trial, and without even a direct link back to the government. In fact, most business owners who are victims didn't even know about it until their bank notified them their accounts were being closed because the bank didn't want their patronage anymore.

When the companies asked why their accounts were being closed their banks told them they were all of a sudden "too high risk" even if they had been customers for decades. When 31 members of Congress learned of the operation and sent a request for information on what the DOJ and FDIC were doing the DOJ responded by telling Congress it was under no obligation to answer any questions. Members of the media had to file a Freedom of Information Act lawsuit to get more information, but the DOJ is fighting it in court. The FDIC has deferred to the DOJ since the DOJ is the lead on the operation.

Operation Choke Point was born out of a 2009 executive order that created the President's Financial Fraud Task Force that was supposed to determine the cause of the financial crisis so the government could exonerate itself and pin the blame on someone else. A year earlier, at the height of the financial crisis, Rahm Emanuel, then President elect, Barack Obama's chief of staff said in an interview, that government, "should never let a serious crisis go to waste. And what I mean by that it's an opportunity to do things you think you could not do before."

And it is clear that the administration took those words to heart. Under the guise of cracking down on financial fraud to prevent future crises the government launched the task force and a whole slew of new regulations that it never would have been able to before. Some of them went through Congress like Dodd-Frank and others completely bypassed it, like Operation Choke Point.

Operation Choke Point is a perfect example of an alarming trend that has been around for decades, but was really taken to another level by both the Bush and Obama administrations. It is the growing use of executive orders issued by the President in order to bypass Congress. This abuse of power is a gross violation of the Constitution. It has been called "executive overreach" in polite conversation, but in more blunt terms it is nothing less than the creation of an Imperial Presidency.

The administration knows it could never have gotten Operation Choke Point passed in an open forum, such as Congress, which is why it circumvented the legislature. That's why executive orders have become such popular tools of Presidents. They neatly bypass the checks and balances that were put in the Constitution to prevent such abuses of power.

Operation Choke Point is just one example of the dangers of an out-of-control executive branch, but in a separate scandal, the Internal Revenue Service was also discovered to be illegally harassing and persecuting groups for their political beliefs. Nowhere in the Constitution does it say that the government can persecute political enemies for having opposing viewpoints. The US is supposed to be a country where the people can speak their minds without fear of government interference and petition their government for redress of grievances. But between Operation Choke Point and the IRS, it is becoming obvious that the politicians and bureaucrats who run the government today have absolutely no respect for the laws they have sworn to uphold.

But political considerations aside, Operation Choke Point has had a serious economic impact on the country as well. Small businesses employ thousands of Americans and are a huge engine of economic growth. By covertly squeezing thousands of small companies to the point where they have to close thousands more jobs are being lost.

One of the first banks to receive a subpoena from the DOJ was Four Oaks Bank in North Carolina. It was targeted because it serviced a lot of TPPPs. The bank was told that it should stop doing business with the TPPP's because they carried "reputational risk."

Reputational risk is the risk that your reputation will be impugned by your own actions, or by association with someone of questionable character. Reputational risk is something that all companies worry about and remain ever watchful for, because one mistake can lead to the loss of customers, bankruptcy, and disgrace.

But now companies have something new to worry about. If the government doesn't think you're worrying enough about your image and reputation, then they'll fine you or drag you into court. And if the government fines you or drags you into court it will damage your reputation. So you're dammed if you do and dammed if you don't.

In the end, Four Oaks Bank agreed to pay a $1.2 million fine for not doing enough due diligence on their TPPP customers. The bank did not admit to any wrongdoing, so it obviously calculated that paying the fine was less expensive and faster than enduring a potentially long drawn out and expensive legal battle. Which is exactly what the government was hoping for. Its main weapons in this fight are intimidation and its ability to outspend and outlast small business owners in court.

Luckily, as more and more people and members of Congress find out about it, a resistance is being mounted. Bank of America customer, Kelly McMillan, a gun manufacturer in Phoenix, Arizona, had his account closed after 12 years of patronage. He posted his story on Facebook and found out that he wasn't alone. So he took matters into his own hands. He started his own credit card payment processing company for other firms affected by OCP. Other affected companies have banded together to form citizen action groups like the Online Lenders Alliance to fight back against this abusive policy.

Last May, the House Committee on Oversight and Government Reform issued a scathing report on OCP in which it concluded:

"Forceful prosecution of those who defraud American consumers is both responsible and admirable. However, Department of Justice initiatives to combat mass-market consumer fraud must be legitimate exercises of the Department's legal authorities, and must be executed in a manner that does not unfairly harm legitimate merchants and individuals."

"Operation Choke Point fails both these requirements. The Department's radical reinterpretation of what constitutes an actionable violation under § 951 of FIRREA fundamentally distorts Congress' intent in enacting the law, and inappropriately demands that bankers act as the moral arbiters and policemen of the commercial world. In light of the Department's obligation to act within the bounds of the law, and its avowed commitment not to "discourage or inhibit" the lawful conduct of honest merchants, it is necessary to disavow and dismantle Operation Choke Point."

In November, Representative Luetkemeyer, a member of the House Financial Services Committee introduced the Financial Institution Customer Protection Act that will, if passed, prohibit any Federal agency from ordering a bank to close a customer's account unless it has material evidence that the customer is breaking the law. In other words, we now have to pass special laws with specific language, just to point out to the president and the rest of the government that there is a Constitution and Bill of Rights that they have sworn to uphold, and that they may not violate.

But because there has been such strong opposition to Operation Choke Point, in an effort to keep it as low profile as possible, the Consumer Financial Protection Bureau is telling banks that they cannot inform their customers about it even if the customers are being investigated or scrutinized under the regulation. If this is allowed to continue a business could have its bank account closed without any explanation or recourse against the bank or the government. If this is allowed to continue it should be obvious to everyone that America is now controlled by a secretive and unaccountable government. If this is allowed to continue there will be no better proof that America is no longer governed by the rule of law where citizens have a right to face their accuser and defend themselves in court.

As a bullion coin dealer that has been targeted by Operation Choke Point, we feel it is our duty to not only stand up and resist this government abuse, but also warn others about what is going on. The more people who are aware of how the government is waging war on the Constitution the more people who can write to their elected representatives and let them know that OCP is illegal and it is their job to reign in the out of control executive branch.

Here is a list of businesses targeted by Operation Choke Point:

• Ammunition Sales
• Cable Box De-scramblers
• Coin Dealers
• Credit Card Schemes
• Credit Repair Services
• Dating Services
• Debt Consolidation Scams
• Drug Paraphernalia
• Escort Services
• Firearms Sales
• Fireworks Sales
• Get Rich Products
• Government Grants
• Home-Based Charities
• Life-Time Guarantees
• Life-Time Memberships
• Lottery Sales
• Mailing Lists/Personal Info
• Money Transfer Networks
• On-line Gambling
• Payday Loans
• Pharmaceutical Sales
• Ponzi Schemes
• Pornography
• Pyramid-Type Sales
• Racist Materials
• Surveillance Equipment
• Telemarketing
• Tobacco Sales
• Travel Clubs

As you can see from the list a couple of the industries are legitimate concerns for the government because they are inherently rife with fraud, such as Ponzi-schemes and racist materials, but most of this list is made up of legitimate and legal businesses that provide valuable products or services to their customers. It is not the government's job to pick winners and losers or take away people's private choices about how they spend their currency.

It's clear that Operation Choke Point is meant to intimidate and economically destroy the administration's political enemies, and create fear among those who oppose the President's agenda. Because the targets of Operation Choke Point are generally small firms, the government knows that they don't have the resources to mount any kind of meaningful defense against it. The Federal government on the other hand, despite being $18 trillion dollars in debt, has limitless resources to conduct its assault.

Operation Choke Point is seen by many as an underhanded way of closing legitimate, legal industries by cutting off their access to the banking system and capital. In my opinion this unconstitutional and illegal act by the executive branch, which bypassed Congress and the Supreme Court, is flat out evil. By implementing Operation Choke Point, the president and the justice department are actively committing crimes against the Constitution they swore to uphold and against the American people. We can't let our government get away with it.

It's entirely possible that this is the method the government will use in the future to prevent you from legally buying what you need, when you need it most. If there's civil unrest, you won't be able to buy firearms or ammunition. If there's a dollar crisis, you won't be able to buy gold or silver. Whatever the administration decides it doesn't want you to have, it will now prevent you from getting it by choking off the financial "air" to the providers of those goods and services so those companies die. Without due process, this is tantamount to the executive branch committing the financial murder of law-abiding businesses.

If there's anything you think you may want from a company that falls into Operation Choke Point's targeted list, even if you don't think you'll need the item for many years, I suggest you get it now ... while you still can.

Yes, America is choking

It's choking on tens of thousands of laws, codes, orders, regulations, and restrictions. It's choking on overspending, and with it, over-taxation. It's choking on lobbyists and cronyism, through which legislators create laws to benefit their friends and contributors, enriching the few at the expense of the many. It's choking on bureaucrats who spy on all of us. It's choking on civil forfeiture laws where police can take anything they want of yours without even accusing or charging you of a crime. Instead they charge your property with a crime and confiscate it. And, believe it or not, your house, your car, or your cash is guilty until proven innocent.

America is choking on a corrupt monetary system designed to transfer wealth from the population to the banks and financial sector. It's choking on central planning that stifles the free market. It's choking on politicians who punish success and reward failure by playing Robin Hood with your income. It's choking on a central bank with Keynesian economists who destroy the free market by manipulating the quantity of currency and interest rates, causing massive speculative bubbles that eventually burst, resulting in economic devastation. Then these clueless clowns rush in with more Keynesian stimulus and, while in the midst of the next bubble of their own creation that's about to burst, they declare "You see! We saved you from the free market!"

America is choking, and if we don't do something about it soon I fear that it will soon be dead.

We must perform a societal Heimlich maneuver to expel these cancerous ideas from our economic airway. We do this by speaking out and educating others about where prosperity comes from and what extinguishes it. We do this by promoting freedom.

Thomas Jefferson once said,

"When the people fear the government there is tyranny; when the government fears the people there is liberty."

Our government is out of control and tyranny is slowly taking root.

I choose to speak up.

I choose liberty.

I choose freedom.

How about you?

Mike Maloney is the author of Guide to Investing in Gold and Silver, part of Robert Kiyosaki's "Rich Dad's Advisors" series of books, and is the producer and host of Hidden Secrets of Money.