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Operation Choke Point Targets Porn and Firearms, Potentially Violating the Constitution

In Operation Choke Point, the Justice Department is targeting lawful industries with investigations designed to inflict economic pain and dramatically increase their paperwork burdens. That includes industries seemingly accorded constitutional protection against undue burdens, such as pornography (generally covered by the First Amendment), and firearms (protected by the Second Amendment). As Michael Patrick Leahy notes,

According to the Wall Street Journal, the federal initiative now known as 'Operation Choke Point' is an outgrowth of the President's Financial Fraud Task Force, established by President Obama by Executive Order in 2009. It also appears to have been kicked off in secret by the Department of Justice, FDIC, and the CFPB in early 2013 without the requisite statutory authority. Officials at the Department of Justice have withheld information about the program from Congress, though they have eagerly shared details with federal financial institution examiners authorized to supervise and discipline the nation's banks and related financial institutions.

On August 22, thirty-one members of Congress sent a letter to Attorney General Eric Holder and FDIC Chairman Martin Gruenberg . . .the members of Congress stated "[i]t has come to our attention that the DOJ and the FDIC are leading a joint effort that according to a DOJ official is intended to 'change the structures within the financial system...choking [online short term lenders] off from the very air they need to survive.' " "We are especially troubled by reports that the DOJ and FDIC are intimidating some community banks and third party payment processors with threats of heightened regulatory scrutiny unless they cease doing business with online lenders," the letter read. "As a result, many bank and payment processors are terminating relationships with many of their long-term customers who provide underserved consumers with short-term credit options."

Reason magazine reports on the government's assault on the porn industry and how banks are closing the checking accounts of porn performers as a result:

Despite being in good financial standing, adult film performers and others in the porn industry have had bank accounts abruptly terminated—and the U.S. Department of Justice (DOJ) may have had something to do with it.

Under "Operation Choke Point," the DOJ and its allies are going after legal but subjectively undesirable business ventures by pressuring banks to terminate their bank accounts or refuse their business. . .Targeted business categories so far have included payday lenders, ammunition sales, dating services, purveyors of drug paraphernalia, and online gambling sites. Operation Chokepoint is flooding payments companies that provide processing service to those industries with subpoenas, civil investigative demands, and other burdensome and costly legal demands," wrote Jason Oxman, CEO of the Electronic Transactions Association, at The Hill.

'The theory behind this enforcement program . . .: increase the legal and compliance costs of serving certain disfavored merchant categories, and payments companies will simply stop providing service to such merchants. And it’s working—payments companies across the country are cutting off service to categories of merchants . . .Thus far, payday lenders have been the most frequent target. . .'

Last week, adult film actress Teagan Presley and an unknown number of others in the porn industry received notices that their Chase Bank accounts were being abruptly terminated. When Presley went to the bank in person to ask why, she was told it’s because she’s considered 'high risk.'" . . Operation Choke Point represents an incredible abuse of regulatory power. In a recent American Banker op-ed, former Federal Deposit Insurance Corp. Chairman William M. Isaac called it "a direct assault on the democratic system and free-market economy." . . In a March 2013 hearing before a Senate Banking subcommittee, Sen. David Vitter (R-La.) pointed out the obvious: that DOJ has "no statutory authority" to be doing this.

Operation Chokepoint is also targeting gun stores, drawing the ire of Second Amendment advocates. As one angry gun-rights advocate put it:

The current . . . Attorney General, who has been found to be in contempt of Congress after failing to provide subpoenaed documents in the Fast and Furious scandal, which his department was involved in trafficking thousands of guns across the US/Mexico border that resulted in the deaths of hundreds of Mexicans and at least two federal agents, has now been caught in yet another scandal. For the past several months, the DOJ has been putting pressure on banks, in a program referred to as Operation ChokePoint, to not provide services that the Justice Department is targeting politically. Among those businesses are gun stores.

I wonder how the Justice Department claims to reconcile these chilling investigations with the First or Second Amendments. The First Amendment can be violated by deliberately burdensome investigations, even in the civil context, when the investigation is aimed at a category of speech or speakers, see, e.g., White v. Lee, 227 F.3d 1214 (9th Cir. 2000) (unduly prolonged federal fair-housing investigation violated First Amendment). Indeed, it can violate the First Amendment so clearly that individual federal officials lose their qualified immunity and can be sued individually for damages, as the Ninth Circuit ruled in the White v. Lee decision. And as UCLA Law Professor Eugene Volokh and firearms law expert David Kopel have noted, restrictions can violate the Second Amendment even when they are aimed at sellers, rather than purchasers, of firearms. See, e.g., Kole v. Norridge (2013). So there are serious constitutional issues at stake here. Yet I see little legal commentary on the subject so far.

Even if the porn industry had a statistically greater incidence of financial shenanigans than a representative cross-section of the country as a whole, that would not justify the government or financial regulators in suppressing it. (See Forsyth County v. Nationalist Movement, 505 U.S. 123, 134 (1992) (security fee based on actual cost of providing security for demonstration violated the First Amendment, even though it was not based on government hostility to the speech as such, where it was effectively linked to the category of speech and its controversial nature); Alexander v. United States, 509 U.S. 544 (1993) (Kennedy, J., dissenting) (arguing for four justices that neutral application of forfeiture provisions after obscenity conviction could nevertheless violate the First Amendment, even though obscenity is unprotected by the First Amendment); NAACP v. Claiborne Hardware Co., 458 U. S. 886 (1982) (tort of tortious interference with contract could not be applied to otherwise-protected speech, even if the speech had the same negative effect on commerce as activity unprotected by the First Amendment, and the application of the law was in a sense neutral between speech and conduct)).