Feds press banks to cut off gun re­tail­ers

‘High risk’ busi­ness in same cat­e­gory as pornog­ra­phy

The Washington Times Weekly - - Politics - BY KELLY RID­DELL

Gun re­tail­ers say the Obama ad­min­is­tra­tion is try­ing to put them out of busi­ness with reg­u­la­tions and in­ves­ti­ga­tions that by­pass Congress and choke off their lines of credit, freeze their as­sets and pro­hibit on­line sales.

Since 2011, reg­u­la­tors have in­creased scru­tiny on banks’ cus­tomers. The Federal De­posit In­sur­ance Corp. in 2011 urged banks to bet­ter man­age the risks of their mer­chant cus­tomers who em­ploy pay­ment pro­ces­sors, such as PayPal, for credit card trans­ac­tions. The FDIC listed gun re­tail­ers as “high risk” along with porn stores and drug para­pher­na­lia shops.

Mean­while, the Jus­tice Depart­ment has launched Oper­a­tion Choke Point, a credit card fraud probe fo­cus­ing on banks and pay­ment pro­ces­sors. The threat of en­force­ment has prompted some banks to cut ties with on­line gun re­tail­ers, even if those com­pa­nies have valid li­censes and good credit his­to­ries.

“This ad­min­is­tra­tion has very clearly told the bank­ing in­dus­try which cus­tomers they feel rep­re­sent ‘rep­u­ta­tional risk’ to do busi­ness with,” said Peter We­in­stock, a lawyer at Hun­ton & Wil­liams LLP. “So fi­nan­cial in­sti­tu­tions are re­act­ing to this ex­tra­or­di­nary en­force­ment ar­se­nal by be­ing ul­tra­con­ser­va­tive in who they do busi­ness with: Any com­pa­nies that en­gage in any mar­gin of risk as de­fined by this ad­min­is­tra­tion are be­ing dropped.”

A Jus­tice Depart­ment rep­re­sen­ta­tive said the agency is con­duct­ing sev­eral in­ves­ti­ga­tions that aim to hold ac­count­able banks “who are know­ingly as­sist­ing fraud­u­lent mer­chants who harm con­sumers.”

“We’re com­mit­ted to en­sur­ing that our ef­forts to com­bat fraud do not dis­cour­age or in­hibit the law­ful con­duct of these hon­est mer­chants,” the Jus­tice Depart­ment said in a May 7 blog post.

But gun re­tail­ers say their businesses are be­ing tar­geted in the ex­ec­u­tive branch’s ef­forts:

T.R. Lib­erti, owner and op­er­a­tor of Top Gun Firearms Train­ing & Sup­ply in Mi­ami, has felt the st­ing first­hand. Last month, his lo­cal bank, BankU­nited N.A., dumped his on­line busi­ness from its ser­vice.

An ex­plana­tory email from the bank said: “This let­ter in no way re­flects any deroga­tory rea­sons for such ac­tion on your be­half. But rather one of in­dus­try. Un­for­tu­nately your com­pany’s line of busi­ness is not com­men­su­rate with the in­dus­tries we work with.”

Black Ri­fle Ar­mory in Hen­der­son, Ne­vada, had its bank ac­counts frozen this month as the bank tried to de­ter­mine whether any of Black Ri­fle’s on­line trans­ac­tions were sus­pi­cious.

In 2012, Bank of Amer­ica sud­denly dropped the 12-year ac­count of McMil­lan Group In­ter­na­tional, a gun man­u­fac­turer in Phoenix, even though the com­pany had a good credit his­tory, the owner said. Gun parts maker Amer­i­can Spirit Arms in Scotts­dale, Ari­zona, re­ceived sim­i­lar treat­ment by Bank of Amer­ica, the coun­try’s largest bank­ing in­sti­tu­tion.

“This seems to be hap­pen­ing with greater fre­quency and to many more deal­ers,” said Joe Sirochman, owner of Amer­i­can Spirit Arms. “At first, it was the big­ger guys — gun parts man­u­fac­tur­ers or high-pro­file re­tail­ers. Now the smaller mom-and-pop shops are be­ing choked out, and they need their cash to buy in­ven­tory. Freez­ing their as­sets will put them out of busi­ness.”

Af­ter McMil­lan Group owner Kelly McMil­lan pub­li­cized Bank of Amer­ica’s ac­tion on his Face­book ac­count, he found that thou­sands of small gun-shop own­ers across the coun­try were in the same sit­u­a­tion. Banks were ei­ther drop­ping them, freez­ing their ac­counts or re­fus­ing to process their on­line sales, so he opened a credit card pro­cess­ing com­pany for the gun in­dus­try called McMil­lan Mer­chant So­lu­tions.

“Four gen­er­a­tions of my fam­ily have been in this in­dus­try. This is my way to give back,” said Mr. McMil­lan, adding that many of his cus­tomers were de­nied bank­ing ac­cess be­cause of the na­ture of their busi­ness. “This is an at­tempt by the federal govern­ment to keep people from buy­ing guns and a way for them to com­bat the Sec­ond Amend­ment rights we have. It’s a covert way for them to con­trol our right to man­u­fac­ture guns and in­di­vid­u­als to buy guns.”

BankU­nited N.A., which dropped Top Gun Firearms Train­ing & Sup­ply in Mi­ami from its cus­tomer list, de­clined to com­ment.

In a state­ment to The Wash­ing­ton Times, Bank of Amer­ica said: “We would not deny bank­ing ser­vices to an or­ga­ni­za­tion solely on the ba­sis of its in­dus­try.”

The bank­ing gi­ant blamed a mis­un­der­stand­ing with the Ari­zona gun man­u­fac­tur­ers McMil­lan Group In­ter­na­tional and Amer­i­can Spirit Arms.

How­ever, the Amer­i­can Bank­ing As­so­ci­a­tion, the in­dus­try’s ad­vo­cacy group in Wash­ing­ton, said businesses deemed “risky” will be frozen out of the fi­nan­cial sys­tem if the Jus­tice Depart­ment continues Oper­a­tion Choke Point be­cause the reg­u­la­tory bur­den and risk of in­ves­ti­ga­tion will be too great for less-spe­cial­ized banks to bear.

“We’re be­ing threat­ened with a reg­u­la­tory regime that at­tempts to foist on us the obli­ga­tion to mon­i­tor all types of trans­ac­tions,” Richard Riese, a se­nior vice pres­i­dent at the Amer­i­can Bankers As­so­ci­a­tion, said in the April 28 is­sue of Amer­i­can Banker. “All of this is pred­i­cated on a no­tion that the banks are a choke point for all businesses.”

In an in­ter­view with The Times, Mr. Riese said the cost of do­ing busi­ness with gun re­tail­ers out­weighs the ben­e­fits for some banks, given that reg­u­la­tors deem the in­dus­try as “risky,” state laws vary on the sale of guns and am­mu­ni­tion, and the Jus­tice Depart­ment’s en­force­ment.

The In­de­pen­dent Com­mu­nity Bankers of Amer­ica, an as­so­ci­a­tion for small banks, said en­force­ment ac­tions from the Jus­tice Depart­ment are too broad and overly ag­gres­sive.

“While pre­vent­ing fraud is a top con­cern for com­mu­nity banks, it needs to be bal­anced with en­sur­ing that businesses and con­sumers that op­er­ate in ac­cor­dance with ap­pli­ca­ble laws can still ac­cess pay­ment sys­tems,” bankers as­so­ci­a­tion Pres­i­dent Cam­den Fine told the Jus­tice Depart­ment in an April 7 let­ter. “ICBA re­quests that the DOJ sus­pend Oper­a­tion Choke Point im­me­di­ately and fo­cus its re­sources di­rectly on businesses that may be vi­o­lat­ing the law, rather than tar­get­ing banks pro­vid­ing pay­ment ser­vices.”

Jus­tice’s oper­a­tion threat­ens to “close ac­cess to the fi­nan­cial sys­tem to law-abid­ing businesses, be­cause the mere prospect of an en­force­ment ac­tion is suf­fi­cient to cause fi­nan­cial in­sti­tu­tions to re­strict ac­cess to their pay­ment sys­tems to only es­tab­lished com­pa­nies that present low risks,” the or­ga­ni­za­tion said.

Reg­u­la­tions on the fi­nan­cial in­dus­try have in­creased over the past few years, said Thomas P. Var­ta­nian, chair­man of Dechert LLP, a global law firm spe­cial­iz­ing in reg­u­la­tory and fi­nan­cial mat­ters.

He noted the chill­ing ef­fect of over­reg­u­la­tion by the Fi­nan­cial Fraud En­force­ment Task Force, an in­ter­a­gency be­he­moth that in­cludes the de­part­ments of Com­merce, Jus­tice, La­bor, Ed­u­ca­tion, Home­land Se­cu­rity and Jus­tice along with the In­ter­nal Rev­enue Ser­vice, the Se­cu­ri­ties and Ex­change Com­mis­sion, the Se­cret Ser­vice, the FBI, the So­cial Se­cu­rity Ad­min­is­tra­tion and the Federal Trade Com­mis­sion.

“The key to ef­fec­tive reg­u­la­tion is the bal­anc­ing be­tween too lit­tle and too much reg­u­la­tion,” Mr. Var­ta­nian said. “The prob­lem here is that there are now so many reg­u­la­tors, in­clud­ing the Depart­ment of Jus­tice, with their fin­gers on the scales on that bal­anc­ing act.”


Gun re­tail­ers, along with porn stores and drug para­pher­na­lia shops, are listed as “high risk” by the Federal De­posit In­sur­ance Corp. The Jus­tice Depart­ment has launched Oper­a­tion Choke Point, urg­ing banks to bet­ter man­age the risks of their mer­chant cus­tomers that em­ploy pay­ment pro­ces­sors for credit card trans­ac­tions.

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