-
Banks are facing enhanced scrutiny from examiners, causing them to sever ties with businesses they view as high-risk, but regulators are also pressuring them not to close those accounts, fearing financial disenfranchisement.
November 17 -
The Treasury Department and its anti-money laundering unit find themselves on the defensive as bankers say they're cutting ties with entire business sectors as a result of blunt enforcement efforts.
November 10 -
As concerns mount that Somali-Americans will lose their pipeline for sending money home, Washington's response has been marked by what critics see as secrecy, buck-passing and a lack of interagency coordination.
September 2 -
After nearly two years, the Justice Department so far has accused just one bank of facilitating consumer fraud. And the aftermath of that case suggests that prosecutors' strategy is not as effective as they hoped it would be.
December 3
For the past year, banks have been
The Justice Department investigation known as Operation Choke Point was ostensibly launched in order to root out consumer fraud and money laundering. But critics argue that the probe has prompted banks to close the accounts of legal but politically unpopular businesses such as payday lenders and check-cashing services as well as arms dealers and tobacco sellers. Regulatory crackdowns on money laundering have also led banks to sever relationships with a range of
A spate of
These organizations are scrambling to find banks that will serve them. Their ability to function on a national level has been disrupted, jeopardizing their members' individual and collective freedom to practice their religion.
Take the example of one of my clients, a large Christian church with hundreds of brick and mortar locations operating in the U.S. The church recently received a notice of account closure from its primary banker.
Approximately half the church's annual revenue comes from cash donations. But it engages in few cross-border transactions, conducts annual external audits and has written, independently tested cash-handling policies and procedures. A package of information detailing those safeguards, together with a request for an opportunity to present its compliance programs, was forwarded to the bank in response to the closure notice.
The bank denied the request without explanation, save a boilerplate statement that, while the bank had no reason to believe the church was involved in any problematic activity or transactions, it "just didnt fit with the model of the kind of entity" that the bank wanted to do business with. The church's subsequent attempts to develop banking relationships with other institutions met with little success.
Title II of the Civil Rights Act of 1964 prohibits discrimination based on religion in places of "public accommodation" that affect interstate commerce. In many state statutes, banks are considered places of public accommodation.
By compelling banks to close the accounts of allegedly high-risk clients, regulators are inadvertently denying churches and other cash-based religious organizations full and equal access to banking services. They simultaneously avoid the proper review and checks to which such government policies would otherwise be subject. The discriminatory effect of the new policies can be directly linked to the push to create desirable "client profiles" by closing the accounts of cash-dependent clients.
This effect is likely unintentional, but nonetheless real. Its origins may lie in a July 2014
In the era of enhanced regulatory scrutiny, banks would rather play it safe and cut off blameless organizations than spend enormous amounts of time, money and energy attempting to predict which businesses will raise red flags. Therefore regulators are inadvertently encouraging the nationwide denial of banking services to legitimate organizations dedicated to faith and community service and protected by the freedom of religion guaranteed in the First Amendment of the Constitution.
Reasonable minds may differ about the desirability of using market-inhibiting regulatory practices to stymie legal but politically unpopular businesses. But surely all Americans can agree that a regulatory framework that threatens the viability of religious practice in a country founded on the notion of freedom of religion is, at the very least, in need of reform.
Sheila Tendy, an attorney and former bank regulator and prosecutor now in private practice, represents one or more clients that have been adversely affected by Operation Choke Point. Follow her on Twitter
