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“Operation Choke Point” and High Risk Businesses

There has been news in recent months of the U.S. Department of Justice undertaking an initiative called “Operation Choke Point,” which was created to suffocate undesirable, although legal, businesses. Haven’t heard of Operation Choke Point? The Washington Post has also expressed surprise that major news outlets have ignored this story for more than a year.

The DOJ created a long list of industries that it considers to be a “reputation risk” and has been working with bank regulators to get banks and third party payment processors to refuse banking services to companies and industries that they consider to pose a “reputation risk.” By choking off the flow of money, the government is suffocating designated companies and industries. Here is the FDIC’s list of 30 high-risk merchant categories that are currently being pursued by the DOJ:

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

Online Gambling

PayDay Loans

Pharmaceutical Sales

Ponzi Schemes

Pornography

Pyramid-Type Sales

Racist Materials

Surveillance Equipment

Telemarketing

Tobacco Sales

Travel Clubs                                                                           

There have already been complaints of unfair targeting. Several pornographic film actors have had their personal bank accounts closed for what the banks have called “moral” reasons, and refused financial services like loans. J.P. Morgan Chase came under fire earlier in the year when it refused to process payments for Lovability, a small condom company owned and operated by a mother-daughter duo because Chase considers the company to be a “reputation risk.” Something similar was done to freeze credit card payments and donations to support the operations of WikiLeaks.

By the standard definition, a high-risk business is one that either operates within a high-risk industry or a risk of financial failure exists. A high-risk industry is one that has safety and health concerns, while the second condition addresses a company’s continued profitability. Risk factors include a high level of charge backs, refunds and returns, and credit card fraud.

Do you think this operation holds much water, or that this is a calculated move, as expressed by House Financial Services Committee Chairman Jeb Hensarling, to attack legal businesses? Are you the owner and/or CEO of a high-risk business, and if so, has this operation affected your company?

 

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