By Alan Zibel and Andrew R. Johnson
WASHINGTON--U.S. officials have opened at least 15 civil and
criminal investigations into whether banks and payment-processing
firms helped enable fraudulent activity, according to Justice
Department documents made public Thursday.
The documents, made public Thursday by a U.S. congressional
committee, detail last year's launch of a sweeping probe targeting
banks and payment processors--companies that act as middlemen
between banks and merchants in financial transactions.
In a November 2013 internal memo, a Justice Department official
said the agency had opened civil investigations into 10 banks and
payment processors, as well as criminal investigations of one bank
and four payment-processing firms.
Maame Ewusi-Mensah Frimpong, who was then deputy assistant
attorney general, described the government's so-called "Operation
Choke Point" probe a success, saying banks are stepping up scrutiny
of their relationships with firms that process payments.
"In several cases, after receiving a subpoena, banks and
processors have self-disclosed potentially problematic
relationships and have informed us that they have taken corrective
action," she wrote in the internal memo.
The House Oversight and Government Reform Committee published
more than 850 pages of internal documents on the Justice
Department's probe of alleged fraud in the financial industry. The
release of the documents comes amid a battle between the Justice
Department and congressional Republicans, who argue the government
is trying to intimidate legal businesses, including short-term
lenders that operate online.
Republicans say the government has pressured banks to stop
handling payments for merchants deemed as high risk--including gun
dealers, short-term lenders and credit-repair programs--punishing
good actors along with bad ones.
"If the administration believes some businesses should be out of
business, they should prosecute them before a judge and jury," said
Rep. Darrell Issa (R., Calif.), the chairman of the oversight
panel.
The names of affected banks were blacked out in the memos, but
several banks have disclosed investigations related to payment
processing.
In January, the Justice Department reached a $1.2 million
settlement with a small North Carolina bank, Four Oaks Fincorp
Inc., over allegations the bank processed more than $2 billion in
transactions for a payment processor that worked with allegedly
fraudulent merchants, including short-term lenders that operate
from offshore.
A federal judge approved the settlement in April.
Zions Bancorp., a regional lender based in Salt Lake City, has
said in regulatory filings it faces an investigation by the Justice
Department related to payment processing for allegedly fraudulent
telemarketers and other customers. The bank said in a May filing
that the investigation is ongoing.
PNC Financial Services Group Inc. in February disclosed it had
received a subpoena from the Justice Department seeking information
about its payment-processing customers and whether the bank may
have facilitated fraud, PNC said in a filing, adding it was
cooperating with the subpoena.
Emily Pierce, a Justice Department spokeswoman, said banks are
breaking U.S. law if they knowingly process illegal transactions or
are "willfully ignorant" of fraud. "We only investigate banks and
third-party payment processors that violate federal law, and these
documents suggest nothing to the contrary," she said.
Lisa McGreevy, chief executive of the Online Lenders Alliance,
which represents many short-term lenders that operate on the
Internet, said the documents confirm the government has been
"engaged in a coordinated effort to eliminate the online lending
industry and choke off consumer access to the short-term credit
millions of Americans need."
Write to Alan Zibel at a lan.zibel@wsj.com and Andrew R. Johnson
at Andrewr.johnson@wsj.com
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