The U.S. Justice Department this week ramped up its so-called “Operation Choke Point,” settling with two banks for unlawfully working with fraudsters.
The department on Tuesday said that it agreed to a $4.9 million settlement with CommerceWest Bank of Irvine, Calif., after filing both (1) a criminal lawsuit charging the bank for Bank Secrecy Act violations in connection with the bank’s relationship with a third-party payment processor and (2) a civil lawsuit for knowingly facilitating consumer fraud by permitting the payment processor to make millions of dollars of unauthorized withdrawals from consumer bank accounts on behalf of fraudulent merchants.
In addition to the monetary settlement, CommerceWest Bank also agreed to a deferred prosecution agreement and a permanent injunction that reforms the bank’s practices to prevent such fraud in the future.
“CommerceWest Bank ignored a parade of red flags indicating that a third-party payment processor was defrauding hundreds of thousands of innocent victims,” Acting Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division said in a press release announcing the settlement.
On Thursday, the department said that it had reached a third settlement in its Operation Choke Point program, with Plaza Bank, also of Irvine. Plaza Bank agreed to pay $1.225 million for knowingly facilitating consumer fraud by permitting a third-party payment processor to make millions of dollars of unauthorized withdrawals from consumer bank accounts on behalf of fraudulent merchants.
Plaza Bank also agreed to enter into a permanent injunction that reforms the bank’s practices to prevent such fraud in the future.
“Today’s complaint alleges that, in exchange for fee income, the bank ignored its responsibilities and looked the other way while a third-party payment processor and its merchants defrauded unsuspecting victims of millions of dollars,” Mizer said in the press release announcing the settlement.
An American Banker article Thursday that this week’s settlements marked a “sharp uptick in activity” for the agency under Operation Choke Point, after announcing its first deal with Four Oaks Bank in January 2014.
“The law enforcement initiative, which targets banks working with fraudsters, has faced strong pushback in recent months from Congress and the financial services industry” the American Banker wrote. “Critics argue the program is chilling activity with lawful businesses and warn that it’s a backdoor strategy for government to go after legitimate but controversial industries, like payday lenders and gun dealers.”
However, supporters contend that the Justice Department has only brought cases on banks that it alleged was “willingly doing business with fraudulent companies or actively ignoring the fact,” the newspaper wrote.