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THE DEPARTMENT OF JUSTICE’S 

‘‘OPERATION CHOKE POINT’’ 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT 

AND INVESTIGATIONS 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

JULY 15, 2014 

Printed for the use of the Committee on Financial Services 

Serial No. 113–90 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

GARY G. MILLER, California, Vice Chairman 

SPENCER BACHUS, Alabama, Chairman 

Emeritus 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

TOM COTTON, Arkansas 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

STEVEN HORSFORD, Nevada 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

PATRICK T. MCHENRY, North Carolina, Chairman 

MICHAEL G. FITZPATRICK, Pennsylvania, 

Vice Chairman 

SPENCER BACHUS, Alabama 

PETER T. KING, New York 

MICHELE BACHMANN, Minnesota 

SEAN P. DUFFY, Wisconsin 

STEPHEN LEE FINCHER, Tennessee 

RANDY HULTGREN, Illinois 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

AL GREEN, Texas, Ranking Member 

EMANUEL CLEAVER, Missouri 

KEITH ELLISON, Minnesota 

CAROLYN B. MALONEY, New York 

JOHN K. DELANEY, Maryland 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

DANIEL T. KILDEE, Michigan 

STEVEN HORSFORD, Nevada 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

July 15, 2014 ..................................................................................................... 1 

Appendix: 

July 15, 2014 ..................................................................................................... 37 

WITNESSES 

TUESDAY, JULY 15, 2014 

Alvarez, Scott G., General Counsel, Board of Governors of the Federal Reserve System ......................................................................................................... 8 

Delery, Hon. Stuart F., Assistant Attorney General, Civil Division, U.S. Department of Justice .............................................................................................. 6 

Osterman, Richard J., Jr., Acting General Counsel, Federal Deposit Insurance 

Corporation ........................................................................................................... 10 

Stipano, Daniel P., Deputy Chief Counsel, Office of the Comptroller of the 

Currency ............................................................................................................... 12 

APPENDIX 

Prepared statements: 

Alvarez, Scott G. ............................................................................................... 38 

Delery, Hon. Stuart F. ..................................................................................... 45 

Osterman, Richard J., Jr. ................................................................................ 51 

Stipano, Daniel P. ............................................................................................. 60 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Capito, Hon. Shelley Moore: 

Written statement of the Third Party Payment Processors Association 

(TPPPA) ......................................................................................................... 68 

Green, Hon. Al: 

USA TODAY article entitled, ‘‘Pots of marijuana cash cause security 

concerns,’’ dated July 13, 2014 .................................................................... 77 

Luetkemeyer, Hon. Blaine: 

Written responses to questions for the record from Hon. Stuart Delery ..... 80 

Written responses to questions for the record from Richard J. Osterman, 

Jr. ................................................................................................................... 82 

Maloney, Hon. Carolyn: 

Written responses to questions for the record from Scott G. Alvarez .......... 85 

(1) 

THE DEPARTMENT OF JUSTICE’S 

‘‘OPERATION CHOKE POINT’’ 

Tuesday, July 15, 2014 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:03 a.m., in room 

2128, Rayburn House Office Building, Hon. Patrick McHenry 

[chairman of the subcommittee] presiding. 

Members present: Representatives McHenry, Fitzpatrick, Bachmann, Duffy, Fincher, Wagner, Barr; Green, Cleaver, Maloney, 

Delaney, Beatty, Heck, and Kildee. 

Ex officio present: Representatives Hensarling and Waters. 

Also present: Representatives Garrett and Luetkemeyer. 

Chairman MCHENRY. The Subcommittee on Oversight and Investigations will come to order. 

Without objection, the Chair is authorized to declare a recess of 

the subcommittee at any time. Also, without objection, members of 

the full Financial Services Committee who are not members of the 

Oversight and Investigations Subcommittee may participate in today’s hearing for the purpose of making an opening statement and 

questioning the witnesses. 

The title of today’s subcommittee hearing is, ‘‘The Department of 

Justice’s ‘Operation Choke Point’.’’ The Chair now recognizes himself for 5 minutes. 

In the spring of 2013, the Department of Justice launched what 

is known as ‘‘Operation Choke Point,’’ representing an expansive 

investigation of banks and payment processors with the objective 

of combating consumer fraud by choking out fraudsters’ access to 

payment systems. 

This committee values the Department’s procedural methods of 

proficiency, identifying and prosecuting fraudsters. And it appreciates its effect on our economic prosperity, as well. 

However, equally important to the Federal prosecution of alleged 

fraudsters are lawful methods by which the government and regulators identify and investigate those in question. 

For any division of government to seemingly circumvent lawful, 

judicious means of conducting Federal investigations, it not only 

subjects itself to rigorous congressional oversight, but it also betrays those whom it seeks to protect. And that is the American people. 

2 

Directly contacted from enterprises and individuals, Congress 

has learned that after ‘‘Operation Choke Point’s’’ onset, various 

lawful businesses were identified, and were notified that their bank 

accounts were being terminated. 

When these legitimate enterprises inquired about this sudden 

termination of their accounts, their banks expressed that it was a 

result of ‘‘regulatory trends’’ or ‘‘heightened scrutiny,’’ and explicitly denied any negative review of the account holder’s financial 

risk. 

Upon receiving copies of account termination letters from targeted merchants, Members of Congress questioned why banks had 

unexplainably used the cliched teenage break-up excuse, ‘‘It’s not 

you, it’s me.’’ 

In the last year, to comprehend how ‘‘Operation Choke Point’s’’ 

targets were identified and how banks were getting mixed up, 

members of this Committee and of the Oversight and Government 

Reform Committee here in the House have written letters to regulators and requested documents from the Department of Justice. 

From the committee’s experience, the Department of Justice initially attempted to block congressional oversight and investigations 

of ‘‘Operation Choke Point.’’ But the DOJ has since provided 854 

pages of internal memoranda, e-mail communications, and presentations that have provided some detail of its investigation. 

The initial findings are quite disturbing. Rather than directly investigate merchants for fraudulent activities, the Department of 

Justice subpoenaed banks and payment processors of targeted merchants to effectively compel them to choke off businesses from accessing the banking system. 

Consequently it seems that ‘‘Operation Choke Point’’ may have 

led to banks terminating their relationship with unjustifiably 

named, ‘‘high-risk’’ merchants out of fear of civil and criminal liability from the Department and other financial regulators, as well. 

Equally as troubling, ‘‘Operation Choke Point’s’’ regulatory approach of employing an axe rather than a scalpel and informal operations suggests it, as another iteration of this Administration’s 

game plan to circumvent the rule of law and Congress to achieve 

ideological objectives. 

Even worse, the Department of Justice and the FDIC have 

blocked the committee from meaningfully understanding ‘‘Operation Choke Point’’ by failing to provide details about the program, 

and financial regulators have even misled this committee as to the 

breadth of their cooperation when engaging with banks. 

Even with this much established, the irony is that the full role 

of financial regulators in ‘‘Operation Choke Point’’ remains a mystery. That is why we had this hearing today. 

But then again, what a congressional inquiry has made clear is 

that this Administration and financial regulators have raised serious concerns of collaborated effort to facilitate an ideological crusade against industries profiled by the government through their 

abusive threat of launching Federal investigations. 

This is not the intent of the rule of law in our system. 

The Department of Justice may have originally advertised ‘‘Operation Choke Point’’ as an honorable, authentic investigation to combat consumer fraud. 

3 

Yet, unfortunately, congressional investigations have begun to 

uncover the questionable legal authority of ‘‘Operation Choke 

Point’’ inappropriately compelling banks to serve as the moral compass and law enforcement for our market economy. 

This raises serious questions about the motives of and threats 

issued by the Department of Justice and financial regulators. 

It is my hope that today’s witnesses will assist this committee in 

better understanding the truth of ‘‘Operation Choke Point’’ by revealing the demonstrated actions of the Department of Justice and 

the FDIC to determine whether lawful businesses were indeed victims of an objectionable government operation. 

I will now recognize the ranking member of the subcommittee, 

the gentleman from Texas, Mr. Green, for his opening statement. 

Mr. GREEN. Thank you, Mr. Chairman. 

I thank the staff for the outstanding job it has done in providing 

us with intelligence. I would like to also thank the witnesses for 

appearing today. 

Mr. Chairman, we live in a world where financial and technological innovations present greater access and convenience for the 

American consumer. Unfortunately, this also provides the doer of 

fraudulent deeds greater opportunities to perpetrate crimes on consumers. 

In 2013, the Automated Clearing House processed approximately 

22 billion transactions worth about $37.8 trillion. 

As innovative technologies evolve to benefit consumers, innovative methodologies must also evolve to protect consumers. Fraud 

detection and prevention methodologies are good for both consumers and businesses. Undetected fraud can bankrupt a consumer 

and put a business out of business. 

Today, we will examine the relationship between banks, their 

business associates known as processors, and the consumers. And 

in so doing, I think it appropriate to use at least one very elementary example so as to give some clarity to persons who may be 

watching who are not familiar with this process. 

Typically, with a simple example, we would find that a person 

sitting at home is approached by a business that would like to have 

that person make a purchase. Let’s assume that this is a telemarketer. This telemarketer will present the consumer with a 

product. 

If the consumer makes a purchase, that purchase is handled by 

a processor. A processor would be the company that works with the 

telemarketer. The processor receives the payment. The processor 

will then take the payment and deposit it in a bank. That bank 

then becomes the means by which the payments are paid to the 

telemarketer. 

And once these payments are made, let’s assume that the consumer concludes that there has been an overcharge. A chargeback 

can occur. The chargeback is called to the attention of the bank. 

The consumer gets redress. 

The question becomes this: Is a bank required, or should a bank 

be required, to keep a record of chargebacks? And if the record of 

chargebacks is maintained, would one incident of a chargeback indicate anything more than a mistake? But if 10,000 chargebacks 

4 

occur, would that indicate activity? And if activity occurs, should 

activity be investigated? 

And if activity is investigated and is found to be fraudulent, 

should the bank have some responsibility if it knew that the activity was occurring but did nothing? 

There are serious questions to be answered. I believe we have capable, competent, qualified witnesses here today who can help us 

answer these questions. The question also occurs as to whether or 

not a bank has a duty to perform due diligence as it relates to the 

business associates it has who are doing business with other businesses. 

And if it does have the requirement to perform due diligence, can 

that due diligence be outsourced to a processor who does business 

with a telemarketer? And if it is outsourced, are there consequences associated with it? What level of due diligence must the 

processor employ? Does it have the same level of due diligence 

placed upon it as the banks? And can a lack of due diligence by 

a processor in some way impact the liability of the bank with which 

it is doing business? 

We really should take a close look at these questions, and we 

really should examine the difference between an incident and 

criminal activity. One occurrence, an incident; thousands of occurrences can be concluded to be activity. Should activity be investigated? And if so, should the banks provide intelligence such that 

the activity can be appropriately investigated? 

Mr. Chairman, I look forward to hearing the answers to these 

and many other questions from the witnesses that we have today. 

And I will yield back the balance of my time. 

Chairman MCHENRY. We will now recognize the gentleman from 

Missouri, Mr. Luetkemeyer, for 2 minutes. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman, for allowing me to 

participate today. 

‘‘Operation Choke Point’’ takes a new approach to banking supervision. If you don’t like a given industry, bend your authorities and 

force that industry out of the financial services space, making it 

impossible for it to survive. 

How does it work? DOJ staff who conceived of ‘‘Operation Choke 

Point’’ summed it up in a November 5, 2012, memo to Mr. Delery: 

‘‘Banks are sensitive to the risk of civil and/or criminal liability and 

regulatory action.’’ In other words, DOJ can intimidate banks into 

doing what it wants by threatening them with subpoenas including 

with the regulators. 

Since last August, I have met with some of our regulators and 

even one of the witnesses on today’s panel. In each of those meetings, the regulators agreed that casting a wide net and targeting 

legal industries is inappropriate. But despite that sentiment, ‘‘Operation Choke Point’’ continues. 

I am troubled that requests I have made for cooperation over the 

past year have fallen on deaf ears. To that end, I have taken the 

step of trying to solve the problem by offering a bill, the ‘‘End Operation Choke Point Act,’’ under which financial institutions will be 

granted the safe harbor necessary to serve legally operating customers—key words: legally operating customers. 

5 

Equally important, legislation will ensure that DOJ will not be 

able to act unilaterally in a broad-brush approach in attacking 

legal industries. 

Mr. Chairman, I look forward to the discussion on what I find 

to be an indefensible and irresponsible approach to regulation. 

I yield back. 

Chairman MCHENRY. We will now recognize the gentlelady from 

Ohio, Mrs. Beatty, for 2 minutes. 

Mrs. BEATTY. Thank you, Mr. Chairman, and Mr. Ranking Member. And thank you to our witnesses today. You have already heard 

definitions of ‘‘choke point.’’ We have actually heard some ‘‘thank 

you’s’’ to the Department. And then, we have heard the axe versus 

the scalpel. 

Today, we look forward to hearing from you. And Mr. Chairman, 

I think this hearing is quite timely. We also know that we are on 

a parallel track with the House Judiciary Committee, which is also 

looking at this. While ‘‘Operation Choke Point’’ is a fairly recent 

undertaking, as you have heard, by the DOJ, designed to root out 

consumer fraud from the United States fiscal markets. 

I think today in hearing from you, we need to determine, if we 

go back in history to when we heard we were ‘‘too-big-to-jail,’’ if we 

should have done more to prosecute. And now we are hearing Administration or Department objectives are too over-zealous. 

So, here is where I am in my opening remarks. Each year, consumers, banks, merchants and third-party payment processors conduct trillions of dollars of legitimate electronic transactions in a 

safe and efficient manner, maybe because oftentimes the DOJ has 

applied the scalpel to make sure that things are tweaked so we are 

able to protect our consumers. 

Now, where I agree with the Act is that there are bad actors and 

they persist today. Unlicensed lenders make loans that violate 

State usury laws, or out-of-the-country Web sites may conduct unlawful online gambling rackets, just as an example. When banks or 

third-party payment processors facilitate automatic consumer bank 

withdrawals that enable unlawful activity to occur, it has a devastating impact on the lives of those consumers, our communities. 

And it also affects the good actors. 

This hearing is supposed to evaluate ‘‘Operation Choke Point’’ 

with an eye towards ensuring that businesses operate lawfully and 

are not denied access to banking services. 

Thank you, Mr. Chairman. 

Chairman MCHENRY. We will now recognize our witnesses. Our 

first witness is Mr. Stuart Delery, who is the Assistant Attorney 

General for the Civil Division at the U.S. Department of Justice. 

He was sworn in as Assistant Attorney General on August 5, 2013. 

He has led the Division since March of 2012. As the Assistant Attorney General, Mr. Delery oversees the largest litigating division 

in the Department of Justice. 

Mr. Delery joined the Department of Justice in January of 2009 

as Chief of Staff and Counselor to the Deputy Assistant Attorney 

General. He later served as an Associate Deputy Attorney General. 

And prior to that, he served as Senior Counselor to the Attorney 

General. 

6 

Mr. Delery graduated from Yale Law School and the University 

of Virginia. 

Our second witness is Mr. Richard Osterman, who is currently 

serving as the Acting General Counsel to the Federal Deposit Insurance Corporation. Mr. Osterman is the Deputy General Counsel 

for Litigation Resolution Branches in the Legal Division of the 

FDIC. The branch provides litigation counsel for the FDIC and 

comprehensive legal support for the FDIC’s resolution receivership 

functions. 

Mr. Osterman has served as Assistant General Counsel for the 

General Litigation Section, which includes appellate litigation and 

so on and so forth. And prior to that time, he was Assistant General Counsel for the receivership operations and the litigation sections, which, as we know, were very busy during that era. 

He has a B.A. from Swarthmore College and a J.D. from the University of Baltimore School of Law. 

Out third witness is Mr. Daniel Stipano, who is the Deputy Chief 

Counsel in the Office of the Comptroller of the Currency. He served 

as Acting Chief Counsel from October 2004 to August 2005. As 

Deputy Chief Counsel, Mr. Stipano supervises the OCC’s enforcement, compliance, litigation, community and consumer law and administrative and internal law divisions. He also supervises the 

OCC district council staffs in the OCC’s southern and western districts. Quite a busy portfolio he has. 

Mr. Stipano received his J.D. from the Marshall-Wythe School of 

Law at the College of William and Mary in 1983. He also received 

a B.A. degree from Union College in 1980. 

And finally, Mr. Scott Alvarez is the General Counsel for the 

Board of Governors of the Federal Reserve System. Mr. Alvarez 

joined the Board in 1981 as a Staff Attorney and became a Senior 

Attorney in 1985. In 1989, Mr. Alvarez was then appointed to the 

Board’s official staff as the Assistant General Counsel and was 

named Associate General Counsel in 1991, and then became General Counsel in 2004. 

He has had quite a distinguished career at the Fed and he has 

worked with Board members and senior staff to develop policies 

and legal positions on domestic banking issues. He has been responsible for legal analysis relating to bank acquisitions and mergers. 

He earned a B.A. in economics from Princeton University in 1977 

and a J.D. from Georgetown University of Law Center in 1981. 

Thank you for coming back before our subcommittee. You all are 

familiar with the lighting system. Green means go. Yellow means 

hurry up. Red means stop. You will have 5 minutes to summarize 

your opening statements. I would just counsel you that these 

microphones are very directionally sensitive. They are the best of 

modern technology from 2 decades ago, so please use them appropriately and bring them very close to your face and mouth. 

And we will now recognize Mr. Delery for 5 minutes. 

STATEMENT OF THE HONORABLE STUART F. DELERY, ASSISTANT ATTORNEY GENERAL, CIVIL DIVISION, U.S. DEPARTMENT OF JUSTICE 

Mr. DELERY. Thank you, Mr. Chairman. 

7 

Chairman McHenry, Ranking Member Green, and members of 

the subcommittee, thank you for inviting me here today. And thank 

you for providing me and the Department the opportunity to describe our work that is designed to protect consumers from fraud 

perpetrated by certain merchants, third-party payment processors, 

and banks. 

The Justice Department has made it a priority to fight consumer 

fraud of all kinds. Fraud against consumers comes in many forms, 

from telemarketing fraud to mortgage fraud, from lottery scams to 

predatory and deceptive online lending, and often strips our most 

vulnerable citizens of their savings and even their homes. 

The Civil Division’s Consumer Protection Branch, along with the 

Criminal Division and the United States Attorneys’ offices across 

the country, has worked for decades to protect the health, safety, 

and economic security of the American consumer. Based on its 

years of experience in combating fraudulent merchants and by following the flow of money from fraudulent transactions, the Department has learned that some third-party payment processors, which 

are intermediaries between banks and merchants, know that their 

merchant clients are engaged in fraud, and yet continue to process 

their transactions in violation of Federal law. 

Further, our experience in these cases has been that some banks, 

in violation of the law, either know about the fraud that they are 

facilitating or are consciously choosing to look the other way. As a 

result, in November 2012 our attorneys proposed a concentrated effort to pursue the fraud committed by the banks in paying the 

processors as a complement to the other consumer protection work 

that we are doing. 

This strategy aims both to hold accountable those banks and 

processors that violate the law and to prevent access to the banking system by fraudulent merchants. This effort is sometimes referenced as ‘‘Operation Choke Point.’’ One of our investigations has 

now been resolved and provides a useful example of our work in 

this area. 

In April, a Federal district court in North Carolina entered a consent order and approved a settlement agreed to by the Department 

and Four Oaks Bank. According to our complaint, Four Oaks allowed a third-party payment processor to facilitate payments for 

fraudulent merchants despite active and specific notice of fraud. 

For example, Four Oaks received hundreds of notices from consumers’ banks, including statements by accountholders, under penalty of perjury, that the people whose accounts were being charged 

had not authorized the debits from their accounts. 

Four Oaks had evidence that more than a dozen merchants 

served by the payment processor had a return rate over 30 percent—a strong sign that the bank was facilitating repeated fraudulent withdrawals. Indeed, one merchant had a return rate over 70 

percent. Four Oaks also had evidence of efforts by merchants to 

conceal their true identities. 

So according to our complaint, despite these and many other signals of fraud, Four Oaks permitted the third-party payment processor to originate approximately $2.4 billion in debit transactions 

against consumers’ bank accounts. As the Four Oaks bank case 

demonstrates, the Department’s policy is to base its investigations 

8 

on specific evidence of unlawful conduct. Nevertheless, in recent 

months we have become aware of reports suggesting that these efforts instead represent an attack on businesses engaged in lawful 

activity. 

And I thank you for the opportunity to clear up this misconception. Our policy is to investigate specific unlawful conduct, based 

on evidence that consumers are being defrauded, not to target 

whole industries or businesses acting lawfully, and to follow the 

facts wherever they lead us, in accordance with the law, regardless 

of the type of business involved. 

Now, as with virtually all of our law enforcement work that 

touches on regulated industries, our work in this area includes 

communication with relevant regulatory agencies. Such communication is designed to ensure that we understand the industry at 

issue and that we have all the information we need to evaluate enforcement options in light of the evidence we uncover. 

That is nothing new. And for many years, banking regulators 

have warned banks about the heightened risk to consumers associated with third-party payment processors. In some of that guidance, the FDIC has explained that although many clients of payment processors are reputable merchants, an increasing number 

are not, and should be considered high risk. The FDIC has provided examples of high-risk merchants for purposes relevant to its 

regulatory mission. 

The Department’s mission, however, is to fight fraud. And we 

recognize that an entity that is simply doing business with a merchant considered high risk is not fraud. So in summary, our efforts 

to protect consumers by pursuing fraudulent bank activity are not 

focused on financial institutions that merely fail to live up to their 

regulatory obligations or that unwittingly process a transaction for 

a fraudulent merchant. 

But when a bank knows or it is willfully ignorant to the fact that 

law-breaking merchants are taking money out of consumers’ accounts, we will take action. So thank you, once again, and I look 

forward to answering the questions that you and the members of 

the subcommittee may have. 

[The prepared statement of Mr. Delery can be found on page 45 

of the appendix.] 

Chairman MCHENRY. Mr. Alvarez, you are recognized for 5 minutes. 

STATEMENT OF SCOTT G. ALVAREZ, GENERAL COUNSEL, 

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

Mr. ALVAREZ. Chairman McHenry, Ranking Member Green, and 

members of the subcommittee, thank you for the opportunity to testify about the Federal Reserve’s supervisory activities relating to 

banking organizations and their account relationships. 

The Federal Reserve believes it is important that banking organizations provide services to consumers and businesses whose activities comply with applicable law. It is equally important that 

banks do not facilitate or participate in the illegal activity. 

To this end, Congress, through the Bank Secrecy Act (BSA), requires banking organizations to establish and maintain programs 

designed to detect when services provided by the organization are 

9 

being used for illegal purposes. Under the BSA, Federal Reserveregulated institutions, like other depository institutions, must have 

an effective program for knowing and performing due diligence on 

their customers. 

Importantly, banking organizations must identify and report 

known or suspected violations of the BSA and other Federal laws, 

including reporting suspicious transactions related to money laundering activity. Criminal prosecutors at the Department of Justice 

and other law enforcement officials have direct access to the database that holds these suspicious activity reports and use this information to initiate investigations. 

The Federal Reserve and the other Federal banking agencies 

have published an examination manual intended to provide practical and flexible guidance to examiners and banking organizations 

regarding acceptable customer due diligence and risk mitigation 

practices as part of an effective BSA program. 

Banking organizations are expected to have a risk assessment 

program that takes a number of factors into account in the review 

of customer relationships, including the standards the organization 

has in place to ensure compliance with applicable law, and the relationship that the customer seeks with the banking organization. 

The purpose of these policies is to ensure that banking organizations provide services to law-abiding customers. The decision to establish, limit or terminate a particular customer relationship is a 

decision for the banking organization. It is not the Board’s policy 

to discourage banking organizations from offering services to any 

class of law-biding financial services customers. 

Many of the questions that have arisen with respect to the customer due diligence expectations of the Federal banking agencies 

relate to the involvement of non-banks as intermediaries or providers of financial services, including money services businesses 

(MSBs) and third-party payment processors. Money services businesses provide financial services such as check cashing, money remittance, and similar payment services. Some MSBs include large, 

globally active companies, while others are small businesses such 

as gas stations and convenience stores offering financial products 

and services. 

By comparison, third-party payment processors are the bank customers who provide payment processing services to merchants and 

other entities, such as telemarketers and online businesses. Both 

MSBs and TPPPs engage in transactions with individuals and companies who are not direct customers of the bank. The Federal Reserve follows an interagency examination manual and guidance 

issued in 2005 by the Federal Banking agencies and the Treasury’s 

Financial Crimes Enforcement Network (FinCEN), governing account relationships with MSBs. That guidance confirms that banking organizations may provide banking services to MSBs that operate lawfully. 

The Federal Reserve also follows the interagency examination 

manual and related guidance issued by FinCEN when evaluating 

the procedures banking organizations use to manage account relationships with third-party payment processors. The objective of this 

guidance and the Federal Reserve supervisory activities is to direct 

banking organizations to take appropriate steps to offer their servVerDate Nov 24 2008 18:15 Mar 04, 2015 Jkt 091154 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\91154.TXT TERRI
10 

ices to legitimate and law-abiding customers and to minimize the 

risk of facilitating money laundering, terrorist financing or other illicit activity. 

Finally, ‘‘Operation Choke Point’’ is an initiative of the Department of Justice. The Department of Justice has the sole authority 

to indict or seek criminal fines or other sanctions and to criminally 

prosecute individuals or businesses for their actions. 

As we have testified previously, the Federal Reserve cooperates 

with the other agencies in various enforcement actions, including 

by providing information in response to subpoenas and other requests issued by the Department of Justice and the other Federal 

law enforcement authorities. 

Thank you for the opportunity to present the Federal Reserve’s 

view on these important issues, and I am pleased to answer any 

questions you may have. 

[The prepared statement of Mr. Alvarez can be found on page 38 

of the appendix.] 

Chairman MCHENRY. Mr. Osterman, you are recognized for 5 

minutes. 

STATEMENT OF RICHARD J. OSTERMAN, JR., ACTING GENERAL COUNSEL, FEDERAL DEPOSIT INSURANCE CORPORATION 

Mr. OSTERMAN. Good morning, Chairman McHenry, Ranking 

Member Green, and members of the subcommittee. I appreciate the 

opportunity to testify today on behalf of the Federal Deposit Insurance Corporation (FDIC) on the FDIC’s supervisory approach regarding insured institutions establishing account relationships with 

third-party payment processors. 

I also will discuss the FDIC’s interaction with the Department of 

Justice’s consumer fraud initiative, ‘‘Operation Choke Point.’’ As 

the primary Federal regulator of State-chartered financial institutions that are not members of the Federal Reserve System, the 

FDIC is responsible for supervising these institutions for adherence 

with safety-and-soundness standards, information-technology requirements, the Bank Secrecy Act, other anti-money-laundering 

laws, and consumer protection laws. 

The USA PATRIOT Act, enacted in 2001, added new due-diligence requirements for banks under the Bank Secrecy Act, including requiring banks to establish and maintain a customer identification program. The purpose of the program is to enable banks 

to form a reasonable belief that they know the true identity of each 

customer. 

In its most basic form, knowing one’s customer serves to protect 

banks from the potential liability and risk of providing financial 

services to an unscrupulous customer, and also to help protect the 

general public against illegal activity, including terrorist financing 

and money laundering, since banks are a common gateway to the 

financial system. 

The vast majority of transactions passing through financial institutions and payment processors are legitimate, and initiated by 

reputable merchants. However, certain kinds of business transactions or geographic locations may pose greater risk for suspicious 

or illegal activity. 

11 

Where transactions from a customer or merchant client of a 

bank’s third-party, payment-processor customer are not legitimate, 

there is a real risk for the bank, because it can be held legally responsible for facilitating those activities and transactions. Harm to 

the bank can range from operating losses attributable to unanticipated consumer reimbursements, to civil or criminal actions for facilitation of violations of law. 

As challenging as it can be for financial institutions to understand the risks involved in activities of a direct customer, the difficulty is magnified when the activities involve third parties. Thirdparty payment processors may have relationships with numerous 

merchant clients for which they initiate transactions. 

As the financial services market has become more complex, the 

Federal banking agencies—the Federal Financial Institutions Examination Council (FFIEC) and the Financial Crimes Enforcement 

Network (FinCEN)—have issued additional guidance on several occasions alerting financial institutions to emerging risks, and suggesting mitigation techniques. Most recently, in September of last 

year, the FDIC issued guidance that clarifies and reminds institutions of the agency’s policy on supervisory approach. 

It states that financial institutions that properly manage relationships, and effectively mitigate risks, are neither prohibited nor 

discouraged from providing payment-processing services to customers, regardless of the customers’ business models, provided they 

are operating in compliance with applicable State and Federal law. 

The FDIC re-emphasizes policy to address any confusion that 

may have existed about our supervisory approach. We have reiterated this policy to our bank supervision managers and examiners 

to ensure that they are following this policy. 

In early 2013, the FDIC became aware that DOJ was conducting 

an investigation into the use of banks and third-party payment 

processors to facilitate illegal and fraudulent activities. The FDIC 

has a responsibility to consider the potential risks such activities 

could pose for safety and soundness of our institutions. 

We frequently coordinate with other agencies in supervision of 

our institutions. Accordingly, FDIC staff communicated and cooperated with DOJ staff involved in ‘‘Operation Choke Point’’ based on 

an interest in DOJ’s investigation into potential illegal activity that 

may involve FDIC-supervised institutions. FDIC attorneys were 

performing their duties as lawyers for the agency in furtherance of 

the FDIC’s mission. 

In conclusion, our supervisory approach focuses on assessing 

whether financial institutions are adequately overseeing activities 

and transactions they process, and appropriately managing and 

mitigating risks. We are not focused on particular businesses. 

Each bank must decide the persons and entities with which it 

wants to have a customer or business relationship. Financial institutions that properly manage customer relationships, and effectively mitigate risks, are neither prohibited nor discouraged from 

providing payment-processor services to customers, regardless of 

the customers’ business models, provided they are operating in 

compliance with applicable laws. 

Thank you, and I am happy to respond to the subcommittee’s 

questions. Thank you. 

12 

[The prepared statement of Mr. Osterman can be found on page 

51 of the appendix.] 

Chairman MCHENRY. And finally, Mr. Stipano. 

STATEMENT OF DANIEL P. STIPANO, DEPUTY CHIEF 

COUNSEL, OFFICE OF THE COMPTROLLER OF THE CURRENCY 

Mr. STIPANO. Chairman McHenry, Ranking Member Green, and 

members of the subcommittee, thank you for the opportunity to appear before you today as the subcommittee reviews the Department 

of Justice’s ‘‘Operation Choke Point’’ investigation. 

I have spent over 20 years working on Bank Secrecy Act and 

anti-money-laundering issues, and have witnessed many cases 

where banks have been used, wittingly or unwittingly, as vehicles 

for fraud, money laundering, terrorist financing, and other illicit 

activities. 

Ensuring that banks have strong systems and controls in place 

to deter these abuses is an important objective of the Office of the 

Comptroller of the Currency’s (OCC’s) supervision. The OCC is not 

part of ‘‘Operation Choke Point,’’ so my testimony today will focus 

on the OCC’s supervisory policies and actions. 

However, it is our policy to cooperate with law enforcement investigations. And the OCC routinely receives and processes requests for information from law enforcement agencies. Some of the 

official requests for information we received from DOJ during 2013 

were related to ‘‘Operation Choke Point.’’ 

As the subcommittee is aware, the OCC’s primary mission is to 

charter, regulate, and supervise national banks, Federal savings 

associations, and the Federal branches and agencies of foreign 

banks. In carrying out this mission, the OCC requires banks to appropriately manage their risks, meet the needs of their communities, comply with laws and regulations, and provide fair access to 

financial services and fair treatment to customers. 

The safety and soundness of an institution, indeed its very viability, can be threatened when a bank lacks appropriate risk management systems and controls. I have seen firsthand the serious consequences for a bank when these controls are missing. 

A 2008 OCC enforcement action against Wachovia Bank illustrates this point. Wachovia failed to properly oversee activity in its 

third-party payment-processor accounts, and ignored significant red 

flags indicating consumer harm. 

Telemarketing customers of the payment processors deliberately 

targeted vulnerable populations, such as the elderly, for the sale of 

products of dubious or no value. The telemarketers used high-pressure sales calls to convince these consumers to provide their personal checking-account information. 

Payment processors then used consumers’ account information to 

create checks that were deposited into the payment processors’ accounts at the bank. The bank received hundreds of complaints, and 

hundreds of thousands of the checks created by the payment processors were returned. 

Despite these red flags and clear knowledge that consumers were 

being harmed, the bank failed to properly address the situation. As 

a result of these failures, the OCC cited the bank for unsafe or unsound practices, and unfair practices in violation of the Federal 

13 

Trade Commission (FTC) Act, and required it to pay approximately 

$144 million in fines, restitution to consumers, and other relief. 

The OCC did not, however, require the bank to cease doing business with any third-party payment processors or telemarketers. 

Rather, the OCC’s action was focused on requiring the bank to remediate specific consumer harm, and to establish enhanced riskmanagement policies in order to mitigate the risk of future harm 

to consumers. 

Currently, there is great concern that banks are terminating the 

accounts of entire categories of customers. And some have suggested that regulators are dictating these actions. As a general 

matter, the OCC does not direct banks to open, close, or maintain 

individual accounts, or recommend or encourage banks to engage 

in the wholesale termination of categories of customer accounts. 

In rare cases where the bank cannot properly manage the risk 

presented by a customer, or a customer has engaged in suspected 

criminal or other illegal activity, we may order the bank, through 

an enforcement action, to terminate the customer’s account. We expect banks to assess the risks posed by individual customers on a 

case-by-case basis, and to implement appropriate controls to manage their relationships. 

We recognize that the controls banks put in place to manage 

their risks are matters of banker and supervisory judgment. If the 

bar is set too high, it can cause banks to terminate accounts of legitimate businesses. However, if the bar is set too low, the consequences can be dire, allowing the bank to be used to facilitate 

criminal and other forms of misconduct. 

At the OCC, we strive to take a supervisory approach that is reasonable, balanced, and fair, and results in systems and controls 

that are effective in deterring the use of our Nation’s financial institutions for illicit purposes. 

Thank you, again, for the opportunity to appear before the subcommittee today, and I will be happy to answer your questions. 

[The prepared statement of Mr. Stipano can be found on page 60 

of the appendix.] 

Chairman MCHENRY. I thank the panel, and I will begin with a 

slide on the screen, if you will all take a look at it as I give you 

some context. This PowerPoint slide was presented at a September 

2013 conference by financial regulators in the Department of Justice for third-party payment processors. 

As you can see, this list includes: ‘‘High Risk Merchants/Activities.’’ Included on that are: ‘‘Firearm Sales, Ammunition Sales, and 

other lines of business.’’ 

In essence, this is a government hit list of industries telling 

banks to sever ties with these merchants from these industries. So, 

who created this list? That is what I would like to ask the panel. 

Mr. Delery, did the Department of Justice create this list? 

Mr. DELERY. Mr. Chairman, no. This is not a DOJ list. 

Chairman MCHENRY. Okay. Mr. Osterman, did the FDIC create 

this list? 

Mr. OSTERMAN. Chairman McHenry, the list was—actually, it 

first came up in the context of a Supervisory Insights Journal article that was written, I believe, back in 2011. 

14 

Chairman MCHENRY. Did the FDIC create this slide for the 2013 

Third-Party Payment Processors Relationships Conference? 

Mr. OSTERMAN. I think that slide would have been on the—I believe it was a slide that was used during the conference by an 

FDIC individual. 

Chairman MCHENRY. Okay. By the FDIC, okay. So to that end, 

why did the FDIC pick out these particular industries for banks to 

consider as high risk? 

Mr. OSTERMAN. It is interesting, because as I said— 

Chairman MCHENRY. It is interesting, but please tell me why. 

Mr. OSTERMAN. Sure. So actually, it is drawn from the industry 

itself. We were asked to provide examples of high-risk activities, 

merchant categories associated with high-risk activities, so banks 

and institutions could know where they needed to heighten due 

diligence. 

And it is really drawing from situations where you are dealing 

with highly regulated entities where certain things may be legal in 

some States and not legal in others. Or where some things are prohibited, you have higher incidence of— 

Chairman MCHENRY. I understand. 

Mr. OSTERMAN. —chargebacks. 

Chairman MCHENRY. Yes. 

Mr. OSTERMAN. So it is basically— 

Chairman MCHENRY. Mr. Stipano, to ask— 

Mr. OSTERMAN. —the industry. 

Chairman MCHENRY. Mr. Stipano, you, as well, are a prudential 

regulator. Do you have a similar list? Does the OCC use a similar 

list for targeting industries? 

Mr. STIPANO. No. We do not tell banks with whom to do business. Our issue is making sure that banks have systems and controls in place to manage the risks that are posed— 

Chairman MCHENRY. So that is a case-by-case basis? 

Mr. STIPANO. Well, no. We would expect all banks to have systems and controls to manage their risks. 

Chairman MCHENRY. No, no, what I am saying is, you will target 

fraudsters on a case-by-case basis, not based on a full industry, 

locking them out from financial services? 

Mr. STIPANO. Yes, I think that is— 

Chairman MCHENRY. Okay. Thank you. 

And so, to continue this questioning, I would go back to Mr. 

Osterman. Do you see the divide here? You can see you have put 

out this list and it says, ‘‘Don’t do business.’’ That is what the 

banks have heard. ‘‘Don’t do business with these full lines of industry.’’ 

Isn’t that problematic? 

Mr. OSTERMAN. It has certainly been misinterpreted. And that is 

why we put out guidance in September saying we are not saying 

to banks you can’t do business with any entity. It is up to you to 

do business with whomever you want. These industries, these merchants have been identified by the payments industry as entities 

that have been— 

Chairman MCHENRY. Okay, to that end, I will—Mr. Delery, you 

can flip through the binder in front of you, tab 15, just so you have 

context for your e-mail. Two months after this presentation, you 

15 

were told that some banks are exiting high-risk lines of business, 

and I am quoting from that e-mail of talking points given to you. 

Does the Department of Justice use this list in ‘‘Operation Choke 

Point?’’ 

Mr. DELERY. Congressman, as I indicated before, our investigations are focused on specific instances, specific evidence of unlawful 

conduct based on evidence that consumers are being defrauded, not 

participation. 

Chairman MCHENRY. I hear you, but I am asking you a question 

about the e-mail before you that you received on talking points related to ‘‘Operation Choke Point.’’ 

It uses the same terminology here, high-risk merchants, to describe banks exiting that full industry. Is that the Department of 

Justice’s stance? 

Mr. DELERY. So— 

Chairman MCHENRY. If the answer is no, it would be helpful if 

you just say no, that is not the Department of Justice’s stance. I 

think that will be a satisfactory answer, if it is in fact true. 

Mr. DELERY. Congressman, no, that is not the Department’s 

stance. And we have taken steps in response to concerns that have 

been raised to make clear to the public and to industry that we are 

focused on evidence of particular fraud by financial institutions, not 

participation— 

Chairman MCHENRY. So the fact that you are given talking 

points that use the exact same terminology from this PowerPoint 

presentation targeting these industries is merely a coincidence? 

Mr. DELERY. Congressman, I would need to go back and look at 

the context for this. But what I can say is that our policy is to, 

again, focus on fraud where banks and financial institutions are 

knowingly facilitating fraudulent transactions or deliberately looking the other way. We are not interested in the participation of any 

particular industry. And participation in a lawful business has not 

been a factor in deciding on any of the subpoenas, for example, that 

I have authorized. 

Chairman MCHENRY. We will now go the ranking member of the 

full Financial Services Committee, Ms. Waters, for 5 minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. But I am not 

thanking you for holding this hearing. In my estimation, this is a 

little bit ridiculous and a waste of time. 

Let me thank our witnesses here today for doing your job. This 

is exactly what some of us expect you to do. I want you to know 

that many of us are aware of activities that are fraudulent that are 

being perpetrated on the most vulnerable in our society. Oftentimes, you have the poorest of communities who are the victims of 

many of these schemes and fraudulent activity. 

So I am very, very pleased about ‘‘Operation Choke Point.’’ I 

want you to be as aggressive as you can possibly be. 

A point of contention is how the Operation is being conducted 

and what methods the Justice Department is using to gather information related to fraud. Can you just once and for all repeat the 

legal authority that Justice uses in the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) to help protect vulnerable consumers? 

16 

Is there anything new or unique about the investigative or procedural methods being used in ‘‘Operation Choke Point?’’ Where does 

your authority come from under FIRREA? What would the effect 

be of amending FIRREA to restrict the Department’s authority to 

bring these kinds of cases? 

How else do you use FIRREA? What other examples or cases can 

you give where FIRREA has been used? 

We just don’t understand why anybody would think that you 

would target legal, lawful businesses? That would be a waste of 

time. It would prove nothing. So could you just please relate to 

some of the points that I am asking, Mr. Delery? 

Mr. DELERY. Yes, thank you, Congresswoman. I would be happy 

to respond to some of those points. 

On the question of legal authority, FIRREA is a statute that prohibits fraud affecting federally-insured financial institutions. It is 

a powerful tool that the Department uses in a wide variety of contexts to prevent fraud in the financial system and to maintain the 

integrity of the financial system. 

So just yesterday, for example, the resolution that was announced with respect to Citibank, the $7 billion resolution, was 

based on FIRREA. It is a powerful tool that we use in a variety 

of contexts. 

This set of investigations flows from our longstanding work targeting fraud against consumers of all kinds. There is an endless variety of scams that affect consumers, and probably all of us know 

a family member or neighbor or coworker who has been victimized 

by consumer fraud. 

One thing that many scams have in common, though, is the need 

for access to the banking system in order to get the money out of 

consumers’ accounts. And so, by following the money from the investigations of fraudulent merchants, including the Wachovia case 

that Mr. Stipano mentioned earlier, our lawyers and our investigative partners realized the roles that some payment processors and 

some banks were playing in knowingly facilitating fraud. 

Seeing red flags of fraud, hundreds of complaints, return rates of 

30, 50, 70 percent demonstrating repeated fraudulent transaction, 

and so as a complement to the work that we do to target lottery 

scams and telemarketing scams of all kinds, we have focused these 

cases on banks and financial institutions that are knowingly participating or deliberately turning the other way when they see red 

flags of fraud. 

We believe that is illegal and the Department is committed to 

pursuing that, just as we are committed to pursuing other types of 

fraud. 

Ms. WATERS. And I thank you for your work. I was just reading 

about the $7 billion settlement with Citibank. 

Whether we are talking about Citibank or any of the other 

banks, HSBC, et cetera, et cetera, OCC—I have a bill on money 

laundering. And we know that it is, if I have any criticism at all, 

it is that yes, the fines are bigger, but it is not enough. Somebody 

needs to go to jail. 

Somebody needs to go to jail on some of these schemes on money 

laundering and some of the other kinds of high-risk activities that 

you have listed here. 

17 

So, I don’t want you to be intimidated by this hearing today. I 

want you to work at this. I want you to go harder at it. And Justice 

Department, let’s put somebody in jail for the pain and the suffering that some of our consumers experience based on some of 

these schemes and this fraudulent activity. 

I yield back the balance of my time. 

Chairman MCHENRY. We will now go the vice chairman of the 

subcommittee, Mr. Fitzpatrick of Pennsylvania. 

Mr. FITZPATRICK. I thank the chairman for calling the hearing. 

And I want to associate myself with some of the remarks of my colleagues who are also concerned with changing Constitutional 

standards, such as a presumption of innocence, which is a bedrock 

of our rule of law, sometimes using a Federal regulator or perhaps 

pressuring Federal regulators to achieve ideological objectives of 

the Administration. Mr. Delery, I am looking at a memo, and I 

think it is tab number 2 in the documents before you, dated September 9, 2013. The subject or reference line is, ‘‘Operation Choke 

Point Six-Months’ Status Report.’’ 

In that memo, the Department of Justice stated that in the event 

that a legitimate business was innocently harmed by ‘‘Operation 

Choke Point,’’ it should be left to the legitimate lenders themselves 

to prove that they are innocent. Does this mean that you are guilty 

until proven innocent? 

Mr. DELERY. No, Congressman. That is not— 

Mr. FITZPATRICK. Let me rephrase it, then. Is it common practice 

at the Department of Justice, generally, and in your division that 

you oversee, in particular, to take the approach that if the entities 

that we are investigating are legitimate, that it is up to them, 

those entities, to prove it? 

Mr. DELERY. I think no, and that is not what is happening in 

this context either. If I could explain a little bit about how we came 

to identify the institutions that we are investigating, I think that 

would be helpful. 

This really involved the use of standard law enforcement techniques. So we got information from confidential informants. We got 

information from complaints that banks had made or customers 

who had been defrauded had made. 

Mr. FITZPATRICK. Mr. Delery, you are discussing entities that you 

are investigating. 

Mr. DELERY. Yes. 

Mr. FITZPATRICK. But is it possible that when you create or somebody creates a list of whole industries and then you pressure regulators to eliminate or terminate processing relationships, payment 

relationships with those entities, that legitimate, law-abiding businesses in this country which employ Americans can be hurt, will 

lose those relationships and perhaps can lose their business? 

Is that possible when you use a broad brush? 

Mr. DELERY. Congressman, again, I think that this is not a situation that involves the use of a broad brush. 

But I do think that we take seriously the concerns that have 

been raised by Members of Congress, and that we have heard from 

industry, and that is why we have committed to taking steps to 

make clear to the public and to industry groups what our policy is, 

18 

that we are investigating specific unlawful conduct based on evidence of fraud against consumers and not entire industries. 

So, we have written to industry groups. We have met with industry groups to make clear what we are not doing. And that is something that we will continue to do because I agree, Congressman, 

that it is important that people understand the scope of our law enforcement activities and why I am happy— 

Mr. FITZPATRICK. Mr. Delery, you just responded a moment ago 

to the ranking member that this really is about following the 

money. That is what ‘‘Operation Choke Point’’ is about. So, let’s follow the money here. Mr. Delery, what is the Department of Justice 

3 percent fund? 

Mr. DELERY. The 3 percent fund is a fund that is, as I understand it, established by statute, and that a certain 3 percent of recoveries from certain types of cases are put into the fund and can 

be used for other law enforcement activities. 

Mr. FITZPATRICK. In other words, the Department of Justice gets 

a portion of the settlements obtained from initiatives like ‘‘Operation Choke Point.’’ Is that correct? 

Mr. DELERY. I would have to—I am not sure of exactly which 

types of cases lead to recoveries that contribute to the 3 percent 

fund. It is not everything that we do. But certainly a portion of our 

affirmative work— 

Mr. FITZPATRICK. Can you respond back to this committee in 

writing within a reasonable period of time as to whether or not 

cases settled through ‘‘Operation Choke Point’’ contribute to the 3 

percent fund? 

Mr. DELERY. We can certainly get back to you on that. 

Mr. FITZPATRICK. The American people need to know more about 

how the Department of Justice financially benefits from these settlements. So you will commit that you will provide us with full financial disclosure. Is that correct? 

Mr. DELERY. Certainly, we will answer the question about the— 

to the extent that the Department gets—or the Treasury gets a 

penalty in connection with these cases, whether any part of that 

goes into the 3 percent fund. I just don’t know— 

Mr. FITZPATRICK. And you will provide that disclosure back to 

the genesis, to the point where ‘‘Operation Choke Point’’ was created, all the way back to the beginning? 

Mr. DELERY. Certainly, we can; you are asking about particular 

amounts. We can see if we can—we can do that, certainly. 

Mr. FITZPATRICK. I yield back. 

Chairman MCHENRY. I recognize Mr. Cleaver for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. Are any of you familiar 

with the Electronic Transactions Association (ETA)? 

Mr. OSTERMAN. Congressman, I am actually—I recall when we 

were here the last time, I think it was Chairman McHenry who 

had indicated that the ETA had put out some guidance in this 

area. 

Mr. CLEAVER. Yes. They put out guidance because they were concerned about rooting out fraud in the system. Is that your understanding of— 

Mr. OSTERMAN. Yes, sir. 

19 

Mr. CLEAVER. Okay. So now this high-risk merchant activity list 

that we have seen, this is what I am assuming the American bankers used when they wrote the story about this new—or what is perceived to be this new operation that is now under way. Is this your 

understanding of how that story got started? 

Mr. OSTERMAN. I think there has certainly been a lot of discussion about that list of examples and the concern that entities are 

being targeted, which is simply not true, which is why we put out 

a guidance which says that. 

Mr. CLEAVER. But now if the ETA, the Electronic Transactions 

Association, did the same thing except they are inside trying to 

suggest to the banking world some cautions, it is essentially the 

same thing, right? 

Mr. OSTERMAN. As we have said, that list is not a list that we 

made up. It is actually drawn from the industry itself. It is examples of situations where there have been high chargebacks and consumer complaints and illegal activity. 

Mr. CLEAVER. So Mr. Stipano, do you have any idea how long 

this—how long the OCC principles regarding risk management 

have been in place in terms of dealing with bank payment processors? 

Mr. STIPANO. Yes, sir. They go back to at least the mid-1990s. 

Mr. CLEAVER. Yes. I guess I am trying to figure out why all of 

a sudden something that began back in the 1990s without question 

is now worthy of congressional hearings. I think the Lone Ranger 

and Rin Tin Tin are involved now. What has happened to cause 

this to surface? Was it that this was printed someplace, or what 

has happened? 

Mr. OSTERMAN. I would suggest that partially what has happened is an evolution of the financial system. We have seen the 

growth of the Internet. We have seen telemarketing. And so, we 

have seen this just mushrooming of various entities that are trying 

to get access to the financial system. And as a result, we are seeing 

more fraud. 

Mr. CLEAVER. Yes, but the point I am making, perhaps poorly, 

is that this has been going on since the—I think the early 1990s. 

The same things we have been talking about on this committee, 

they have been going on since the 1990s. There has been an acceleration because of what you just mentioned with the advent of the 

Internet. 

So I don’t understand. If anything, we ought to have a greater 

understanding about Treasury and Justice and other agencies trying to make sure that consumers don’t get hurt any further. Is 

that—am I way out there? Am I wrong, anybody? No, I didn’t think 

so. 

The U.S. Consumer Coalition, a new organization, has just pledged $5 million to fight this whole process here. And I am not 

sure who they are. I wish we had somebody here from their organization to explain why they are spending $5 million to fight Federal 

agencies which are trying to protect consumers. 

That is just a question that floats out there. I don’t expect anybody to answer that. I yield back the balance of my time. 

Chairman MCHENRY. We will now recognize Mr. Fincher for 5 

minutes. 

20 

Mr. FINCHER. Thank you, Mr. Chairman. I was curious as we 

were getting ready for the hearing today—and I appreciate all of 

the witnesses being here—where the term ‘‘choke point’’ came from. 

And the first thing is I looked up the definition. It is a term used 

for military strategy where a geographical feature such as a valley, 

a bridge, or a strait through which an armed force is forced to pass 

is used to greatly decrease its combat power. 

Mr. Delery, why did you use—where did ‘‘Choke Point’’ come 

from? Why not call it ‘‘Operation Sunshine’’ instead of ‘‘Operation 

Choke Point?’’ 

Mr. DELERY. Congressman, the name was the name that the lawyers who—the career lawyers who proposed this set of cases gave 

to the operation. And I think it refers to the fact that in order to 

obtain money from consumers’ banks accounts, fraudulent merchants need access to the payment system. 

Mr. FINCHER. I have a memorandum here, dated November 5, 

2012, from Joel M. Sweet to you talking about ‘‘Operation Choke 

Point.’’ And I guess before I start, the point I am trying to make 

is that this isn’t rocket science, but it seems like this was political 

from day one with a term like ‘‘choke point.’’ 

You may claim to be choking off the payday lenders and their 

business, but really you are choking off constituents and folks in 

my district. The payday lending industry supports 3,015 jobs in my 

State. As you may know, I am from Tennessee, and the payday 

loan industry started in Tennessee. In 2011, the Tennessee legislature passed legislation that created one of the best payday lending 

regulatory systems in the country. Tennessee law prevents rollovers, caps the maximum loan rate at $500, and sets a maximum 

term of loan at 31 days. 

The Deferred Presentment Services Act codified in the Tennessee 

code requires that all payday lenders be licensed regardless of the 

manner of service delivery, including the Internet. In 2012, the 

Tennessee State legislature passed reforms that required all online 

lenders to be licensed with the statement. 

Additionally, ‘‘payment instrument’’ was defined to mean a 

check, draft, warrant, money order, traveler’s check or other instrument for payment of money whether or not negotiable, and also includes any authorization for electronic payment of money. 

Mr. Delery, what is the State of Tennessee—what are they doing 

wrong, that the Justice Department felt the need to step in and 

protect the consumers of Tennessee, when it is clear the State has 

gone to great lengths to do so and is getting it right? 

Mr. DELERY. Congressman, as we have said publicly on a number 

of occasions, we are not investigating businesses that are acting in 

compliance with State law. And I think that the Four Oaks case 

that I mentioned earlier is maybe the best example of what we are 

looking at. In that case, there were particular fraudulent merchants who were engaged in deceptive practices. 

Mr. FINCHER. Do you have any other cases beside that one that 

you always refer to? Give me another example. 

Mr. DELERY. I think two others would be the First Bank of Delaware case from 2012, which I think—at this point— 

Mr. FINCHER. So, three? You have more than three, right? 

21 

Mr. DELERY. And Wachovia. We have other ongoing investigations, but those are the ones— 

Mr. FINCHER. Do you know there have been more complaints in 

Tennessee—consumer complaints against the financial industry, 

there have been more complaints against the banks than there 

have been against the payday loan industry? 

Mr. DELERY. I was not aware of that, Congressman. 

Mr. FINCHER. I guess my question is, I am from a district where 

the median income is about, I guess—I have it right here, I better 

make sure I get it right—$45,000, something like that. And the 

payday loan industry fills a gap. The average loan was about $229, 

which banks can’t make anymore because they have been regulated 

to the point because of Washington that they can’t make these 

small-dollar loans and make any money off of them. 

So this industry has filled a gap for people, for single moms, for 

people who are struggling to make it from week to week. And it 

seems like from day one, ‘‘Choke Point’’—just think about it, folks, 

‘‘Choke Point’’—has been an assault not on the payday loan industry, because the trickle-down, as we all know, doesn’t touch the 

payday lenders. It ends up hurting my folks at home, my constituents. 

So, as we go forward here—my time is up—let’s be very clear 

what the intent is. And one day, you may just be trying to regulate 

soft drinks as well, that we can’t have too big of a soft drink. A 

government that is big enough to give it to you is big enough to 

take it away from you. 

I yield back, Mr. Chairman. 

Chairman MCHENRY. We will now recognize Mrs. Maloney for 5 

minutes. 

Mrs. MALONEY. Thank you, Mr. Chairman, and Ranking Member 

Green. And thank you to all of the panelists today. I particularly 

am glad to see Mr. Alvarez. It is rare that you appear before this 

committee. So I want to take the opportunity to clarify an issue 

that is important to the constituency that I represent. 

And I refer to the Fed’s interpretation of the Collins Amendment 

on insurance. That interpretation, which I understand was yours, 

referred to the Federal Government, was that it did not give the 

Federal Reserve the discretion to tailor capital standards for the 

large insurance companies that it regulates. 

I would like to ask you about a bill that recently passed the Senate that addresses this portion of the so-called Collins Amendment. 

Do you think that the language in Senate bill 2270 solves this 

problem? In your opinion, do you think that it gives the Federal 

Reserve discretion to tailor capital standards for insurance companies? 

Mr. ALVAREZ. Thank you, Congresswoman. It is good to see you 

again. As you stated, the Collins Amendment puts a floor on the 

Federal Reserve and the other banking agencies’ ability to tailor 

capital requirements. It requires that the minimum capital requirements for all bank holding companies, including insurance companies that own banks or insurance companies that own savings— 

thrifts, as well as anybody designated by the FSOC as a significant—as an SIFI, all those institutions have to have capital at 

least at the level that would be the minimum level for a bank. 

22 

The bill that has passed the Senate does specifically allow the 

Federal Reserve to adjust that capital requirement for a company 

engaged in the business of insurance. And the Federal Reserve will 

follow whatever the directive is of Congress. If Congress chooses to 

have a floor that is the bank floor, that is what we will follow. If 

Congress chooses to have more flexibility for insurance companies, 

that will be what the Federal Reserve will do. 

Mrs. MALONEY. Thank you for that clarification. And I have a series of other questions that I would like to present in writing, for 

you to get back to the committee on, because I have other questions 

for other witnesses here today. 

I would like to ask Mr. Delery, as the prior speaker indicated, 

there seems to be a lot of confusion about the scope of ‘‘Operation 

Choke Point.’’ Can you comment on this? Is ‘‘Operation Choke 

Point’’ a DOJ task force? Or is it a novel enforcement method that 

the Justice Department is using? How would you describe it? What 

is it? Is it a special project? What is ‘‘Operation Choke Point?’’ 

Mr. DELERY. Thank you, Congresswoman, for that question. 

I think the short answer is ‘‘Operation Choke Point’’ is a set of 

investigations that were designed to investigate evidence of fraud 

in the banking system that facilitates fraud against consumers. 

That is what it is. It is using established legal authorities. Fraud 

has been illegal for a long time. It uses ordinary law enforcement 

techniques to identify the institutions that need to be investigated, 

like complaints from banks, and complaints from consumers who 

have been victimized, information that comes to light in investigations of fraudulent merchants which suggests that banks and payment processors were knowingly participating. 

So we have taken evidence that we received through standard 

law enforcement practices and have— 

Mrs. MALONEY. And this has been going on since the 1990s, the 

prior speaker said? 

Mr. DELERY. I think that was a reference to guidance about the 

risks and the payment system that the regulators have provided. 

But— 

Mrs. MALONEY. Thank you. 

Mr. DELERY. —this particular set of cases arose out of cases several years ago. 

Mrs. MALONEY. Thank you. 

And I would like to ask Dan Stipano, you said in your testimony 

that in the Wachovia case, the bank had ignored significant red 

flags indicating that consumers were harmed. Besides a high number of chargebacks rate, can you describe what some of these red 

flags were? 

Mr. STIPANO. Yes, Congresswoman Maloney, I would be happy to 

do that. 

I would like to start with the chargeback rate because they were 

excessively high in the Wachovia case. They were in excess of 50 

percent. But besides that, other red flags would include customer 

complaints, for example, law enforcement inquiries, and also where 

the money is going. If there are large volumes of payments that are 

heading offshore, that is sometimes a red flag. 

Mrs. MALONEY. Are there different red flags for different types 

of bank customers? 

23 

Mr. STIPANO. They can vary depending upon the nature of the 

business involved, yes. 

Chairman MCHENRY. The gentlelady’s time has expired. 

Mrs. MALONEY. Thank you. 

Chairman MCHENRY. We will now go to Mrs. Wagner of Missouri 

for 5 minutes. 

Mrs. WAGNER. Thank you, Mr. Chairman. 

And I thank the witnesses for being here. 

Mr. Delery, a major concern with ‘‘Operation Choke Point’’ is 

that it harms legitimate businesses. Mr. Fincher just talked about 

the thousands of jobs that have been lost in Tennessee. I have also 

heard from business owners from across Missouri and Kansas, the 

entire region, who say they have had to cut thousands of jobs because of ‘‘Choke Point.’’ 

How would you respond to those concerns, sir? 

Mr. DELERY. Thank you for the question. I appreciate the opportunity to respond directly. I think I would respond, as we have 

been responding when these concerns have been raised, which is to 

make clear that our investigations are about particular evidence of 

fraud by particular organizations, not industries or businesses acting lawfully. And we have attempted to communicate that to the 

public and to businesses in a number of ways. 

But I think it is important not to lose sight of what is at stake 

here for consumers. Because consumers, when they are the victim 

of a fraud, face devastating situations when their banks— 

Mrs. WAGNER. Mr. Delery, excuse me, just so that I understand 

things, are you saying that DOJ is dedicated to ensuring that ‘‘Operation Choke Point’’ does not harm legitimate businesses? 

Mr. DELERY. Absolutely, certainly, in the exercise of— 

Mrs. WAGNER. Mr. Delery, did you receive a memo from your 

consumer protection branch addressed to you entitled, ‘‘Operation 

Choke Point, Six-Month Status Report,’’ dated September 9, 2013? 

Mr. DELERY. I believe that I did. 

Mrs. WAGNER. You did? 

Mr. DELERY. Yes. 

Mrs. WAGNER. The report, which I have here, says, and I quote: 

‘‘Although we recognize the possibility that banks may have decided to stop doing business with legitimate lenders, we do not believe that such decisions should alter our investigative plan.’’ Is 

this DOJ policy, sir? 

Mr. DELERY. As I indicated before, our policy is to make clear 

that we are not targeting lawful businesses, and that is what we 

have done so that— 

Mrs. WAGNER. Wait a second here. But then, in your testimony 

here today, you said, sir, that DOJ is dedicated to ensuring that 

its efforts to combat fraud do not discourage or inhibit the lawful 

conduct of honest merchants. Yet, at the peak of ‘‘Operation Choke 

Point,’’ in a memo sent to you, your lawyers recognize that legitimate businesses were in fact being harmed, but decided that the 

ends justified the means. 

Are you saying, sir, that DOJ’s policy has changed? 

Mr. DELERY. No, Congresswoman. I think if you look at the overall context of that document, it makes it clear that the goal of— 

24 

Mrs. WAGNER. So DOJ policy has not changed? You are still targeting legitimate businesses? 

Mr. DELERY. No, Congresswoman. Our policy from the beginning 

of the framing of these cases and to today, which we have restated 

publicly, is that we are pursuing evidence of— 

Mrs. WAGNER. But your own lawyers have said something completely opposite to that in terms of collateral damages and going 

after legitimate businesses, in a sense. And I guess you have to 

break a few eggs in order to make an omelet. 

What is your response to that, sir? There seems to be great disparity here. 

Mr. DELERY. I think that if you look at the materials that have 

been provided, you will see that the policy and the framing of the 

cases was clear from the beginning. If you look at even that one 

as a whole, that document makes clear that the cases were about 

fighting fraud. 

Mrs. WAGNER. Mr. Delery, clearly the DOJ’s public statements to 

Congress do not match with its internal communications. Now, 

what will you do to restore the integrity to your office and ensure 

that no more legitimate jobs or businesses become collateral damage, so to speak, of ‘‘Operation Choke Point?’’ 

Mr. DELERY. I think what I will do is what I have done since 

these concerns have been raised, which is to re-articulate the policy 

to the public and to the industry and internally to make clear that 

our investigations are focused on evidence of specific unlawful conduct that we are investigating based on evidence that consumers 

are being defrauded, not entire industries. 

Mrs. WAGNER. Sir, are the thousands of jobs lost across the country from Missouri to Tennessee just collateral damage to the Department of Justice? 

Mr. DELERY. I don’t view any consequences as collateral damage. 

I think obviously, we take seriously the need to make clear what 

we are and are not doing. 

Mrs. WAGNER. You haven’t made it clear, sir, because your internal communications are completely different than your testimony 

here today. So I am asking you: Has DOJ policy changed regarding 

this? 

Mr. DELERY. DOJ policy from the beginning—my policy, which I 

have articulated publicly and internally, is that these cases are 

about fighting evidence of fraud, not conduct of lawful businesses. 

And I will continue to maintain that policy and I expect that the 

managers and supervisors of these cases will make sure that it is 

implemented. 

Mrs. WAGNER. Mr. Chairman, I believe my time has expired. 

Chairman MCHENRY. Mrs. Beatty is recognized for 5 minutes. 

Mrs. BEATTY. Thank you, Mr. Chairman, and Mr. Ranking Member. 

We have heard a lot of questions posed in pretty much the same 

vein. Certainly, as we have been listening today and we know that 

‘‘Operation Choke Point,’’ carried out by the DOJ’s Civil Division, 

Consumer Protections Branch, is a series of investigations and enforcement acts which are designed, most importantly, to protect 

American consumers from mass market fraud. 

25 

Given that, and I will start with you, Mr. Delery, and the questions that you have been attempting to answer, let me try to put 

it in a different vein. What, if any, evidence is there that ‘‘Operation Choke Point’’ may be having a deterrent effect on consumer 

fraud in the United States? 

Mr. DELERY. Certainly, I think that is the hope that we have for 

our law enforcement work in this area and otherwise. We, when investigating evidence of fraud, as reflected, for example, in the Four 

Oaks case, when we announce a resolution of a case like that and 

detail the allegations and the evidence that we have related to 

fraud facilitated by a financial institution, our expectation is that 

will have a deterrent effect. 

We hope that the Citibank resolution that was announced yesterday has a deterrent effect on fraud against investors. We hope that 

our cases involving tainted food and medicine have a deterrent effect so that other sellers don’t make people sick. And in this context, we hope that there is a deterrent effect for consumer fraud. 

As these cases continue, we will be looking for that. 

Mrs. BEATTY. Let me follow up with—because we have heard a 

lot about the third-party payment processors in that process. Does 

the DOJ bring claims against third-party payment processors or financial institutions that—let’s say, unwillingly or accidentally facilitate fraudulent or unlawful activities? And if not, kind of outline 

or describe for us how you can be sure of that? 

Mr. DELERY. Okay. Thank you, Congresswoman. I appreciate the 

opportunity to address that because I do think it is an important 

issue. Our cases are focused on knowing participation in fraudulent 

activity by a merchant. 

So the bank or the payment processor has information, like exorbitant chargeback rates that were discussed earlier, or sworn complaints from hundreds of customers or evidence, as was the case in 

the Four Oaks case, evidence that the merchants were hiding their 

identities. We are not disclosing their true identities. Or again, in 

Four Oaks complaints from a State attorney general about the conduct. 

So we are dealing with knowing information, not a technical violation of regulatory guidance or the unwitting processing of a particular transaction. Our subpoenas and our investigations are targeted at that kind of evidence we move forward with investigations 

and with actions where we can establish that was the case. 

Mrs. BEATTY. And lastly, we have been hearing a lot of questions 

by some of my colleagues that, from where I am sitting, sounds like 

that you are willingly going after people who are lawfully doing 

what they are supposed to do. So I am sitting here, trying to figure 

out what would you gain by having the DOJ go after people who 

are lawfully operating to put them out of business? So with that 

in the back of my mind, are there any statements you would like 

to make to respond to those allegations that the DOJ’s investigatory practices are designed to put good companies out of business? 

Mr. DELERY. I think the best way for me to respond is to say that 

is not what we are doing. And the best indicator of that, I think, 

are the cases that we have actually brought. So the Wachovia case 

that has been discussed in great detail, extensive evidence of actual 

fraud by the financial institution, and that is true for the Four 

26 

Oaks Bank case that I have discussed, and another case called 

First Bank of Delaware from 2012. 

So I think if you look at the track record of the cases that we 

have brought, they demonstrate that we are investigating fraud 

against consumers, which is the goal of this work. The goal of this 

work is to make sure that the hard-earned earning money in the 

bank accounts of consumers is not drained by fraudulent merchants with the cooperation of a financial institution. That is what 

these cases are about. 

Mrs. BEATTY. Thank you very much. Thank you, Mr. Chairman. 

Chairman MCHENRY. We will now go to the gentleman from Wisconsin, Mr. Duffy. 

Mr. DUFFY. Mr. Delery, would you just walk me through the 

process and how you decide when to issue subpoenas for fraudulent 

activity? And if you could do it quickly, that would be wonderful. 

Mr. DELERY. I’m sorry, how we decide— 

Mr. DUFFY. Yes. 

Mr. DELERY. On the—certainly, I think it is based on standard 

law enforcement approaches. So looking at information that we 

have obtained in one investigation that suggests that another party 

is involved in law enforcement activity. 

Mr. DUFFY. You investigate, you get complaints, and you make 

a determination that there is potentially fraudulent activity, right? 

Mr. DELERY. And then continue to seek more information if that 

makes sense. 

Mr. DUFFY. And then when you have enough information, you 

send a subpoena to the banks, correct? 

Mr. DELERY. Yes. When we have reason to believe that there is 

fraudulent activity, we— 

Mr. DUFFY. So when you have reason to believe, you send a subpoena out? 

Mr. DELERY. Right. 

Mr. DUFFY. And is it pretty fair to say, Mr. Osterman, that when 

these banks receive a subpoena from DOJ, they cease to do business with the third-party payers or with the payday lenders? Is 

that fair to say? 

Mr. OSTERMAN. I don’t know if that is fair to say. I can’t speak 

for the banks, but the subpoena is asking you for documents. If the 

bank is operating lawfully and the third-party payment processor 

is acting lawfully there, you have nothing to be concerned about. 

Mr. DUFFY. Okay. Great. So— 

Mr. OSTERMAN. The reason why they wouldn’t— 

Mr. DUFFY. So, subpoenas are brought. You continue in your investigation. You have referenced, what, three cases in which you 

have brought a suit against banks, right? Four Oaks being one of 

them? 

Mr. DELERY. Four Oaks, yes, is one of them. 

Mr. DUFFY. So I am interested not in—because you keep talking 

about fraud in the banking system, fraudulent merchants. Are you 

bringing cases at the DOJ against the fraudsters? Are you bringing 

cases against the third-party payer, as you are bringing cases 

against the payday lenders? 

Mr. DELERY. I think— 

27 

Mr. DUFFY. No, no. Are you bringing cases? Answer my question. 

Are you bringing cases against the third-party payers and the payday lenders? 

Mr. DELERY. We are investigating— 

Mr. DUFFY. No. So you haven’t brought cases against them. That 

is my point. 

Mr. DELERY. I have— 

Mr. DUFFY. So who does—you have come in here and you have 

said, ‘‘Listen, we have fraudsters. They have committed fraud.’’ 

Who has determined fraud? You are an attorney at the DOJ. Has 

there been due process? Has there been a hearing? Has there been 

an adjudication of fraud? No. You have come in here and said, ‘‘We 

have fraudsters across the country from whom we are protecting 

America.’’ 

There is no judicial determination of fraud. It is that we have a 

bureaucrat in the DOJ who says, ‘‘I think it is fraud. And so, I am 

going to shut down a legitimate business.’’ Am I wrong? 

Mr. DELERY. Yes, Congressman. I disagree with that summary of 

what we are doing and I think— 

Mr. DUFFY. Then the question is, how many dispositions have 

you had from a court that these third-party payers or a payday 

lender has committed fraud, how many? 

Mr. DELERY. So a number— 

Mr. DUFFY. How many? 

Mr. DELERY. So a number—I believe that they are— 

Mr. DUFFY. The answer is zero, isn’t it? 

Mr. DELERY. I think, no. In connection with the Wachovia case, 

the third-party processor was also reviewed— 

Mr. DUFFY. You don’t even know. You prepared how long for this 

hearing and you can’t tell me how many have been adjudicated 

fraudulent. And you have come in and you have told us, with a 

straight face, and a straight eye, that there is fraud and that you 

are protecting the American people. I am going to put up the list 

of high-risk merchants, so you can go after payday lenders, which— 

listen, there is no love for payday lenders, but the system that you 

are using is of concern. 

You can go after payday lenders. You might say, ‘‘Well, listen, 

high-risk merchants—they include firearms dealers, they include 

ammo manufacturers, right? You can go after all of them to protect 

banks. And so can Mr. Osterman at the FDIC. 

I think I was listening, and we heard that highly regulated industries that do business across State lines or have different regulations in different States. Another one that could be on this list 

if the Administration changes—could Planned Parenthood and 

could the abortion issue be on that list? I am not saying it should 

be, but who is to say that they couldn’t get into a bureaucratic 

scheme to shut down legitimate businesses? 

I look at Colorado. You have the DOJ bending over backwards 

to make rules work so drug dealers selling marijuana can actually 

bank. But here on the list, you have tobacco sales as high-risk merchants. 

Our concern is, we have a Federal Government that is out of control. And we have bureaucrats who think they can get a swift idea 

and impose the heavy hand of government on legitimate businesses 

28 

that have had no adjudication of fraud. But you come in here and 

you say, ‘‘Fraudulent, fraudulent, fraudulent,’’ and you haven’t 

proved it at all. 

I yield back. 

Chairman MCHENRY. All right. 

The gentleman from Washington, Mr. Heck, is recognized for 5 

minutes. 

Mr. HECK. Thank you, Mr. Chairman. I want to also thank the 

gentleman from Wisconsin for the seamless segue to my line of inquiry. Mr. Osterman, I had intended to ask you about ‘‘Operation 

Choke Point.’’ But then last night, with my 12-hour-old edition of 

USA Today, I opened it up, and there on page one was an article 

that was entitled, ‘‘Pots of Marijuana Cash Cause Security Concerns.’’ Among other things indicated in this article is a security expert saying about marijuana businesses in States where it has been 

legalized, either for medical use or for adult recreational use, 

‘‘Some people walk in with shoeboxes full of cash. Some people 

walk in with locked briefcases. We have had people bring it in 

buckets. The vast, vast cash flows are a clear come-on for criminals.’’ 

And, finally, you are effectively creating a magnet for crime. I 

have been very concerned about this public safety issue for some 

time. That is why I was pleased last August when the Department 

of Justice did, in fact, in the now-famous Cole Memorandum, set 

forth its conditions for standing down a prosecutorial action—remind you that the two top criteria are preventing marijuana from 

getting into the hands of children, and preventing cash from getting into the hands of gangs. And that was followed in February 

of this year—a wonderful Valentine’s Day—by guidance from the 

Financial Crimes Enforcement Network, in which they indicated 

the basis on which they would not seek follow-up action. 

Both of these effectively create, I guess, kind of a safe harbor, if 

the terms and conditions are followed. And the spirit of those terms 

and conditions, I think—although there are many—with the Department of Justice, it is those eight terms and conditions. And 

with FinCEN, it gets into the suspicious activity reports and what 

recording requirements are required. But the essence of them, really, is public safety. The essence of them—and I am going to repeat 

myself, because I think it is so very important—is to keep marijuana out of the hands of children, and keep cash out of the hands 

of the gangs and cartels. 

Mr. Osterman, you stop short in your follow-up and implementation of this. And I guess my question really is, what, if anything, 

can you say today to give confidence to banks and credit unions 

that they can provide banking services to legally constituted legitimate marijuana businesses, without the threat that your agency 

will penalize them, threaten their deposit insurance, or whatever, 

or force them to close their accounts? Keeping in mind that this is 

first and foremost a public safety issue. 

Mr. OSTERMAN. Congressman, the Cole Memorandum, which you 

referenced, as well as the FinCEN guidance, I think is very helpful. 

And we have actually told our examiners, when they are examining 

institutions, to ensure that those institutions are in compliance 

with those guidelines. And we have actually provided a letter to 

29 

Washington State banking authorities to that effect. And I believe 

we may be in the process of doing that with Colorado, as well. 

Mr. HECK. It is the very letter that I am referring to, Mr. 

Osterman, that does not go as far as the Department of Justice, 

nor FinCEN’s guidance in terms of basically saying, if you completely respect these terms and conditions, according to DOJ and 

according to FinCEN—and again, for the third or the fourth time— 

the essence of which is public safety—keeping marijuana out of the 

hands of children and cash out of the hands of gangs and criminals—then you will not pursue regulatory action. Your letter stops 

short of that. 

What can you say today, or what follow-up correspondence might 

you be willing to provide that is consistent with the Department of 

Justice’s language and form of safe harbor, as well as FinCEN’s? 

Mr. OSTERMAN. Again, FinCEN—these are criminal activities. 

FinCEN sets the standard. And they have spoken. And I think we 

have gone as far as I am aware that we can go. If there were any 

kind of guidance that would be issued, it would have to be an interagency type activity through FFIEC. And, I don’t understand why 

that doesn’t provide— 

Mr. HECK. So, are you saying that if they follow FinCEN and 

DOJ, you will not make a regulatory sanction? 

Mr. OSTERMAN. We are telling our examiners to ensure that they 

are doing that. If they are, we are not going to— 

Mr. HECK. I would appreciate it if you could have them communicate that more clearly. 

Thank you, Mr. Chairman, for your indulgence. 

Chairman MCHENRY. The gentleman’s time has expired. And 

while it is bipartisanship, it is two sides of the same leaf, perhaps. 

We will now go to Mr. Barr, from Kentucky for 5 minutes. 

Mr. BARR. Thank you, Mr. Chairman. 

Gentlemen, I don’t know of anyone who would find fault with financial regulators who, in good faith, are attempting to stop consumer fraud. I think what the American people are troubled by— 

and what Members of Congress are concerned about here today— 

is the prospect of powerful Federal agencies working with the Department of Justice to pressure banks to terminate relationships 

with legitimate businesses. Now, you can understand that. You can 

understand why there would be concerns, in particular for lawful 

and legitimate businesses that may be politically unpopular with 

this Administration’s policies. 

Let me give you an example of where a Kentucky resident raised 

this concern with me. And in Kentucky, we have particular sensitivity with the Administration’s, what we consider a very political 

attack, on a very legitimate business, the coal industry. 

We have lost 7,000 coal-mining jobs in Eastern Kentucky over 

the last several years because of this Administration’s regulatory 

assault against this very legitimate business that is employing 

thousands of people in our communities. We have these communities littered with unemployed coal miners, and their families are 

suffering as a result of Administration policy. 

We got an e-mail from a Kentucky resident in our congressional 

office, and this is what it said: ‘‘Our family company has been in 

the business of leasing our land to coal producers for decades. 

30 

Today, I returned a call from Client Services at our bank in Lexington, Kentucky. 

‘‘They asked if we lease land to coal producers that operate surface mines. They said they are receiving pressure from bank regulators, and will no longer do business with us if we have surface 

mines on our property. 

‘‘After some thought, I called back again, and asked if we would 

be receiving a letter from the bank stating the situation in writing. 

I was told that yes, we would receive a letter, but it would not talk 

about pressure from regulators. 

‘‘Further, she said it would state to the effect that it is in the 

best interest of the bank not to do business with our company due 

to the perception of and its effect on their business.’’ 

So verbally, the bank is telling the customer, ‘‘The regulators are 

pressuring us to not do business with your family any longer.’’ 

But in writing, they won’t do that. So my question to all of you 

is, as regulators and as the Department of Justice, are you aware 

of any guidance, directives or efforts by your agencies to stop financial institutions from transacting business with coal operators or 

land holding companies that lease their land to coal producers? 

And I will just have you all go down the line. 

Mr. DELERY. No, Congressman. 

Mr. ALVAREZ. No, Congressman. 

Mr. OSTERMAN. No, Congressman. 

Mr. STIPANO. No, sir. 

Mr. BARR. Have bank regulators at any time in the last 2 years 

ever had a policy of pressuring banks to reevaluate their relationship with coal operators, coal-production companies, or a surfacemining operation, that you are aware of? Have you ever been in 

meetings where the topic of coal production has ever come up in 

the context of ‘‘Operation Choke Point?’’ 

[Witnesses shake heads, ‘‘no.’’] 

Okay. I am glad to hear that, because I want to get a commitment from each of you that you will assure me that your agency 

will not, does not, and will not in the future discourage, either explicitly or implicitly, any financial institution from doing business 

with coal-mining activities, whether surface or deep mine? Can you 

give me that commitment? 

Mr. DELERY. Yes, Congressman. As I have explained our policy, 

it would have nothing to do with the situation that you are describing. 

Mr. ALVAREZ. Congressman, I agree with the notion that you are 

trying to come across, bring across about dealing with an industry. 

I can’t say that there isn’t going to be some coal individual supplier 

that may not have financial difficulties where a bank may choose 

not to be involved with them because of that. 

So putting aside the kind of credit quality, and other kinds of 

normal banking criteria, I agree with you. 

Mr. OSTERMAN. I think Mr. Alvarez has stated it appropriately. 

We do have underwriting standards that the banks would be looking at, and safety-and-soundness standards. But given the context 

in which you are raising this, I can agree with— 

Mr. BARR. And I only have 10 seconds left. I just want to make 

sure that when you are looking at fraudulent activity, you are not 

31 

defining a risky business. So, you are not targeting risky businesses in a way that is in any way advancing the EPA’s agenda? 

Mr. DELERY. No, Congressman. We are looking at fraud against 

consumers. 

Mr. BARR. Thank you for your commitment that you will not further the war on coal. Thank you. I yield back. 

Chairman MCHENRY. And the record will note soft sighs of ‘‘no’’ 

are still noted as ‘‘no’’ in the record. We have talked enough about 

the microphones, but they are quite lackluster. 

We will now go to Mr. Kildee, of Michigan. 

Mr. KILDEE. Thank you, Mr. Chairman. And I want to thank the 

witnesses for not only your testimony, but for the work that you 

have been doing in protecting the American consumer, which after 

all, is sort of the point of the activities that we are designed to get 

at here. 

I want to make a couple of quick observations, and then ask for 

some commentary from the panel. Number one, I think we all understand political theater. And I have a sense that I am participating unwittingly in a bit of political theater today. It is certainly 

not my intention, but that seems to be what is happening here. 

From questions about how the name was selected for this operation, I think somebody suggested, ‘‘Operation Sunshine.’’ Next 

time you do this, maybe you should do, ‘‘Operation Powder Puff,’’ 

and it might not be so offensive to some. Frankly, it is a ridiculous 

question, and I regret that you had to answer it. 

To a comment that, why are we worried about this, the average 

payday loan in one State is only $227. Well, this is something that 

we have been looking at. I think about the case of the soldier who 

borrowed $1,600, and after 21⁄2 years, had repaid $17,000 to the 

lender. 

So that $1,600 might not seem like a lot to some people in this 

room. But $17,000 for a $1,600 loan raises a bit of suspicion, and 

I think would indicate that there are some commercial practices, 

some entities, some enterprises, some areas of business, that might 

be legitimately subject to scrutiny. And that is exactly what this 

is intended to do. 

So let me ask just quickly two things. One, there was much made 

of this slide, which indicates examples of commercial enterprises 

for which this sort of scrutiny might ultimately be applied. 

I would like whomever would like to, to offer a commentary on 

how a list such as this might be derived. Presumably, it is based 

on consumer complaints, return rates, real data, that would lead 

one to conclude that if you are going to be looking for fraudulent 

activity, it makes sense to look at it where there is a greater likelihood that it is taking place. If you could just comment on that? 

Mr. OSTERMAN. I would be happy to respond. This group of examples actually was taken from actual experience that the industry 

has actually had over the course of years. 

The problem that we have had is that it has been turned into 

something that it is not, which is you can’t do business with these 

people. And that is why last year we issued guidance making it 

very clear that banks can do business with whoever they want to. 

They just need to have appropriate risk mitigation factors in place. 

32 

Mr. KILDEE. I guess the other question that I would have is what 

your response is to this notion that there is an agenda behind that, 

which is intending to sort of steer commercial or lending activity, 

or banking activity, away from one industry to another. 

And the implication which is being suggested is that because certain financial institutions may, of their own volition, decide that 

there is an area of enterprise that they have found to be problematic, that they make by themselves, a market-based decision that 

they are going to move from that: first, is that something that you 

are seeing in large numbers; and second, is that an illogical conclusion for a financial institution to make to say, ‘‘I think we are going 

to sort of get out of financing activities in this category of, let’s say, 

payday loans, or gambling?’’ 

Does it make sense to you that might be a legitimate business 

decision that a for-profit enterprise might make, just as a matter 

of course? 

Mr. OSTERMAN. I think that these are business decisions that 

businesses make in terms of their risk tolerance and their underwriting standards. Again, it is a decision for those businesses to 

make. It is not for the government to make, and it is not one the 

government is making. 

All we are saying is some types of activities are higher risk, and 

you need to have appropriate risk mitigation measures in place. 

Mr. KILDEE. I would just encourage all of you to continue to do 

the work you are doing to protect consumers. And I know you 

won’t, but I encourage you to not take sort of the threat of political 

speech accusing you of trying to shut down legitimate businesses, 

which I know you are not, as an excuse to not protect consumers 

who clearly need the protection of their government. 

So I want you to continue your work in that effort, and I appreciate it. Thank you. 

Mr. FITZPATRICK [presiding]. The Chair recognizes Mr. Luetkemeyer for 5 minutes. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. Gentlemen, I appreciate the job that you do with regard to trying to root out fraud. 

Unfortunately, what we have done today, ‘‘Operation Choke Point,’’ 

is going well beyond fraud. It has gone beyond that. 

As we have heard this morning multiple times, it is now going 

to an industry-based approach to try and get rid of everything and 

everybody in that entire industry, versus only the bad actors in industry, which is wrong. You know it is wrong, I know it is wrong. 

We discussed this, Mr. Delery and Mr. Osterman. And we discussed this individually. I thank you for the letters that we received as a result of you trying to clarify your position that as long 

as a business is doing a legal business, the legal entities are okay. 

Gentlemen, we have a problem. It is continuing. It has not gone 

away, has it? I can tell you, I can sit here this morning and give 

you case after case of what I have been talking about. I have here 

in the paper a document by the newspapers. 

Friday, May the 30th, there was a gun manufacturer in Hyannis 

Port, Massachusetts. Here is one from the 19th of May which talks 

about a firearms training supply company in Florida. Here is an 

armory in Nevada. 

33 

So, gentlemen, it is not a rogue agent doing this. It is not a rogue 

examiner. It is still going on. It is still going on now. What are you 

going to do to stop it? Mr. Osterman? 

Mr. OSTERMAN. Congressman Luetkemeyer, what we have done 

is we have tried to be very clear in putting out our guidance to say 

very publicly and clearly that as long as banks have appropriate 

risk mitigation measures in place, we are not going to prohibit or 

discourage them from doing business with anyone with whom they 

want to do business. 

And we have said that. We have actually had meetings with our 

examiners. Our division directors have met with our examiners, 

and sent that message to them. And we have even sent that notice 

to the banks themselves and said, ‘‘If you are aware of this happening, let us know.’’ 

Mr. LUETKEMEYER. Mr. Osterman, with all due respect, you 

know and I know, as a former examiner, and you know it, that the 

banks are scared to death when an examiner comes in there and 

threatens them. There is that problem. 

And I have talked to the bankers about this. And I said, okay, 

if they are telling you to do away with an entire book of business, 

which is going on, I said, have you asked them to put it in writing? 

And they said, yes. What would they say? And they say the examiner refused to do that. 

So the examiner is not giving them the documentation to give 

you the track to go back to that individual. As we see here, it is 

not going on in one State. It is going on across the country. 

This has to be something that has to be concerning to you if you 

are worried about this. If you are not—I discussed with Mr. Delery 

and you guys both about putting in place a safe harbor. Both of you 

have—both of your agencies have denied wanting to work with us 

on that. 

The other day, we had the CFPB in here, and we tried to ask 

them also if they would put together a safe harbor for the banks 

to be able to do business with legitimate customers that they have 

been doing business with for the last 25 years. 

I had a banker tell me he had to get rid of customers who had 

been with him for 25 years, for no reason other than the examiner 

said, ‘‘Hey, you can’t do business with these guys anymore because 

they are in an industry that is under heightened scrutiny.’’ 

So as a result of that, I offered a bill a couple of weeks ago that 

is going to put in place a safe harbor. Would you guys be willing 

to support that? Mr. Delery? 

Mr. DELERY. Congressman, we certainly have seen the bill that 

you offered. We are reviewing it and we will obviously continue to 

do that and work with you and your office on it. 

I think that what is important, from our perspective, is that we 

maintain the tools that are necessary to fight fraud against consumers. We have attempted in— 

Mr. LUETKEMEYER. To that effect, we want to work with you, but 

you haven’t been able to work with us. You haven’t been honest 

with me. Mr. Osterman, are you willing to work with us on a safe 

harbor? How come we haven’t gotten together yet? 

Mr. OSTERMAN. We would be willing to work with you. 

Mr. LUETKEMEYER. Do you like my bill? 

34 

Mr. OSTERMAN. We have concerns. Frankly, there are difficulties 

in trying to create a safe harbor in terms of avoiding unintended 

consequences. 

Mr. LUETKEMEYER. So you are telling me by going around the 

corners here, which you are doing this morning, it gives me great 

pause, the fact that we are still doing this. And now you won’t go 

along with the safe harbor. You are saying, we can’t do this, can’t 

do that. 

It tells me you are not willing to give up ‘‘Choke Point.’’ You are 

willing to continue to go out here and do a broad-brush approach 

to get rid of the entire industry, and that is wrong. 

Mr. Delery, one more quick question. The gentleman who was in 

charge of putting ‘‘Choke Point’’ together, Mr. Joel Sweet, is that 

correct? 

Mr. DELERY. He was the author of the original proposal, yes. 

Mr. LUETKEMEYER. Why was he reassigned? 

Mr. DELERY. He—now I—obviously, I need to be careful about 

talking about individuals in this setting, but it has been reflected 

in the documents that he was in Washington on detail from his 

home U.S. Attorney’s Office. He is a career assistant U.S. attorney. 

He was here on a temporary detail that was 6 months. It was extended to a year, and when that ended, he went back to his home 

office, as was always the expectation he would do. 

Mr. LUETKEMEYER. It is interesting that it happened just a few 

days after we got the letter. 

Thank you very much. I yield back. 

Mr. FITZPATRICK. I recognize the ranking member, Mr. Green, for 

5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. 

Mr. Chairman, in court we had an objection known as ‘‘assuming 

facts that are not in evidence.’’ Today, we have had a lot of anecdotal commentary given to witnesses, which would cause one to assume facts that have not been placed in evidence. 

We have not had empirical evidence of the allegations that have 

been made, the anecdotal evidence, if you will. So let’s for just a 

moment examine some facts. Let’s go to the North Carolina case 

and let’s talk for a moment about the number of complaints that 

were received against this bank. 

And I will start with our representative from the Justice Department, Mr. Delery. 

Mr. DELERY. As reflected in our complaint that was filed in the 

case when the—then that led to the consent decree that the court 

approved, the bank had received hundreds of complaints from 

banks of customers who had been victimized, that included sworn 

statements. 

Mr. GREEN. Let me intercede for just a moment. You said from 

banks of customers. So you have banks complaining about the activity of another bank. 

Mr. DELERY. Yes, exactly, Congressman. 

Mr. GREEN. And let’s go on. From this material, this number of 

complaints, did the bank take some affirmative action without the 

Justice Department’s intervention? 

Mr. DELERY. Again, as alleged in the complaint, the bank was 

aware of these complaints, as well as complaints from NACHA, the 

35 

Electronic Transactions Association, and the Attorney General of 

Arkansas, and yet continued to facilitate the transactions of the 

payment processor that was handling the transactions that were— 

Mr. GREEN. Let’s put a face on this. These transactions were actually consumer purchases. Is that a fair statement? Or, there were 

consumers associated with each of these transactions? Is that a fair 

statement? Because these were payday loans. 

Mr. DELERY. Many of them were related to payday lending, not 

all, but many. And they were transactions involving consumers. So 

the main complaint, again, as reflected in our allegations, was that 

the consumers had been misled into the terms and the number of 

debits that they understood would be coming out of their accounts. 

Mr. GREEN. And is it true, sir, that the bank received about 

$850,000 in fees associated with these transactions? 

Mr. DELERY. Yes. Again, that is the number that we have in our 

complaint. 

Mr. GREEN. And is it true that there was a settlement for about 

$1.2 million, meaning that the bank agreed to pay some $1.2 million to settle this case? 

Mr. DELERY. Yes, and also agreed, as reflected in the consent 

order, to a series of compliance measures that we insisted on to ensure that fraud couldn’t occur—couldn’t continue with respect to— 

Mr. GREEN. Was this a product of ‘‘Operation Choke Point?’’ 

Mr. DELERY. Yes, this was one of the cases, the investigations 

that arose out of that series of work. 

Mr. GREEN. If not for ‘‘Operation Choke Point,’’ would we have the $1.2 million settlement, would this bank have been put in a position such that it had to make a change such that this kind of behavior, this activity, is no longer continuing? 

Mr. DELERY. Again, Congressman, I think that result is the direct result of our work in these investigations. And this case is the 

best example of the kind of work that we are doing. It is about real 

fraud, not just doing business with a lawful industry. 

Mr. GREEN. Thank you. 

Let me quickly go to the—I am going to call it the list of merchants. It is titled, ‘‘High-Risk Merchants Activities.’’ Now it has 

been indicated to us that this list was compiled with the assistance 

of industry. Is that correct? 

Mr. OSTERMAN. It is actually taken from industry—experienced 

industry examples. And in fact, it is very— 

Mr. GREEN. But this is about more than industry. This is about 

the people who are doing business with these industries. Is that 

correct? 

Mr. OSTERMAN. Yes. 

Mr. GREEN. Is it about consumers who were being defrauded as 

a result of doing business with these industries? Is that correct? 

Mr. OSTERMAN. Again, as we have said in our guidance, the fact 

that certain industries are high-risk doesn’t mean— 

Mr. GREEN. Doesn’t mean that they are—that all of the businesses within an industry, but the complaints that are generated 

are usually based on some consumers saying, ‘‘You took too much 

money from my credit card,’’ or ‘‘You added too much to my credit 

card.’’ ‘‘You used my bank routing number and you collected money 

from my bank without my consent and permission.’’ 

36 

Is that a fair statement? 

Mr. OSTERMAN. Yes. 

Mr. GREEN. So we are trying to, with this, the intent of this was 

to protect consumers. Is that a fair statement? 

Mr. OSTERMAN. It is. But again, I just would caution, that list 

does not— 

Mr. GREEN. Not yours— 

Mr. OSTERMAN. It is a list that came from a supervisory insights 

journal that FDIC published a long time ago. But the point of it 

was not to say you can’t do business with these entities. A lot of 

those entities are legitimate. 

Mr. GREEN. I agree with you, but the purpose of it was to protect 

consumers, ultimately. 

Mr. OSTERMAN. Yes. 

Mr. GREEN. That was my question. 

All right, Mr. Chairman, if I may, I would like to, for Mr. Heck, 

ask unanimous consent to make the article entitled, ‘‘Pots of Marijuana Cash Cause Security Concerns’’ a part of the record. 

Mr. FITZPATRICK. Without objection, it is so ordered. 

Mr. GREEN. And with that, I will yield back the balance of time 

that I do not have. 

Mr. FITZPATRICK. I thank the ranking member. 

With that, I would like to thank our witnesses again for their 

testimony today. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

And without objection, this hearing is adjourned. 

[Whereupon, at 11:58 a.m., the hearing was adjourned.] 

(37) 

A P P E N D I X 

July 15, 2014 

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