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Dems' new tack on gun control: Make lenders police sales

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WASHINGTON — Frustrated by their inability to pass more stringent federal gun control legislation, some Democrats are taking a new tack — introducing a bill that would require banks and credit unions to provide data on suspicious firearms transactions as part of their anti-money laundering efforts.

Rep. Jennifer Wexton, D-Va., introduced the legislation last week a day after a gunman killed two students and himself at a high school in California. Her bill follows a renewed discussion about what role — if any — financial institutions should have in predicting and preventing gun violence.

Though the effort is highly unlikely to be passed by the Senate, it could gain traction in the Democratic-controlled House, and represents the latest effort to pull FIs and credit card companies into the battle over gun control.

“[Congress] can’t seem to come to any sort of agreement on what many people think is common sense, and so they’re starting to put the banks in as the arbiter," said Rolland Johannsen, senior consulting associate with Capital Performance Group LLC. "To me, that’s not an effective way of going about it."

Wexton's approach mirrors the one taken by Andrew Ross Sorkin, a columnist for the New York Times, who has urged credit card companies, banks and payment processors to alert law enforcement to questionable firearm-related activity.

“Banks, credit card companies, and retailers have unique insight into the behavior and purchasing patterns that can help identify and prevent mass shootings,” Wexton said in a statement Friday. “We know that financial intelligence can be an effective tool to combat gun violence in the same way it is for money laundering, human smuggling, and fentanyl trafficking.”

The bill would empower the Financial Crimes Enforcement Network to collect data from financial institutions on suspicious financial activity related to firearms for up to a year, with the aim of issuing an advisory to help those financial institutions flag dubious gun sales.

But Republicans are certain to object to the bill. In addition to the GOP's long-standing opposition to gun control legislation, the bill appears reminiscent of Operation Choke Point, an Obama-era Justice Department initiative that suggested banks, credit unions and payment processors stop doing business with certain kinds of businesses, including gun shops, even if they were legal. Republicans strongly opposed the program, which was eventually stopped under the Trump administration.

There are also questions about how the bill would work in practice. For example, there is confusion about what would constitute suspicious firearm-related financial activity, which could lead to financial institutions filing suspicious activity reports for every firearm-related transaction, said Brian Knight, a senior fellow at George Mason University’s Mercatus Center.

“Can you come up with a meaningful, not dramatically over-inclusive definition of suspicious firearms transaction?” he said. “If you could come up with something like that, then there may be some potential benefit.”

If Wexton’s bill were to pass without including a very clear definition of suspicious firearm activity, some said lenders might have difficulty making that judgment as to what legal purchases are suspicious or not.

“What’s going to happen is that if there aren’t very specific guidelines as to what constitutes a suspicious activity in regards to some sort of firearms-related purchase or transaction then banks are going to have to end up interpreting it on their own,” said Johannsen.

Most institutions would likely feel uneasy about wading into such a politically divisive issue, said Ian Katz, a financial public policy analyst at Capital Alpha Partners. Likewise, most large banks — with the exception of Citigroup and Bank of America — have continued to do business with gun manufacturers despite pressure from some to do otherwise.

“This whole issue of the banks having to make political judgments is a huge headache for them and perhaps a nightmare. It’s not what they want to do,” Katz said. “Banks are much more comfortable when they know what they can do and what they can’t do.”

Regardless of how institutions or Congress might define suspicious firearm-related activity, it doesn’t change the fact that gun purchases are currently legal, and it would likely be challenging for FIs to predict which lawful firearm purchases might lead to unlawful activity.

“Financial intelligence has been helpful in anti-terrorism and drug interdiction, because the underlying activity there is illegitimate," said J.W. Verret, a law professor at George Mason University and former chief economist for the House Financial Services Committee. "I don't think financial intelligence will have any role in stopping gun violence because gun purchases are not inherently illegitimate."

He added that he isn’t confident that “financial intelligence can distinguish between gun sales that will lead to violence and gun sales that will lead to sportsmanship or gun sales that will lead to self-defense.”

Knight also warned that using financial data to inform criminal activity could be a two-way street.

“This might expand further and further and you could imagine a scenario where the Trump administration wants banks to flag activities that might be related to people violating immigration law,” he said. “So, one, that puts a lot of burden on the bank and two, it risks creating an excessive surveillance state.”

Ultimately, though the bill appears unlikely to pass int he near term, observers said it's worth keeping an eye on going forward.

“I don't think it would move forward this Congress, but I think that this is laying a marker for subsequent conversations, maybe in a different Congress and with a different administration,” said Knight.

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