UPDATE 1-U.S. probing 15 banks, payment processors for fraud

Thu May 29, 2014 2:47pm EDT

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(Adds statement by U.S. Rep. Issa)

By Aruna Viswanatha and Emily Stephenson

WASHINGTON May 29 (Reuters) - U.S. prosecutors have opened criminal and civil probes into at least 15 banks and payment processors as part of a wide-ranging consumer fraud investigation, according to documents released on Thursday by a congressional committee.

The Justice Department's investigation, known as "Operation Choke Point," is more than a year old and aims to crack down on fraud by going after firms that handle and move money for various suspect businesses.

According to documents released on Thursday by the House of Representatives' Oversight Committee, the DOJ had criminal probes open of four payment processors, one bank and several officials as of November 2013.

The department had separate investigations into at least 10 banks and payment processors under a civil fraud law, according to a memo from a DOJ official that was included in the documents.

Maame Ewusi-Mensah Frimpong, an official in the DOJ's civil division, wrote in the memo that the probe had already caused some banks to stop processing payments for entities the firms believed could be involved in fraud against consumers.

"We believe we already have denied fraudulent merchants access to tens, if not hundreds, of millions of dollars from consumers' bank accounts, and that amount will increase daily and indefinitely," Frimpong said in the November memo.

House Republicans, including oversight panel leader Darrell Issa, see the investigation differently. They say the DOJ has conducted a shadowy effort to put firms with legal activities out of business by pressuring banks to stop working with them.

"Operation Choke Point is the Justice Department's newest abuse of power," Issa said in a statement released with the documents. "If the administration believes some businesses should be out of business, they should prosecute them before a judge and jury."

DOJ spokeswoman Emily Pierce said in an email that the department only investigates firms that break federal laws.

"When financial institutions choose to process transactions, even though they know the transactions are fraudulent or are willfully ignorant of that fact, they are breaking federal law and we will not hesitate to hold them accountable," she said.

(Reporting by Aruna Viswanatha and Emily Stephenson; editing by Susan Heavey and Matthew Lewis)

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