Financial Regulation

New York Officials Weaponize Regulatory Power Against the NRA

In a politicized environment, getting on the wrong side of regulators can be dangerous. Don't be surprised if banks and insurers cave.


Albin Lohr-Jones/Sipa USA/Newscom

Do you need another demonstration of how dangerous regulatory power can be when it's weaponized by politicians? Look no further than New York Gov. Andrew M. Cuomo's recent directive to financial regulators. Cuomo wants them to pressure private companies to break ties with the National Rifle Association (NRA). The "or else" is just a hair from being overt.

"I am directing the Department of Financial Services to urge insurers and bankers statewide to determine whether any relationship they may have with the NRA or similar organizations sends the wrong message to their clients and their communities who often look to them for guidance and support," the governor wrote in a statement.

The Department of Financial Services, which regulates the banking and insurance industries in New York, followed up with guidance letters to insurance companies and banks.

The two letters caution recipients that "[t]hey are in the business of managing risks, including their own reputational risks, by making risk management decisions on a regular basis regarding if and how they will do business with certain sectors or entities." The guidance then includes slight variations on the following language from the banking letter:

The Department encourages its chartered and licensed financial institutions to continue evaluating and managing their risks, including reputational risks, that may arise from their dealings with the NRA or similar gun promotion organizations, if any, as well as continued assessment of compliance with their own codes of social responsibility. The Department encourages regulated institutions to review any relationships they have with the NRA or similar gun promotion organizations, and to take prompt actions to managing these risks and promote public health and safety.

Keep in mind that the regulatory body that oversees these industries is warning companies under its power that they may be assuming reputational risk—a regulated area that draws official attention—by doing business with legal organizations including the NRA. This reputational risk is said to exist because these groups are "gun promotion organizations," which boils down to nothing more than them taking a public policy positions at odds with those favored by the state's political leaders.

Of course, this isn't the first time that a government body has been weaponized for political use. "My father may have been the originator of the concept of employing the IRS as a weapon of political retribution," Elliott Roosevelt observed of President Franklin Delano Roosevelt. The federal tax agency remained a handy bludgeon for politicians from that day through the present, including its recent deployment against Tea Party groups.

Usually, such abuses are at least thinly veiled, because they're widely acknowledged to be wrong. But this isn't really the case in places like New York, where everything is politicized and much business requires an "expediter, an imprecise term that is used to describe the men and women whose workdays are spent queuing up at the Manhattan branch of the New York City Department of Buildings to file the documents and pull the permits that allow construction projects—your kitchen renovation and the high-rise next door—to go forward," as the New York Times put it in 2014. Expediters often bribe officials to speed up the process—or to just get anything done. Attorney John Chambers, who expedites gun permits in New York City, was recently convicted of bribing an NYPD sergeant.

This is the business and political culture in which Donald Trump grew up and which molded his Rodney Dangerfield-in-Back to School view of the world. But with the money they wielded, Trump and company used a higher level of middlemen, including mayors, such as Abe Beame, and governors, such as Hugh Carey, to get permission for their projects and to block competitors.

Not much has changed since then, as business hopefuls continue delivering bribes to current Mayor Bill de Blasio and Governor Cuomo in hopes of getting their projects green-lighted (the officials themselves remain seemingly immune to prosecution for receiving bribes—probably because they make the laws). In such an environment, it's natural that officials see granting or withholding permission to do pretty much anything as a natural perk of the job. And what's more natural than for them to make continued permission to do business conditional on isolating political enemies?

As Brian Doherty noted the other day, Brooklyn Borough President Eric Adams and New York City Councilmember Justin Brannan seemed astonished that anybody thought it inappropriate that they lean on local businesses to deny venues to Brooklyn Friends of the NRA. At least one restaurant canceled a gathering for the group "after federal, state and city politicians blasted the event as 'profoundly disappointing,'" reported the New York Daily News.

Of course they canceled. Brookyn restaurants are businesses that get to keep their doors open only with the goodwill of local officials. In such a politicized environment, getting on the wrong side of regulators can be dangerous.

Don't be surprised if banks and insurers also cave.

Weaponizing regulatory power—if normalized—opens the door for Cuomo's political opponents to do the same to his allies in the places where they govern. If liberals demonize the NRA, the equivalent bogeyman for their enemies is Planned Parenthood, which is vulnerable if conservative regulators adopt the same tactics. Actually, anybody who takes a controversial position on matters of public policy is at risk if the targeting of opponents through regulatory agencies becomes standard.

Yes, it's been done before, but making it explicit strips regulatory authority of any legitimacy. Punishing political opponents is a less compelling argument for such power than claims—valid or otherwise—that you're enforcing good business practices. If it becomes standard practice, people are entitled to view regulators as nothing more than partisan hitmen, and treat them accordingly.

New York's long-established culture of corrupt and weaponized use of government power is a stain on the state, not something to be made official policy and extended to the country as an example to emulate.