Many, many millions of transactions course through payment systems at any given time. Most are on the up and up, of course. But according to the government, a growing number are the product of identity theft, money laundering or fraudulent schemes.

The Justice Department  has been waging a campaign to cut off scammers' access to the financial system for the past year. Through "Operation Choke Point," prosecutors are investigating whether third-party processors that route payments for merchants through banks are ignoring signs of fraud to rake in fees from transactions.

Authorities have publicly said they are focusing on "high risk" activities -- potentially predatory activities like payday lending, as-seen-on-TV retailers and Internet gambling. Those categories, according regulators, have high rates of returns for unauthorized debit transactions, an indication of fraud.

So far, Justice has launched several criminal and civil investigations as well as issued 50 subpoenas to banks and payment processors. The effort has riled industry groups, Congressional Republicans and some Democrats, who say the Obama administration is trying to shut down legitimate businesses it deems undesirable, like payday lenders.

Why the industry is fighting back

Critics of the operation say the heightened scrutiny and threat of prosecution will lead banks and payment processors to stop doing business with any merchant on the high-risk list. And without those financial services, law-abiding companies, not just a few bad actors, will be forced out of business.

Enter the Electronic Transaction Association (ETA), a trade group that recently released industry guidelines to keep payment processors on their toes and prosecutors off their backs. The guidelines read like a best-practices manual, calling for such things as background checks on merchants and periodic reviews of their businesses.

The 100-page document is essentially an olive branch, a way of showing authorities that the payment industry is just as concerned about rooting fraud out of the system.

"Because of our shared interest in getting fraudulent merchants off the payments system we've asked law enforcement to work cooperatively with us, as opposed to targeting us," said Jason Oxman, chief executive of ETA, which represents companies, who offer electronic transactions for processing products and services. 

Oxman and his team met with Justice and all of the regulators who have a stake in the payment system, including the Federal Trade Commission and Federal Deposit Insurance Corp. FTC staff offered suggestions and even took a gander at drafts of the guidelines, Oxman said. But even input from government agencies on the guidelines is unlikely to persuade Justice to dial back its operation.  

Auto dealers took a similar approach in issuing guidelines to quell government concerns over dealers marking up interest rates on car loans. Still, federal prosecutors are forging ahead with investigations into whether the industry's self-policing approach has led to discrimination against minorities. In other words, little has changed since the industry began.

The bad news: There are still too many scams out there

And nothing is likely to change in the way Justice pursues fraud in the payment system. Why? Because there are some pretty egregious cases of fraud out there in the payment system, according to consumer groups.

Take Four Oaks Bank of North Carolina, where prosecutors say bankers waved off signs of fraud while pulling down more than $850,000 in payment-processing fees and customer refund requests.

Executives at Four Oaks dismissed evidence that online lenders routing payments through the bank were making loans without being licensed in the states where the borrowers lived, according to the complaintThe bank, which settled the case in January for $1.2 million, allegedly let lenders process $2.4 billion in illegal transactions. 

But for every Four Oaks, there are hundreds, if not thousands, of banks, processors and merchants that adhere to the law. 

"We have no more interest than does federal law enforcement in having fraudulent merchants in our network. We're financially liable when something goes wrong with those merchants," Oxman said. "To suggest, as Operation Choke Point does, that payment companies are sharing an interest with fraudulent merchants in providing services that violates consumer protection laws is unfair and incorrect."

Rather than target entire industries, Oxman said, the government should narrow its focus to the few bad actors that are messing things up for everyone.

The Justice Department declined to comment.

Government agencies have argued that some businesses simply pose greater risk to financial institutions than others. In a 2012 advisory on payment processors, Treasury's Financial Crimes Enforcement Network (FinCen) identified telemarketing and Internet merchants' transactions as having "relatively higher incidences of consumer fraud or potentially illegal activities." 

Perhaps, but rooting out fraud in the system will ultimately take a cooperative effort that involves law-abiding merchants and processors, who now feel under siege, say industry groups.