Porn Star Account Closures: Targeting “Politically Incorrect” Customers
In 2014, The Economist reported that Chase Bank closed the accounts of hundreds of porn stars. The group included the prominent actress Teagan Presley. Chase informed her it had closed her account because she was prominent in the “adult” business.
Teagan Presley’s loss of banking privileges reflects a broader trend. It’s called “de-risking,” the decision by a bank or other financial institution to end a relationship with a customer to avoid possible embarrassment or legal scrutiny.
In 2014, US banks have closed down tens of thousands of accounts of “politically incorrect” customers.
They include gun sellers, coin dealers, fireworks suppliers, dating services, US citizens living abroad, Muslim students, money services businesses, diplomats from third-world countries, and porn stars like Teagan Presley.
Regulatory Pressures and Surveillance
It’s not surprising that US banks are de-risking as fast as they can.
They must follow strict “know your customer” rules. They must also report an ever-larger list of supposed “suspicious transactions” to a secretive Treasury bureau called the “Financial Crimes Enforcement Network,” or FinCEN.
If a bank perceives a customer as “high risk,” it’s safer to close their account than to possibly face stiff fines and even criminal prosecution. Congress continues to enact new laws aimed at enhancing surveillance over financial transactions.Given these circumstances, it’s understandable that an increasing number of banks are declining to serve certain categories of customers.
Challenges of De-Risking
FinCEN doesn’t like this trend. When people or companies don’t use regulated banks, their transactions become less visible. As FinCEN director Jennifer Calvery put it in an August 12, 2014 speech:
[J]ust because a particular customer may be considered high risk does not mean that it is “unbankable” and it certainly does not make an entire category of customer unbankable…..
The only way we can do our job is if businesses actually have bank accounts and their transactions are monitored and reported to FinCEN, as appropriate.
We appreciate Ms. Calvery’s acknowledgment of the issue. But, it offers little comfort to those facing de-risking. Without access to a bank account, individuals may find themselves compelled to operate within the confines of the parallel economy or ‘black market. While this may circumvent regulatory scrutiny, it presents significant challenges and is hardly conducive to convenient living or conducting business.
De-risking isn’t limited to US banks. Indeed, tens of thousands of foreign banks have de-risked themselves by ”firing” all of their US customers. They’ve decided that the risks of dealing with US customers outweigh the benefits.
But other foreign banks have decided that this phenomenon presents a once-in-a-lifetime opportunity. They’ve invested millions of dollars to comply with laws like FATCA, Sarbanes-Oxley, and many others. In some cases, they’ve set up new corporate structures simply to deal with US clients.
Exploring Alternatives
If you are concerned about the risk of being de-risked, exploring non-US banking alternatives may offer both financial benefits and increased security. Offshore accounts not only mitigate the likelihood of account termination but may also provide higher interest rates and protection against events like bail-ins.
While establishing an offshore account involves navigating through paperwork, banks catering to US citizens and residents typically prioritize maintaining relationships and are less likely to de-risk based solely on nationality.
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