What Does a Porn Star Have to Do With Your Bank Account?

Recently, The Economist reported that Chase Bank closed the accounts of hundreds of porn stars.

Among them was blond bombshell Teagan Presley, star of Just Over 18 #10 and more than 70 other porn videos. Chase informed her it had closed her account because she was prominent in the “adult” business.

Teagan Presley’s loss of banking privileges is an example of a much larger 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, worse, government witch-hunts.

In the last few months, 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, yes, porn stars like Teagan Presley.

It’s not really surprising that US banks are de-risking as fast as they can. They must follow strict “know your customer” rules and 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. And Congress keeps passing new laws requiring ever-greater levels of surveillance over our financial transactions. Is it really a surprise that a growing number of banks refuse to provide banking services to a growing number of categories of customers?

FinCEN doesn’t like this trend, because when people or companies don’t use regulated financial institutions like banks, their transactions become less visible. As FinCEN director Jennifer Calvery put it in an August 12 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.

I suppose it’s nice that Ms. Calvery understands there’s a problem, but that doesn’t make it any easier if you – or your business – is the one being de-risked. Without a bank account, about the only practical way you can exist is in the parallel economy or “black market.” That may avoid regulatory scrutiny, but it’s not a very convenient way to live or do business.

De-risking, of course, 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 (yes, that’s what it costs) to become compliant with laws like FATCA, Sarbanes-Oxley, and countless others. In some cases, they’ve set up entirely new corporate structures simply to deal with US clients.

If you don’t want to take the chance that you or your business might be the next Teagan Presley, you might want to consider checking out non-US alternatives. In addition to lowering the likelihood you’ll be de-risked, you’ll also get better interest rates.