Is pornography a risky business for banks?

J. P. Morgan Chase closes accounts of several porn actors, raising the question of the financial and reputational risks of the industry

There is no doubt that the porn industry in America today is big business. Some estimates state that porn-related businesses rake in over $13 billion a year, and it doesn’t appear as if that bubble will burst any time soon. With all of this money trading hands, several questions arise. First, where do the individuals who profit from these ventures, such as porn stars, put their money? Second, what kinds of risks are involved with dealing with these sorts of funds?

The answer to the first question is that at least some of the biggest stars in the adult entertainment industry kept their money with J. P. Morgan Chase & Co. That is, until recently. Several porn actors received notice last week that their accounts were being closed, which brings us back to question number two above.

Doing business with members of the adult entertainment industry does carry risks. First of all, there is a matter of reputation. While pornography has become more accepted by the mainstream in recent years, there can still be a connection between strip clubs, massage parlors or webcam businesses and matters such as human trafficking or money laundering.

On May 2 a spokesperson for J. P. Morgan Chase told The Wall Street Journal that there was “absolutely no effort to exit customers’ accounts because of their affiliation” with the porn industry. However, its undeniable that there is the possibility of connections between these businesses and other, illegal dealings that the bank is allegedly trying to avoid. Distancing oneself from these types of businesses can often be a matter of avoiding the imputation of wrongdoing.

And the risks are not just reputational, there is also a financial risk involved in doing business with adult entertainment merchants. Often, individuals who spend money on this type of adult entertainment have a greater tendency to deny credit card charges, and banks do not want to be on the hook in these circumstances.

Since it does not appear that the porn juggernaut is slowing down anytime soon, banks should decide for certain what their policies will be in relation to adult entertainment and stick with those clear policies to avoid unnecessary risk.

 

For more on risk, check out the following:

 

Carrying your umbrella when navigating the cloud

10 crucial first steps for the chief compliance officer

SEC receives first conflict minerals report

Necessary FCPA due diligence for M&A transactions in emerging markets

 

 

Senior Editor

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Rich Steeves

Richard P. Steeves is Senior Editor of InsideCounsel magazine, where he covers the intellectual property and compliance beats. Rich earned a B.A. in English Literature...

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