View Page As PDF
Share Button
Tweet Button

As reported in a recent American Banker Association article, "Porn Account Closures Show Banks Erring on Far Side of Caution" banks are being very proactive in taking steps to close the accounts of customers that they deem to be risky, including customers in the the adult entertainment industry, foreign officials and diplomats, and gun dealers.


Per the ABA Article:  "The businesses say they are legitimate, but banking regulators and the Justice Department are warning that these and other businesses are high risk for money laundering, consumer fraud and other crime. Pressure is being applied through stalled merger approvals and the lingering threat of lawsuits."

 

Even former regulators acknowledge that financial institutions are placed in limbo with respect to certain types of customers.  "Banks are left to guess who deserves access to the banking system and who doesn’t," says William Isaac, a former Federal Deposit Insurance Corp. chairman who recently stepped down as chairman of Fifth Third Bancorp (FITB) and is now head of the financial institutions group at FTI Consulting.  As the article notes, this trend of deciding who will stay and who will go "began with the Financial Fraud Enforcement Task Force, of which both the FDIC and the Department of Justice were members, and has culminated in Operation Choke Point, the Justice Department's crackdown on online consumer fraud. One of Choke Point's big cases was the settlement it reached with Four Oaks Bank of North Carolina, which had been doing business with online lenders."

 

In fact, in a 2011 report on managing risk, the FDIC proffered the following -- non-exhaustive -- list of "merchant categories that have been associated with high-risk activity "

  • Ammunition Sales
  • Cable Box De-scramblers
  • Coin Dealers
  • Credit Card Schemes
  • Credit Repair Services
  • Dating Services
  • Debt Consolidation Scams
  • Drug Paraphernalia
  • Escort Services
  • Firearms Sales
  • Fireworks Sales
  • Get Rich Products
  • Government Grants
  • Home-Based Charities
  • Life-Time Guarantees
  • Life-Time Memberships
  • Lottery Sales
  • Mailing Lists/Personal Info
  • Money Transfer Networks
  • On-line Gambling
  • PayDay Loans
  • Pharmaceutical Sales
  • Ponzi Schemes
  • Pornography
  • Pyramid-Type Sales
  • Racist Materials
  • Surveillance Equipment
  • Telemarketing
  • Tobacco Sales
  • Travel Clubs

 

In summing up bank fears, the article observes that the "banking industry is concerned that if a bank provides services to a specific industry, then "you have a certain level of knowledge. … If you continue to provide banking services, then are you opening yourself up to claims for that customer's activity?"

 

As outlined in a prior Business Advocate posts "The Bank Secrecy Act:  The Government's Swiss Army Knife" and "Regulator Indicates that BSA/AML Compliance Managers Should Get Measured for Flak Jackets" federal regulators will not be shy about using the Bank Secrecy Act, Anti-Moneylaundering laws, and other regulations  to hold financial institutions liable for failing to catch terrorist, Ponzi-schmers, fraudsters and other criminals.  And, as seen in other scenarios, government enforcement actions and investigations are often followed by direct and derivative civil suits.  In such an environment it should come as no surprise that banks are being forced to "fire" customers which they believe may increase their risk profile.

COMMENT
+