The JPMorgan Chase Crackdown On Porn Accounts: A DOJ Campaign, Or A Diversion By Big Banks To Avoid Accountability For Shady Deals?

Most of you have heard now that the financial conglomerate JPMorgan Chase has been sending notices to a significant number of porn performers announcing without prior notice and without reason that their personal banking accounts will be terminated by May 11th...apparently due to violating their "risk assessment" standards.

Teagan Presley was noted as one of the performers whose account was terminated (along with her husband's account), even though she has been retired from active performing for almost two years. She recalled the way she was informed of this through this Vice.com article.

This past Monday, porn star Teagan Presley arrived home in Las Vegas from yet another whirlwind strip club appearance tour and found a letter from her bank.

Chase was closing her account, which was listed under her legal name, as well as the account of her husband.

When Presley went to the bank in person to ask why, she was told it’s because she’s considered “high risk.”

“And then they told me that they canceled my husband’s account too, because our social security numbers are linked,” Presley told VICE News. “They told him that it was because I’m a notorious adult star. Which is funny, because I’m kind of a goody-goody in the business, and I’m not even doing porn anymore.”

The issue of porn accounts being nuked by Chase was originally exposed by, of all people, Hollywood media gossiper Perez Hilton, who posted one of Chase's cancellation letters at his blog. XBiz.com later further elaborated on the issue, with comments from adult attorney Michael Fattorosi on the possiblilty of legal action against such discrimination.

Adult industry attorney Michael Fattorosi told XBIZ that Chase and other banks have “notoriously closed adult accounts or people in the industry’s accounts, but nothing like this.”

“Throughout my practice I’ve had clients that have had their bank accounts closed, once the bank recognizes or determines that they’re in the adult industry. I’ve seen that on numerous occasions,” he said. “What I’ve never seen is a bank taking a position and sending out mass letters.”

Fattorosi noted that it is yet unclear, however, how many people’s accounts were actually shut down.
   
Whether legal recourse for those whose accounts were nixed is plausible — and, if so, which path is optimal — remains unclear, given that the situation is novel and that banks generally have the prerogative to do business with who they choose (yes, that often means flagrant discrimination).

Fattorosi plans to do more case study research before he makes a judgment call, explaining  “Sometimes there are banking laws that are different than we would normally expect.”

And, it's not the first time that JPMorgan Chase has been up to its knees in antiporn censorship, either.  The softcore erotica production company MRG Entertainment recently had their founder Marc Greenburg file suit against JPMC for allegedly violating fair lender laws by denying them a loan for "moral reasons".

Adult performer Chanel Preston has documented her own travails with JPMC offspring City National Bank, when they terminated her account without cause last year.

And then, there is the Lovability Condoms case, where that company (which focuses on selling condoms to women) had their third party merchant account with Chase offspring Chase Paymentech pulled (then reinstated after loud protest).

That particular case first brought light to the government program which some are blaming for the increased censorship: an Department of Justice initiative called "Operation Choke Point", which attempts to target banks and other financial institutions for interactions with predatory and illegal under-the-radar actors.

Progressive blogger David Dayen (formerly with the California-based political blog Caletics, and now a freelance contributor to blogs such as Hullabaloo and firedoglake) first brought up the initial reaction to the DOJ's new initiative in a post he wrote for the blog Naked Capitalism (no, not a porn site, y'all).

The main goal of OCP is to hold banks far more accountable than they previously was for profiting from predatory lending, hyperaggressive telemarketing and spamming, and other shady financial dealings. Most of those deals were being processed through what are known as third party payment processors (TPPP's) which provide a quasi-legal cover for the kind of deals that regular banks would normally not do, such as processing of usurously high-interest online payday loan lending.

In public hearings and seminars throughout the US, the DOJ alerted banks to what they should watch for in order to catch and prevent fraud; including a list of businesses more suspectable to chargebacks or false returns. One seminar listing did list "pornography" as one of the kind of transactions to be watched, but that was done only in passing, and only as a means of red-flagging those with high suspectability of fraud.

The reasoning for targeting the banks rather than the TPPPs directly, according to the DOJ, was because the former could disappear into the ether and reappear under new aliases with frequency, undercutting efforts to reign them in.

Naturally, those banks who get plenty of their money off deals with TPPPs (not to mention the TPPPs themselves) weren't too happy with the tightened scrutiny, and thusly formed a lobbying group, the Third Party Payment Processors Association, to jack up and shake down Congress to slow down the aggressiveness of the DOJ. And, possibly, threaten payback through the "human shield" of denying accounts.

…banks, payment processing firms and a relatively new lobbying group called the Third Party Payment Processors Association have been going wild on Capitol Hill in recent months over a pretty conventional law enforcement effort with a salacious name: Operation Choke Point. The project attempts to curb money laundering by scrutinizing banks and payment processors that facilitate transactions with illegal businesses — petty fraudsters running payday lending scams, sham telemarketing operations and other shady groups.

[...]

Democrats in Congress say the Third Party Payment Processors Association — a lobby group that formed last year in response to Operation Choke Point — has issued similar warnings in private meetings.

“They came in here and said, ‘How would you like it if we started cutting off things liberals like, like birth control?‘” says one House Democratic aide who met with the TPPPA in November.

“They can assign reputation risk based on their moral judgements, but everybody has different moral judgments,” TPPPA President Marsha Jones told HuffPost. “That’s the danger of it. One administration is polarized one way and the other another way. And we must remove morality out of payments because it’s dangerous.”

It was right about that time that Chase Paymentech, their own standalone TPPP, canceled Lovability Condoms' account, citing "reputational risk". Though Lovability's owner, Tiffany Gaines, was able to recover her company's account with a strong public protest, her attempt to get some answers as to why her account was pulled in the first place got quite interesting, to say the least:

The marketing executive for Chase Paymentech, she became aware of my situation through the media. She first said it was a bad judgment call on their part, and they would agree to process our payments. I said what would you do to make sure this doesn’t happen again. They said they would train their representatives to be more sensitive and inquisitive and understand the businesses they were dealing with more thoroughly.

I thought this was a wishy-washy attempt to get me to be quiet. I told her that my representative was very sensitive and inquisitive, but the power was not in her hands, it was in the hands of risk management department, who said my business fell into a prohibited category. I asked her, what are the prohibited categories? She said child pornography, fraud, this and that. I said condoms don’t fall into those categories, and also, isn’t there a gray area? You process payments for hotels, and they make a lot of their money off of adult movies.
So then she put the blame on the government. She said that Chase Bank is a federally regulated bank, and that they have to pay attention to federal regulations. Other pornography companies can use things that aren’t federally regulated.

Let's set aside the distinction between Lovability Condoms and VIVID for a sec; notice how the Chase Paymentech rep, after attempting another round of obfuscation, finally attempts to put the blame on the government for having to suspend payments for "pornography companies". Never mind that the OCP guidelines do not specifically target adult-related companies for added scrutiny solely based on their content, but rather targets potentially illegal transactions in general.

Segue to the current sitch of JP Morgan Chase Bank shuttering down adult performer accounts without warning, and you can see what they might really be up to now. It seems that they are simply overreacting to Operation ChokePoint and using it as a ruse to target porn performers' accounts as kind of a "false flag" in their efforts to defend their other TPPP transactions against the "heavy hand of government". Or...they are just using this as a ruse to go Hobby Lobby and enforce their own conservative morality against porn performers as "moral risks".

AVN's Tom Hymes, in an essay posted this morning, spells it out directly.

If [Dayen's] hypothesis is accurate, it's an interesting conundrum in which the banking sector, through the new TPPPS, is falsely accusing the government of forcing it to be a moral arbiter so that it can get out of performing regulatory duties it is already tasked with, in order to reap handsome returns from unscrupulous players it wants to continue doing business with. The only fly in the ointment is where the porn stars who have had their accounts closed fit into this picture. Though presumably innocent of any wrongdoing with respect to their bank account activity, it's hard to imagine the greater public, or the government for that matter, coming to their defense in significant numbers.
But maybe adult performers were just the lowest hanging fruit that provided Chase with the least resistant path to be able to continue making the argument that it is the government that is forcing its moral stance onto them and the performers, and not the bank using the performers to "lobby-through-threat."

Now, the more libertarian Right side of the porn diaspora has taken a slightly different position in this: they basically have adopted the position that Chase is simply a victim of an outright government campaign against porn commerce, and that TPPPs should be defended and protected in the wake of Operation ChokePoint's "hyperaggeressiveness".

One such activist is Andrew Langer, who writes a blog for a right-wing enterprise called The Institute for Liberty; he is absolutely convinced that Operation ChokePoint is indeed just another evil socialist plot by Barack Obama to destroy the adult industry. (Never mind that it has been far more conservative administrations whom have been more direct about assaulting porn; see former Bush DOJ Obscenity Task Force Chairman Patrick Trueman, now head of the antiporn activist group Porn Harms.) I'll simply repost his press statement on Perez Hilton's seminal article and let you see the hyperbole for yourself.

“Operation Choke Point,” the President’s infamous program which seeks to cut off legal industries and law-abiding businesses from their financial institutions had previously identified adult-entertainment as a target along with gun sellers and short-term lenders.  Banks across the nation have already severed relationships with thousands of customers because of Operation Choke Point:

“In President Obama’s America, it just doesn’t matter whether you’ve done anything illegal.  It doesn’t matter if your industry operates within the confines of the law. You can still be in the crosshairs of the Federal government. This report confirms what we’ve suspected for some time, that Operation Choke Point would expand to destroy the other industries on the President’s infamous hit list.

This abuse of power and these intimidation tactics fly in the face of the free market and free society. Yesterday it was check-cashers and today it’s the adult entertainment industry.  We know where they are going next because they’ve told us -- direct sales businesses, gun and ammunition sellers, the gaming industry and charities. It’s becoming clear that no industry is safe from this administration’s mob-style approach to regulation.”

Gee...all for the right to generate 400% payday loans and other money laundering scams.  Riiight.

One note: many of the performers that did have their Chase accounts pulled were able to sign up with other banks with less corrosive standards; competitor Wells Fargo put out a statement earlier in the week that adult performers would be more than welcome to form accounts there. There is also talk of some legal action against Chase under discrimination statutes; though, as Michael Fattorosi cited earlier, there is scarce legal precedent for such action...and given the low public standing of porn, it probably wouldn't generate much support. Then again, given that financial institutions aren't really so high these days with public regard either, that might be a bit questionable.

As always, as news breaks on this, we'll update.