Porn Proceeds Don’t Excite the Banks

As Christian Business Owners, we understand that we often do business with people of different beliefs and lifestyles. But when it comes to risk management in business-to-business relationships, one needs to think a bit differently. A recent article in the Wall Street Journal (subscriber content) highlights the risks associated with doing business with high-risk businesses. Recently, several in the porn industry received letters from J.P. Morgan Chase & Co. saying their accounts were being closed. The move appears to be a standard practice by a major bank aimed at limiting risk more than anything else. The risks outweighed the revenue streams. Risk management is nothing new and shutting down accounts with customers in certain industries, such as the medical marijuana industry, is not uncommon.

The risks of doing business with those in the vice industries are real. The first risk is reputational: vice industries are considered high-risk because they are fertile rounds for human trafficking and money laundering. Many in these industries are dealing in nefarious businesses as well and they launder their money through these legal businesses. The second risk relates to chargebacks and customer disputes. It is not uncommon for men to patronize adult entertainment businesses only to later say that someone stole their card and dispute the transaction because they don’t want their spouses and others to know what they have done. Ultimately, it is the merchant who is on the hook for those charges, which can lead to uncertain income and potentially, significant losses that are sudden and damaging to the viability of the business.

Banks counsel high-risk businesses to take simple steps to lower these risks. One such step is for the business’ legal name to be something like “Steve’s Bar and Grill” and then do business as (DBA) <name_of_club> or “North Woods Medical Supplies” that has a DBA of <insert_medical_marijuana_name_here>. Note: Where ever you find vice, you’ll find money. The greater the vice, the more money you’ll find associated with it.

If you’re a Christian Business Owner, you may want to be on the look-out for those customers with common-sounding names but who seem to be abnormally cash-rich. Anytime you find an abnormal about of cash in a business relative to how that business is presenting itself, you’re likely to find either an ongoing vice or an ongoing fraud (think Enron). When evaluating the credit-worthiness of a customer, it’s a good idea to pay attention to those signs of businesses that might appear to be “normal” but who seem to have bags of money to spend. If their credit seems to be too-good, that is a sign that you should dive more deeply into that customer’s business to learn more about what they do.

Only the Lord can tell you who you should be doing business with. In a retail establishment, you have less legal lee-way to make this decision, but in a B2B relationship, you have ample room to choose your customers with little threat of a discrimination claim. Part of your job is to minimize the assumption of risk for your company, so be prudent about who you do business with and when it doubt, get on your knees and ask the Lord after you have done your due diligence in fully investigating your (potential) customer.

Bill English
CEO, Mindsharp

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