The trouble with Pornhub & ACCOUNTABILITY
FINANCIAL SERVICES FACE TOUGH QUESTIONS IN LAWSUIT
The Canadian website Pornhub found itself in the headlines again in June when more than 30 women filed a lawsuit alleging that it, along with parent company Mindgeek, profited off of content promoting non-consensual intercourse, human trafficking and child pornography.
While Pornhub has faced criticism on a number of fronts, the lawsuit, launched by Brown Rudnick LLC in the U.S., is notable for another reason: It also names Visa Inc. and the credit card giant’s merchant banks, alleging they were actively aware of the exploitation and were profiting from it while they settled transactions for the company. It is believed to be the first Racketeer Influenced and Corrupt Organizations Act (RICO) case that attempts to hold financial institutions accountable for the role they may play in sexual exploitation by processing payments.
Pornhub denied the allegations and told the Financial Post the allegations “that Pornhub is a criminal enterprise that traffics women and is run like ‘The Sopranos’ are utterly absurd, completely reckless and categorically false.” The statement added that the company banned uploads from unverified users and expanded moderation processes. The company maintains they have zero tolerance for illegal activity and is currently investigating the complaint.
The case raises the question of how much accountability financial services companies such as Visa, Mastercard, Discover and others, should hold for the actions of those that use their services. And as digital-only payments companies proliferate, there are growing calls for more scrutiny of the types of businesses and organizations they monetize through their transaction services.
Michael Bowe, a partner at Brown Rudnick and the lawyer leading the case, argues that the payments providers have the power to change a company’s behaviour — by withdrawing their services.
“There is no question but that the credit card companies were and remain uniquely positioned to prevent this abuse by requiring the steps necessary to ensure there is no non-consensual content on these sites that are monetized through these credit cards,” Bowe told Financial Post. “One need only look at what happened when Mastercard paused processing to see the change it compelled.”
Visa, Mastercard and Discover cut ties with Pornhub and blocked customers from making purchases on the website using their services after the allegations were reported in December 2020. Days before the credit card companies made the decision, Pornhub said it purged all videos from unverified accounts on the website and blocked video downloads.
Bowe added that payment companies could have done their due diligence a long time before allegations about Pornhub came to light in late 2020 through investigative reporting. Bowe said that they still have a lot more to do.
“They must insist on all commercially reasonable steps be taken to ensure consent and rigorously monitor compliance with that standard just like they do money laundering.”
In Canada, it is required through the The Proceeds of Crime and Terrorist Financing Act that companies’ reporting entities keep certain records for clients (including transaction history and identity) and must report suspicious activity to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), like transactions linked to money-laundering or terrorism.
Mastercard stated that it launched its own investigation and found illegal content on Pornhub’s platform, leading it to permanently end the use of its cards on the website. Visa suspended the use of its cards on the platform pending its investigations, before ultimately discontinuing its services on Pornhub. It still processes payments for other Mindgeek websites, according to Reuters.
American Express and Paypal were among the companies that withheld their services from the website even before this controversy. American Express told Financial Post in an email that the company has a long-standing global policy prohibiting the use of its cards for adult content.
A spokesperson for Visa said that the company could not comment on the pending litigation, though it does not tolerate having its products used for illegal activity. The company added that it has rules in place to “explicitly and unequivocally prohibit content depicting non-consensual sexual behaviour and child sexual abuse materials.” Visa said it will remain vigilant to deter these activities and require member banks to review their merchants’ compliance with Visa’s standards.
Discover told Financial Post that it requires its partners to monitor for merchants that allow illegal and prohibited activities and terminate card services if the company’s standards are violated.
Mastercard had not responded to requests for comment by the time of publication.
This wouldn’t be the first time payment companies pulled their services in light of controversy: Visa, Mastercard, Paypal, American Express and Discover began cracking down on processing payments for extremist and far-right groups following the violent white nationalist rally that took place in Charlottesville, Va., in 2017. Visa and Mastercard also pulled their business from the website Backpage.com after it was accused of being a platform for anonymous prostitution.
The more recent case naming the payments giants comes at a time when companies and investors are paying much more attention to environmental, social and governance (ESG) issues. In Visa’s 2019 corporate responsibility and sustainability report, the company described that its Global Brand Protection Program manages transaction situations where the brand could be associated with illegal activities, including transactions covering images of child abuse.
In Mastercard’s own sustainability report, it says it supports the U.S. Financial Coalition Against Child Sexual Exploitation (FCACSE) and works with partners to ensure that its transactions do not support illegal activities, including child exploitation.
Investors are increasingly looking to third-party research companies like Sustainalytics by Morningstar Inc. and Refinitiv to determine the ESG compliance of certain companies they cover. These tools have their own methodologies to rate companies on an ESG scale, which can include revealing controversies with which they have been associated.
Morningstar Sustainalytics has a controversy rating that places companies on a scale from one to five depending on how closely these companies are following their own standards set out in their ESG reports. The firm uses smart technology to review over 700,000 news articles each day to search for incident key words that would put the company on the analysts’ radar. For example, if a mining company has a dam breakage, it would pop up on the radar under those specific key words.
Michelle Mcculloch, the director of research products at Sustainalytics, said that the recent Pornhub controversy moved the needle on companies like Mastercard and Visa, but not in a significant way. That’s because their processes search for specific material risks in ESG factors, but don’t make a judgment call on the “right or wrong” of incidents.
Mcculloch said that there’s nothing in the process that specifically covers the adult entertainment industry or how they analyze clients with which payment processing companies interact. With new digital entrants popping up on the market more frequently, Mcculloch said it’s that much more difficult to establish an ethical framework for these companies.
“What I probably would foresee in the future is that you’re going to see regulators starting to come down on the payment processors,” Mcculloch said.
How to enforce regulations is going to become a question, Mcculloch added. Individual jurisdictions could bring their own policies to the table and that means there wouldn’t be an even regulatory environment across the board.
“It’s unfortunate, but that’s probably the way of the future, is that it is going to be regulators (imposing standards) and then companies will have to decide if they’re going to stay under those types of regulations or not,” Mcculloch said.
Alicja Brown, an investment adviser at CIBC Wood Gundy, who is also a member of the Responsible Investment Association (RIA), told Financial Post that investors are becoming increasingly mindful of these kinds of controversies.
“I wouldn’t be surprised if more is uncovered in this, if there aren’t other industries where they may have seen where these payment processors have been engaging with those businesses and perhaps shouldn’t have,” Brown said.
Brown added that she is interested to see how this case will unfold and if it will set a standard for payment companies moving forward as the momentum around ESG picks up.
“I’m quite confident that those ESG analysts are looking at this and are most likely engaging with Visa and Mastercard directly to understand, ‘What did you know and when did you know it?’”
For Bowe, the answer may be more clear.
“It was impossible for them not to have known,” Bowe argued. “Anyone familiar with the industry knew.”