Now we can operate like Businesses.
Banks were given a green light Friday to offer services to the legal marijuana industry, but must continue to report any suspicious activity specific to that industry to federal authorities.
The historic step brings marijuana businesses closer to legitimacy in states where pot is already legal, but it falls short of the legislative action many banks want to see before doing business with marijuana operators. That will be up to Congress to consider.
In a joint statement, the U.S. Department of Justice and the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury, said the move gives “greater financial transparency” to an industry that remains illegal in nearly every state.
It also makes clear that banks would be helping law enforcement with “information that is particularly valuable” in filing regular reports that offer insights about how marijuana businesses work.
“Law enforcement will now have greater insight into marijuana business activity generally,” FinCEN said in a news release, “and will be able to focus on activity that presents high-priority concerns.”
Previous coverage about marijuana banking.
Banks currently must file a suspicious activity report any time it suspects a transaction has a drug connection. Under the new guidance, banks would have three tiers of SARs specific to marijuana businesses dependent on levels of concern.
“This reduces the burden on banks,” a senior FinCEN official said in a briefing before the guidance was officially announced. “Marijuana under federal law requires a SAR. Now, the necessity is limited, reducing the banks’ burden a bit and more importantly clarifies where law enforcement focuses its attention.”
The marijuana-specific reports are either “marijuana limited,” “marijuana priority,” and “marijuana termination,” which identifies the business as operating normally or having some measure of truly suspicious activity.
Colorado-based U.S. Attorney John Walsh said the guidance clarifies how law enforcement and banking will approach what’s been a sticky issue.
The “guidance seeks to mitigate the public safety concerns created by high-volume cash-based businesses without access to banking and the financial system, while at the same time ensuring that criminal organizations, gangs and drug cartels do not have access to the financial system to launder criminal proceeds,” Walsh said in a statement.
|Colorado and Washington are the only states to allow legal recreational marijuana sales while 20 about others allow medical marijuana.|
“Now that some states have elected to legalize and regulate the marijuana trade, FinCEN seeks to move from the shadows the historically covert financial operations of marijuana businesses,” FinCEN director Jennifer Shasky Calvery said in a statement.
But marijuana remains an illegal narcotic under federal law, on the same list as heroin and cocaine.
“Clearly it is possible to provide financial services to state-regulated marijuana businesses and comply with the Bank Secrecy Act requirements,” the FinCEN official said.
The fledgling industry saw a lack of banking and credit card services — not all are without it, though most are — as its most serious problem, particularly because it essentially forced those businesses into a cash-only system.
That made for ripe targets and worried business owners, law enforcement and patrons.
Colorado’s medical marijuana industry last year contributed more than $9 million in state sales tax revenues — all of it banked at JPMorgan Chase, one of three to hold a contract for state deposits.
Although JPM happily accepts state funds derived from recreational marijuana proceeds, it will not say whether the government’s announcement will induce it to bank with those businesses directly.
Resources — Colorado marijuana guide: 64 of your questions, answered
The latest guidance, as with three previous memos issued by the Justice Department, doesn’t carry the same force as law, and bankers are quick to point that out.
A memo issued last summer, known as the Cole Memo, indicated federal authorities were unlikely to waste resources on legal businesses that ensured eight DOJ priorities weren’t breached. Those included keeping legal pot away from minors and funneling proceeds to other states.
As long as a marijuana business does not violate one of those eight priorities, FinCEN’s guidance says a bank need only report that it’s working with a legal marijuana business.
But should the bank suspect any of the Cole Memo facets are in play, then the level of reporting increases.
“There is no safe harbor created by this guidance, that (banks) are not subject to enforcement if they choose to take it on,” the FinCEN official said.
The DOJ has said its core focus is criminal enterprises that would look to use the legal trade as a means to launder other ill-gotten gains, or as fronts for other criminal activity.
The seven-page guidance also notes a number of “red-flag” scenarios that would require a bank to file a SAR, including a customer “depositing cash that smells like marijuana” who might be trying to conceal involvement in marijuana-related business activity.
There have been reports in Colorado and nationwide of robberies, burglaries and other thefts from marijuana businesses, some of it escalating since the drug began legal recreational sales here on Jan. 1.
Most large banks will not openly discuss their plans as it relates to the marijuana industry, many of them citing the uncertainty of federal rules and regulations, which, bankers say, can be changed as quickly as an election cycle.
David Migoya: 303-954-1506, email@example.com or twitter.com/davidmigoya
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