On Friday, as J.D. Tuccille
noted, the Treasury Department and the Justice Department
issued guidelines for banks that do business with state-licensed
marijuana suppliers. According to Attorney General Eric Holder, the
aim of the memos is to reassure financial institutions that are
leery of accepting cannabusinesses as customers because they worry
it will attract unwanted attention from federal regulators and
prosecutors. But as with the
August 29 memo in which Deputy Attorey General James Cole said
that prosecuting properly regulated marijuana growers and sellers
would not be a high priority, there are
no guarantees, and that fact is likely to
deter traditionally cautious banks more than plucky cannabis
entrepreneurs.
The
Treasury memo, issued by the department’s Financial Crimes
Enforcement Network (FinCEN), says the Bank Secrecy Act (BSA)
requires financial institutions to file “suspicious activity
reports” (SARs) for all marijuana businesses. But FinCEN draws a
distinction between marijuana businesses that violate state law or
implicate one of the Justice Department’s “enforcement priorities”
and marijuana businesses that do neither. The former merit
“marijuana priority” reports, while the latter fall into a newly
invented “marijuana limited” category. According to the memo, this
distinction “aligns the information provided by financial
institutions in BSA reports with federal and state law enforcement
priorities.”
What are those priorities? Cole’s August 29 memo lists eight: 1)
“preventing the distribution of marijuana to minors,” 2)
“preventing the diversion of marijuana from states where it is
legal under state law in some form to other states,” 3) “preventing
drugged driving and the exacerbation of other adverse public health
consequences associated with marijuana use,” 4) “preventing the
growing of marijuana on public lands,” 5) “preventing marijuana
possession or use on federal property,” 6) “preventing revenue from
the sale of marijuana from going to criminal enterprises,” 7)
“preventing violence and the use of firearms in the cultivation and
distribution of marijuana,” and 8) “preventing state-authorized
marijuana activity from being used as a cover or pretext for the
trafficking of other illegal drugs.” At the end of the memo, Cole
adds that the feds might also intervene for other, unspecified
reasons.
The FinCEN memo lists “red flags” that suggest a marijuana
business deserves special scrutiny, including “international or
interstate activity,” an inability to “demonstrate the legitimate
source of significant outside investments,” signs that the
business is “using a state-licensed marijuana-related business as a
front or pretext to launder money derived from other criminal
activity,” and “negative information, such as a criminal record,
involvement in the illegal purchase or sale of drugs, violence, or
other potential connections to illicit activity.” Such red flags
are supposed to inform banks’ decisions about which customers to
reject or drop as well as which sort of SAR to file. FinCEN warns
that the red flags it mentions “do not constitute an exhaustive
list.” Although FinCEN says its advice “should enhance the
availability of financial services for, and the financial
transparency of, marijuana-related businesses,” it never actually
says banks that follow the guidelines need not worry about getting
into trouble with regulators.
The
Justice Department memo that Cole released on Friday,
which like his August 29 memo is addressed to U.S. attorneys, has a
similar limitation. He notes that the earlier memo “did not
specifically address what, if any, impact it would have on certain
financial crimes for which marijuana-related conduct is a
predicate,” such as money laundering or failure to file SARs. The
new memo clarifies that prosecution decisions related to those
crimes “should be subject to the same consideration and
prioritization” as prosecution decisions related to marijuana
trafficking. Again, the feds are not making any promises. Here is
the closest Cole comes: “If a financial institution or individual
offers services to a marijuana-related business whose activities do
not implicate any of the eight priority factors, prosecution for
these offenses may not be appropriate.” Then again, it may! Like
Cole’s August 29 memo, this one closes with a caveat that is not
exactly reassuring: “Nothing herein precludes investigation or
prosecution, even in the absence of any one of the factors listed
above, in particular circumstances where investigation and
prosecution otherwise serves an important federal
interest.”
This weak tea may be pretty much the best that the Obama
administration can do under current law, which is why bankers are
calling for congressional action to address the tax,
regulatory, and public safety issues raised by forcing marijuana
suppliers to deal exclusively in cash. In a press
release issued on Friday, Don Childears, president of the
Colorado Bankers Association (CBA), does not sound grateful for the
new guidance:
After a series of red lights, we expected this guidance to be a
yellow one. This isn’t close to that. At best, this amounts to
“serve these customers at your own risk,” and it emphasizes all of
the risks. This light is red.
The CBA complains that the guidance from FinCEN and the Justice
Department “reiterates reasons for prosecution and is simply a
modified reporting system for banks to use,” a system that “imposes
a heavy burden on them to know and control their customers’
activities, and those of their [customers’] customers.” The CBA
says “no bank can comply” with those expectations. Childears
concludes that “an act of Congress is the only way to solve this
problem.” The Marijuana
Businesses Access to Banking Act, introduced last summer by
Reps. Ed Perlmutter (D-Colo.) and Denny Heck (D-Wash.), would
protect banks that deal with state-legal marijuana businesses from
criminal investigation or prosecution and from regulatory
repercussions, including loss of federal deposit insurance.
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