trending Market Intelligence /marketintelligence/en/news-insights/trending/c34rjxile3vhzpxvx1xjew2 content esgSubNav
In This List

Without concrete guidance, marijuana-related BSA/AML concerns growing for banks

Podcast

Street Talk Episode 87

Blog

A New Dawn for European Bank M&A Top 5 Trends

Blog

Insight Weekly: US banks' loan growth; record share buybacks; utility M&A outlook

Blog

Banking Essentials Newsletter 2021: December Edition


Without concrete guidance, marijuana-related BSA/AML concerns growing for banks

In states with legalized marijuana, even banks without obvious ties to the industry should watch for suspicious account activity, compliance experts say.

Laura Marshall, partner with Hunton and Williams LLP and a former federal prosecutor, pointed to marijuana banking as a top concern for the industry as it eagerly awaits updated Financial Crimes Enforcement Network guidance.

FinCEN's current guidance is based on the now-rescinded Cole Memo — an Obama-era policy intended to shield financial institutions serving the marijuana industry from prosecution, as long as they followed a list of priorities. FinCEN also requires banks to submit marijuana-specific suspicious activity reports, or SARs.

FinCEN has confirmed that its guidance remains in place, although Treasury Secretary Steven Mnuchin said Feb. 6 that the Treasury intends to issue a replacement.

Marshall said 2018 will be busy in terms of Bank Secrecy Act and anti-money laundering, or BSA/AML, enforcement actions. Even with guidance, she said banking the marijuana industry is risky, since it is still a federal crime to possess or sell marijuana.

But she said filing marijuana-specific SARs allow banks to be transparent. True money laundering, she said, is based on concealing a source of funding. She said most BSA/AML enforcement actions are due to a bank's failure to file a SAR.

A banker in the crowd, who requested not to be named, said bankers in Colorado would have to file a SAR every day to disclose every possible marijuana-related business transaction.

In an interview, he said his small, rural bank ceased serving the medical marijuana industry after Drug Enforcement Administration agents visited in connection with the Justice Department's Operation Choke Point initiative. As part of the 2013 initiative, the Justice Department ordered the investigation of U.S. banks and the business they do with companies believed to be at high risk for money laundering.

Since marijuana is also legal for recreational use in Colorado, he said it is complicated to avoid all business transactions tied to the substance.

For example, the banker said it is nearly impossible to know if money deposited to a construction company’s account stems from work on a marijuana growing facility. He said banks are put in the position of researching investment groups to rule out possible ties to the marijuana industry. But even if the bank finds a connection, he said it is difficult to know what action to take.

Heather Archer Eastep, also a partner at Hunton and Williams LLP, said under FinCEN's current guidelines, banks have an obligation to file a SAR in such situations.

Others questioned why it is seemingly easier for credit unions to service marijuana-related businesses, pointing to Denver-based Fourth Corner Credit Union. After years of legal battles, the Federal Reserve Bank of Kansas City recently granted Fourth Corner the ability to bank companies connected with the cannabis industry, as long as it avoids businesses directly touching the production, distribution or sale of marijuana.

"I feel like the buck stops with the Fed," Eastep said. "If [banks] are being fully compliant in terms of disclosure with the Fed, I think the Fed would treat credit unions and community banks the same. From a supervisory perspective, I wouldn't think about trying to change your charter just because of this issue."

Eastep said she is optimistic the Treasury will issue favorable guidance for those already serving the industry. In the meantime, she said banks should continue running any marijuana-related business decisions through their compliance management programs.

"This isn't just an idea that one of your deposit relationship officers can come up with one day and start doing," she said. "This really does need to be a management- and board-level decision."