Wednesday, February 19, 2014

Banking Memo Opens Door for Marijuana-related Businesses

Good news was announced by the Obama administration’s Financial Crimes Enforcement Network (FinCEN) this Friday.  The FinCEN published guidelines for banks providing financial services for marijuana-related businesses.  With this document, the Department of Justice further demonstrates that it does not intend to prosecute legal, licensed marijuana businesses – and provides a means for financial institutions to handle their accounts.   

The current Banking Security Act (BSA), requires financial institutions to file Suspicious Activity Reports (SARs) on businesses they know or suspect to be engaged in potentially illegal activity.  Under the new guidelines, SARs still must be filed for marijuana-related businesses, even in states where this activity is permitted by state laws regarding medical or recreational marijuana.  In addition, financial institutions are expected to also obtain a significant amount of information about business operations, including relevant licensing and registration, understanding the normal business activity, including the type of products and customers served, and performing ongoing monitoring of the business and related parties, with an eye to report any suspicious activity.

There will be three subtypes of SAR filings for use in regard to marijuana-related businesses: a “Marijuana Limited” SAR for businesses that appear to be operating legally, and not engaging in activities that will interest federal prosecutors (as detailed in the Cole Memo of August 29, 2013), a “Marijuana Priority” SAR for businesses that appear to be in violation of state law or interfering with federal enforcement priorities, and a “Marijuana Termination” SAR in cases where a financial relationship with a marijuana-related business is terminated due to suspected violations.

This is good news for marijuana businesses, and opens the door for banks to accept their accounts. Ethan Nadelmann of the Drug Policy Alliance observed: “It appears that the Obama Administration is trying to provide as much protection as possible for the marijuana industry, given the constraints of federal law.”  Proposed federal legislation providing further protection – for bank and client – has yet to gain traction. In his Hit & Run blog, Jacob Sullum observes: “without new federal legislation, banks accepting marijuana money will always be taking a legal risk.”

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