Bankers assocation warns new administration rules on marijuana transactions could get firms into trouble
The Treasury Department announced new rules for banks in states where marijuana is legal, but an industry association is warning members that they could still get into legal difficulty if they follow them.
In a seven-page memo, the Treasury Department said it will not target bank transactions with marijuana businesses in those states as long as the businesses are properly licensed and the banks are taking steps to make sure the businesses don't show signs of gang or cartel-connected activity.
But banks will continue to be required to report on any suspicious activity they see, even in those states where marijuana use has been legalized, the department said.
Pot advocates hailed the changes as a key step in normalizing marijuana businesses.
"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," said Ethan Nadelmann, executive director of the Drug Policy Alliance.
Pot advocates said some banks had been reluctant to let marijuana businesses open accounts. The advocates said the new policy should take care of that.
Pot legalization advocates might be thrilled, but the head of the Colorado Bankers Association urges caution:
Memos released Friday by the Justice Department and Treasury Department's Financial Crimes Enforcement Network were intended to give banks leeway to open accounts for marijuana businesses in states like Colorado and Washington that have legalized retail pot. Instead, the guidance "only reinforces and reiterates that banks can be prosecuted for providing accounts to marijuana related businesses," said the CBA in a Friday statement.
"In fact, it is even stronger than original guidance issued by the Department of Justice and the Treasury," said CBA president and CEO Don Childears. "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."
Colorado's first-ever legal marijuana market, which kicked off Jan. 1, has been hampered by a lack of access to bank accounts and small-business loans. Many of the state's retail pot shops are cash-only enterprises, making them vulnerable to crime.
The bankers are right to be careful. The new regs sound a lot like the old ones - and banks can run afoul of them fairly easily:
"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," said FinCEN Director Jennifer Shasky Calvery in a statement.
"Our guidance provides financial institutions with clarity on what they must do if they are going to provide financial services to marijuana businesses and what reporting will assist law enforcement," she said.
But the FinCen memo makes it clear that banks must avoid doing business with illegal marijuana operators or those that violate the eight priorities laid out in the Justice Department's so-called Cole Memo, issued in August by Deputy Attorney General James Cole.
Those priorities include making sure pot is not distributed to minors, used to enrich drug cartels, or diverted to states where marijuana remains illegal under state law.
Banks must also continue to file "suspicious-activity reports" on all marijuana accounts, even those that "it reasonably believes, based on its customer due diligence, does not implicate one of the Cole Memo priorities or violate state law," said the FinCen guidance.
I don't blame the banks for questioning the new regs given how the government appears to be talking out of both sides of its mouth. On the one hand, they say they want to facilitate small pot selling businesses but on the other, the pitfalls of servicing the industry make it something of a crap shoot. Suppose a business is convicted of selling pot to a minor? The bank would probably be assessed a hefty fine even though it wasn't their fault.
As long as marijuana is legal is some states and illegal at the federal level, this kind of confusion is bound to occur.