Marijuana credit union approved 11/14
The first marijuana credit union was approved and issued a charter by the State of Colorado in late November. The credit union has applied to the National Credit Union Administration for insurance and the credit union has been issued a routing number. However, the credit union still has several hurdles to clear before it becomes operational (NCUA insurance is not guaranteed, correspondent banks, Visa/MasterCard participation). It is unclear if checks and/or drafts drawn on these credit union accounts will be accepted by other institutions not serving the industry since an accepting bank will be on notice that funds coming from that institution are related to a federally illegal activity for BSA and AML purposes.
Additionally credit union members must be natural persons, not business, government or nonprofit entities. This could be an issue for marijuana businesses operating other than as a sole proprietorship although we would not be surprised if NCUA looks the other way.
While a lot of attention may be paid to this decision, an agency permitting an activity does not change the Controlled Substances Act which makes it a crime to deal in controlled substances including marijuana and the proceeds therefrom. CBA continues to believe the only true and lasting solution to this issue is an act of Congress.
In recent weeks we have seen federal bank regulators begin to weaken their position on the issue and fail to criticize banks for banking of the marijuana industry on an extremely limited basis in Colorado. The regulators have said it is the bank’s decision, but that may not be sufficient when BSA and AML compliance is questioned later (perhaps by that very agency) or when it is asserted that the bank knowingly accepted deposits from a federally illegal activity. CBA is aware of approximately 8 Colorado banks serving the industry now. Three of these institutions have undergone a federal examination and have not been directed to cease providing these marijuana-related accounts. It is important to note that these accounts are limited to deposits only and the institutions have an extensive compliance program related to the marijuana accounts per guidance from the Department of Justice and FinCen (attached) earlier this year. Further, these banks have secured approval from their boards of directors, with acknowledgment of the risks associated with banking the industry.
Despite the approval of the credit union and recent cooling by federal regulators, CBA maintains its position that any bank serving the industry does so at its own risk. We believe it is all but impossible for any institution to comply with the “know your customer’s customer” burden outlined in the FinCen and DOJ memos issued in February which include ensuring Marijuana isn’t used on public land, resold, transported outside of Colorado or otherwise provided to minors.
CBA statement regarding DOJ and Treasury guidance on marijuana and banking
The guidance issued today by the Department of Justice and the U.S. Treasury only reinforces and reiterates that banks can be prosecuted for providing accounts to marijuana related businesses.
“In fact, it is even stronger than original guidance issued by the Department of Justice and the Treasury,” said Don Childears, president and CEO of the Colorado Bankers Association. “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.”
Bankers had expected the guidance to relieve them of the threat of prosecution should the open accounts for marijuana businesses, but the guidance does not do that. Instead, it reiterates reasons for prosecution and is simply a modified reporting system for banks to use. It imposes a heavy burden on them to know and control their customers’ activities, and those of their customers. No bank can comply.
“An act of Congress is the only way to solve this problem,” Childears said.
The Colorado Bankers Association continues to support H.R. 2652 by U.S. Representative Perlmutter and others, which could accomplish a solution by prohibiting federal regulators from punishing any bank servicing marijuana businesses in states where it has been legalized and regulated.
“It is important that a solution be reached, and soon,” Childears said. “Banking services would greatly resolve state regulation and taxation issues, serve customers and businesses in legal transactions and help public safety.”
Banking marijuana requires an “act of Congress”
President and CEO
Colorado Bankers Association
Despite bankers’ varied attitudes about legalizing marijuana, now that it is legal in Colorado, banks are supportive of government efforts to permit financial services for marijuana businesses. However, numerous obstacles prevent banks from serving marijuana businesses and their customers as they conduct legal activities.
Colorado can’t regulate or tax an industry for which it cannot track money. Public safety risks associated with cash-heavy businesses cause concern. And, several federal laws preclude banks from serving these businesses, regardless of state law. Only Congress can resolve this.
While recent comments by U.S. Attorney General Holder indicate his plans to issue “guidance” against prosecuting banks for providing accounts to marijuana businesses, he cannot change the fact that marijuana remains illegal at the federal level and banks must follow all laws. You can’t change water into wine. Banks are responsible to regulators, most of which are independent and uncontrolled by the President’s Executive Branch. The idea of no prosecution is nice, but to banks regulators have the real power.
The only real solution is an act of Congress, which isn’t likely in the near future, though needed. Elections can bring a change in guidance – and Holder’s directive would be the fourth Department of Justice formal position on marijuana in recent years. Put simply: banks need the permanence of law versus changeable guidance.
A number of federal laws now preclude banks from opening accounts related to marijuana. The Controlled Substances Act (CSA) prohibits everyone, including banks, from dealing with controlled substances or the proceeds from them, like the cash from a pot shop. A bank commits money laundering by accepting deposits from marijuana activities. The Bank Secrecy Act (BSA), Anti-Money Laundering laws and Know Your Customer doctrine hold banks responsible when customers engage in federally illegal activities, even if a customer attempts to disguise the true nature of an account or a deposit’s origin.
Some bank customers have gone to great lengths to disguise accounts related to marijuana, even spraying deposited cash from “Susie’s Cookies” with Febreze air freshener, for example. But banks, as required by these laws aimed at fighting organized crime and terrorism, are on the lookout for attempts at money laundering and must file Suspicious Activity Reports (SARs) if anything appears amiss – and pot-related deposits fall in that category. Last year, about 1.6 million SARs were filed in the U.S. and 342 people were sentenced to an average of 40 months in prison as the result. Bankers face criminal and civil penalties should they fail to act on their suspicions. These laws can’t simply be swept aside; they are both technically and politically complex.
Regulators can impose various civil money penalties, cease and desist orders, fines and can ban bankers from their careers for life, should they violate federal law. To provide services to marijuana businesses, a bank would require numerous “green lights.” To date, banking has seen only “red lights” from federal laws, the Department of Justice, bank regulators and others. Attorney General Holder’s statement at best indicates a forthcoming “yellow light” from the federal Treasury.
Among needed “green lights” are: detailed in-hand guidance from bank regulators about legal and regulatory obligations and a high probability of no regulatory action against a bank. Others needed are internal regimens to comply with numerous laws requiring special handling and massive reporting on marijuana deposits, and a low likelihood of private litigation, as well as the go-ahead from banks’ own attorneys. Additionally, a low prospect of prosecution now or in the future must be secured. The AG is able to provide this item, but not the others.
Some have advanced the idea of a state-owned bank as a solution, but it won’t work. While a state can own its own bank, the moment it connects to the payment system with checks, ATMs, debit or credit cards, internet banking or wire transfers, federal law applies to it, the same as any other bank. State ownership would do nothing other than to conveniently aggregate marijuana-related deposits in one location for federal seizure.
Governor Hickenlooper has pressed for an answer. H.R. 2652 by U.S. Representative Perlmutter and others could accomplish a solution by prohibiting federal regulators from punishing any bank servicing marijuana businesses in states where it has been legalized and regulated.
Banking services would greatly resolve state regulation and taxation issues, serve customers and businesses in legal transactions and help public safety. Only Congress can make that happen.