Cannabis Anti-Money Laundering Conference

Cannabis businesses locked out of banking relationships

A lucky few have support, but the vast majority of Cannabis Businesses remain locked out of banking relationships

At the 2014 Mid-Atlantic Anti-Money Laundering (AML)  Conference in Washington D.C., the FinCEN director, Jennifer Calvery, briefly discussed the marijuana industry in her August 12th remarks. She was discussing the Bank Secrecy Act’s (BSA) reporting requirements, and more specifically the Suspicious Activity Reports (SARs).

In February of 2014, FinCEN released guidance for banks working with marijuana business. Part of the guidance was that banks must file SARs when dealing with these businesses, and there were 3 different types of SARs that they may need to fill out depending on their evaluation of the businesses operations. Since that time, some banks have timidly stepped into the water, and these are the results:

  • Based on the SARs filled, between Feb 14th and August 8th, there are currently 105 institutions that engage in banking relationships with marijuana businesses
  • 502 SARs marked as “Marijuana Limited” were filed as of 8/12/14 – these are for businesses that the bank believes are operating within the 8 federal priorities
  • 123 SARs indicating “Marijuana Priority” were filed as of 8/12/14 – these are for businesses that may be in violation of one of the 8 priorities
  • 475 SARs indicating “Marijuana Termination” were filed as of 8/12/14 – these are for businesses whose relationship has been terminated by the bank in order to maintain an “effective anti-money laundering system”

What does this mean? It means that while some businesses (105) are lucky enough to have a relationship with a bank, the vast majority are still left out in the cold. This includes the 475 businesses that tried to establish a legitimate relationship with a bank, but were unable to maintain it. Businesses are still in search of the solution for their financial stability.

See Full Text Here

Excerpt that pertains to the Marijuana industry:

While we need financial institutions to provide us with transparency, we also ask financial institutions to help us keep dirty money from contaminating not only their institutions, but our financial system as a whole. I can appreciate that these two messages are at odds with each other, but we need to find a balance between the two; a balance where we receive valuable BSA reporting, but where a financial institution also feels it has effectively managed its risk in making decisions about maintaining a relationship with its customers.

Nothing illustrates this point better than FinCEN’s recent guidance on the provision of financial services to marijuana related businesses in states where such business is legal under state law. Our overarching goal in issuing this guidance was to promote financial transparency, ensuring law enforcement receives the reporting from financial institutions that it needs to police this activity and making it less likely that the financial operations move underground and become more difficult to track.

Since FinCEN’s guidance went into effect in February of this year, we have received more than 1,000 SARs that indicate banks are using our guidance and providing much needed transparency into their dealings with marijuana related businesses. And based on a review of SARs filed between February 14 and August 8, 2014, there are currently 105 individual financial institutions from states in more than one third of the country engaged in banking relationships with marijuana related businesses.

FinCEN’s guidance assists financial institutions in determining when and how to file a SAR based on eight law enforcement priorities identified by the U.S. Department of Justice. Financial institutions providing financial services to a marijuana-related business that it reasonably believes, based on its customer due diligence, does not implicate one of the eight priorities or violate state law should file a SAR using the phrase “Marijuana Limited” in the narrative. Since issuing the guidance, FinCEN has received 502 SARs marked as “Marijuana Limited.” A financial institution filing a SAR on a marijuana-related business that it reasonably believes, based on its customer due diligence, implicates one of the eight priorities or violates state law should file a SAR with the phrase “Marijuana Priority” in the narrative. To date, FinCEN has received 123 SARs indicating “Marijuana Priority.” Lastly, if a financial institution deems it necessary to terminate a relationship with a marijuana-related business in order to maintain an effective anti-money laundering compliance program, it should file a SAR and note in the narrative the basis for the termination, using the term “Marijuana Termination” in the narrative. Just over 475 SARs filed to date reflect “Marijuana Termination.”

So, from our perspective the guidance is having the intended effect. It is facilitating access to financial services, while ensuring that this activity is transparent and the funds are going into regulated financial institutions responsible for implementing appropriate AML safeguards.

X