Written by: Debra Borchardt | Published: December, 31 2015
Fed Reserve of Kansas City May Win In Marijuana Case
The Colorado credit union established for marijuana businesses may not win its case against the Federal Reserve Bank (FRB) of Kansas City. Fourth Corner filed a suit in October of this year against the Kansas City Fed for not giving the credit union a master account, which would give it access to Federal Reserve Bank payment services.
On Monday, Judge Jackson said he was sympathetic to Fourth Corner and said that if he were a member of Congress, he would be inclined to allow pot banking. However, as a judge he must uphold the laws and that means that at the Federal level marijuana is still illegal. The judge hasn’t given a final ruling yet, but it seems likely he’ll rule in favor of the Kansas City FRB.
Judge Jackson suggested that the two parties try to work out an agreement and negotiate a resolution and he pointed out flaws in both legal arguments. Fourth Corner believes the FRB is obligated to provide the account and is just choosing not to work with Fourth Corner because its clients are in the cannabis industry. The lawyer for the Kansas City FRB maintained that doing so would cause it to break the law.
DENVER, CO – MARCH 13: Job seekers line up around the block as they attend CannaSearch, Colorado’s first cannabis job fair, on March 13, 2014 in Denver, Colorado. O.PenVAPE, the largest national brand in cannabis, held the first of it’s kind Cannabis Job Fair hoping to match applicants with businesses in the Colorado marijuana industry. (Photo by Doug Pensinger/Getty Images)
David Dinenberg who is the CEO of Kind Financial, a financial technology solutions company for the legal cannabis industry said, “I believe there’s already ample guidance from the U.S. attorney general and the U.S. Treasury division FinCEN that does allow the banks to service the industry. I believe the judge’s comments and media interpretations have clouded the facts and that it’s important to provide a complete picture of the competing laws, rules, and guidelines.”
Dinenberg is correct that memos from the attorney general and FinCen have been written to address marijuana businesses and banking. However, many large banks don’t feel the memo’s provide enough protection from prosecution as federal law enforcement can still say that marijuana is illegal at the federal level. There are however, over 100 banks that are comfortable with the memos and are willing to work with cannabis customers.
The master account from the FRB would give Fourth Corner the ability to do electronic transfers of funds. Without the master account, Fourth Corner can’t clear checks or wire funds, essential banking services.
When it comes to the FRB, if the judge rules in favor of Fourth Corner and forces the FRB to give them a master account, then marijuana money will co-mingle with other states money. It essentially crosses electronic state lines. That is where the discomfort comes in. Federal agencies may be getting more comfortable with a state legalizing marijuana, but they are adamant that it stay within the state. They do not like cannabis product or proceeds crossing the state lines. Once the money enters the broader banking system there is no way to keep it segregated.
Dinenberg said, “The “BIG” banks are not going to participate in this industry, regardless of what the law is for some time for the following reason (s), BIG banks handle compliance via fully automated systems, state charter banks, credit union, and smaller to mid-size banks use a hybrid of automation as well as personal touch and that is what is needed now as well as in the future to comply with banking marijuana. Even if the laws were to change tomorrow, not much would change until the regulations are drafted and once that happens the banking piece will still have a heavy compliance component to it.