If you think that banks, credit unions, and other financial institutions can’t offer services to the cannabis industry, I’ll explain otherwise.
On August 29, 2013, the U.S. Department of Justice Deputy Attorney General James M. Cole issued a memorandum (the “Cole Memo”) to all United States Attorneys providing updated guidance to federal prosecutors concerning marijuana enforcement under the Controlled Substance Act. In short, the Cole Memo provides guidance to DOJ attorneys and law enforcement to focus their enforcement resources on persons or organizations whose conduct interferes with any one of eight priorities as listed in the Cole Memo.
On February 14, 2014, the Financial Crimes Enforcement Network (FinCEN), a bureau of the United States Department of the Treasury, issued guidance to clarify Bank Secrecy Act (“BSA”) expectations for financial institutions seeking to provide services to marijuana-related businesses (MRBs). The guidance includes the following two statements:
"This FinCEN guidance clarifies how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations."
"This FinCEN guidance should enhance the availability of financial services for, and the financial transparency of, marijuana-related businesses"
The FinCEN guidance reiterates the eight Cole Memo priorities listed below. It provides criteria for conducting the initial due diligence and ongoing monitoring of cannabis businesses. It provides a list of “red flags” that are potential indicators of illegal activities or money laundering. And finally, it defines the reporting requirements for financial transactions.
Banks and credit unions can provide financial services but it requires substantial due diligency and ongoing monitoring1.
If you are in the cannabis industry and seeking financial services you need to make sure your business meets state an local regulations and work with your credit union or bank to show that your business does not violate any or the Cole Memo priorities. Financial institutions are required to show evidence that their clients are operating legally, not laundering money, or violating a priority concern. The cannabis industry and banking the cannabis industry are both highly regulated.
1 For more information see What Does the FinCEN Guidance Mean for Banks?
Here are the eight Cole Memo Priorities:
- Preventing the distribution of marijuana to minors.
- Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels.
- Preventing the diversion of marijuana from states where it is legal under state law in some form to other states;
- Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
- Preventing violence and the use of firearms in the cultivation and distribution of marijuana;
- Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;
- Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and
- Preventing marijuana possession or use on federal property.
In future postings, I’ll provide a deeper look at the implications of the priorities, examine the red flag indicators, go into more detail on due diligence and monitoring, and provide an overview of the transaction reporting that is required.