What Does the FinCEN Guidance Mean for Banks?

May 24, 2019 · 3 minutes

On February 14, 2014 the Financial Crimes Enforcement Network (“FinCEN”) issued guidance to clarify Bank Secrecy Act (“BSA”) expectations for financial institutions seeking to provide services to marijuana-related businesses (MRBs).

"This FinCEN guidance clarifies how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations."

One of the main obligations for a financial institution is to ensure that their marijuana1 business clients are not violating any priorities of the “Cole Meno.”

The Cole Memo was issued on August 29, 2013, by the U.S. Department of Justice Deputy Attorney General James M. Cole to all United States Attorneys. It provides 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 or more of the following priorities.

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.

Although federally ileagal in the United States, The following quote from the FinCEN guidance suggests that the Treasury Department appears to support having the money involved within the control and oversight of the federal financial insitutions and systems.

"This FinCEN guidance should enhance the availability of financial services for, and the financial transparency of, marijuana-related businesses"

The decision to open, close, or refuse any particular account or relationship should be made by each financial institution based on a number of factors specific to that institution. These factors may include its particular business objectives, an evaluation of the risks associated with offering a particular product or service, and its capacity to manage those risks effectively.

"Thorough customer due diligence is a critical aspect of making this assessment."

In assessing the risk of providing services to a marijuana-related business, a financial institution should conduct customer due diligence that includes:

  • Verifying that the business is duly licensed and registered;
  • Reviewing the business's license application (and related documentation);
  • Requesting from state licensing and enforcement authorities2 available information about the business and related parties;
  • Developing an understanding of the normal and expected activity for the business, its products, and its customers;
  • Conducting ongoing monitoring of publicly available sources for adverse information about the business and related parties;
  • Conduct ongoing monitoring for suspicious activity, including any red-flag items described in the FinCEN guidance;
  • Refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk; and
  • As part of its customer due diligence, a financial institution should consider whether a marijuana-related business implicates one of the Cole Memo priorities or violates state law.

There are banks and credit unions providing financial services. Financial institutions are cautious about decisions to work with the marijuana or other high-risk industry and the ones that do may not openly advertise that they do. Because of this many people think that financial services are not available.

I can be contacted for more information about providing finasncial services to marijuana-related business clients.

Follow this link for the FinCEN Guidence—BSA Expectations Regarding Marijuana-Related Businesses.

1At JSI we generally use the term cannabis instead of marijuana unless quoting or discussing content that uses the term marijuana. Some agencies, states, and country use the term marijuana but there is a growing trend towards using the botanical name cannabis instead of marijuana. Hemp refers to cannabis plants and plan material that contains less than 0.3 percent THC or a similar amount depending on the jurisdiction. Marijuana refers to cannabis that contains more than 0.3 percent THC.

2 With respect to information regarding state licensure obtained in connection with such customer due diligence, a financial institution may reasonably rely on the accuracy of information provided by state licensing authorities, when available.