Over half of U.S. states have legalized either medical, or both medical and recreational, marijuana use, but marijuana still remains illegal at the federal level (in case you haven’t heard!) As a result of this, banks refuse to serve marijuana-related businesses, as doing so could result in criminal charges under the federal Bank Secrecy Act (“BSA”) and the Controlled Substances Act.
In 2014, the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued a non-binding guidance document explaining BSA compliance requirements for financial institutions who choose to serve marijuana-related businesses. However, banks are still reluctant to serve marijuana-related businesses in the absence of changes to federal law because the guidelines are not binding as a matter of law, and the onerous reporting requirements have deterred many banks who would otherwise be interested in serving marijuana-related businesses.
Additionally, financial institutions who serve marijuana-related businesses risk losing federal deposit insurance provided by the Federal Deposit Insurance Commission. While no law prohibits the Federal Reserve from providing master account access to financial institutions who choose to serve marijuana-related businesses, just last year, the Federal Reserve denied master account access to a Colorado credit union that wished to serve marijuana-related businesses. This means canna-businesses must fly under the radar if they choose to open a bank account, and more likely than not, the account will be closed once the financial institution discovers the source of the bank account funds.
While removing marijuana from Schedule I of the Controlled Substances Act would render these issues moot, lawmakers remain hesitant to legalize a substance that has been stigmatized and demonized since the Reefer Madness era. Federal lawmakers from both sides of the aisle have, however, sought to ensure certain protections for the industry in light of conflicting federal-state marijuana laws. There are currently several federal legislative initiatives that, if enacted, would insulate financial institutions from criminal and civil penalties for transacting with marijuana-related businesses.
In March, Oregon Senator Ron Wyden and Oregon Representative Earl Blumenauer introduced a comprehensive legislative package intended to address numerous issues resulting from conflicting federal-state marijuana laws, including lack of access to traditional banking services. The “Responsibly Addressing the Marijuana Policy Gap Act of 2017” would prohibit federal financial regulators from taking adverse actions against financial institutions who transact with marijuana-related businesses, and also provide immunity under federal criminal laws to depository institutions who handle funds from marijuana-related businesses. The legislation would modify the existing filing requirements for banks who serve marijuana-related businesses, eliminating mandatory “Suspicious Activity Report” requirements for all marijuana-related transactions, and instead requiring banks to maintain internal records documenting marijuana-related transactions.
In late April, Representatives Ed Perlmutter, Denny Heck, and Don Young introduced the Secure and Fair Enforcement Banking Act (“SAFE Act”). The SAFE Act would establish a “safe harbor” for banks, providing immunity under federal money laundering and other criminal laws to financial institutions that choose to serve marijuana-related businesses. It would also prohibit federal banking regulators (i.e. FDIC and the Federal Reserve) from terminating or eliminating federal deposit insurance, or otherwise prohibiting, discouraging, or penalizing banks from providing financial services to marijuana-related businesses. Similar to the legislation introduced by Senator Wyden and Representative Blumenauer, the proposed legislation would provide an exception to BSA reporting requirements for financial institutions that wish to serve marijuana-related businesses.
While sources indicate that the proposed banking reforms have gained little traction among congressional lawmakers, the legislative initiatives will likely encourage greater conversation at the federal level regarding marijuana banking issues. Even with the passage of either of the above banking law reforms, numerous legal issues and uncertainties will remain as a result of the federal-state marijuana law conflict. In the absence of removing marijuana from Schedule I of the Controlled Substances Act, cannabusinesses will continue to face unique legal issues unknown to any other budding industry.