Clearly, the Attorney General changed the tone. Does this mean
more federal prosecutors will start enforcing the Controlled Substances Act, state law notwithstanding? Many federal prosecutors
report they have their hands full handling the opioid crisis which
has been given a high priority with the DOJ. The real question is
whether the change in guidance from the DOJ will impact what’s
happening at the state level. And, do individual federal prosecutors want to get into conflicts with the states? Only time will tell.
This raises another question that banks often ask about marijuana and banking. When a bank processes transactions for a
customer where the proceeds come from marijuana, the bank
technically is laundering money. Bankers often ask whether there
are examples of cases when a bank has been prosecuted. While
the answer appears to be no, the real question banks should be
whether the bank is willing to be the first test case.
Pending Legislation in Congress
Over the years, different representatives in Congress, generally from
states where marijuana has been legalized, have introduced a variety
of bills to address the challenges that banks face. One, which has
actually been adopted and renewed, prohibits the DOJ from using
its funding to interfere with state-legal medical marijuana activity.
The draft bills take different approaches to help banks offer
services to businesses involved with marijuana. However, there
is a growing recognition on Capitol Hill that a solution is needed.
Banks can’t solve the problem and neither can any regulatory
agency. Unless every state rescinds all the state laws that permit possession and distribution of marijuana, a prospect that
is extremely unlikely, it will take an act of Congress to resolve
the conflict. And until Congress acts, banks will continue to be
caught in the middle between state laws that permit marijuana
use and federal law that bans it.
Where That Leaves Bankers
According to FinCEN, by the end of the third quarter 2017, it had
received nearly 40,000 SARs reporting activity associated with
a marijuana-related business. The great majority of those were
marijuana limited SARs, indicating that the industry continues
to offer some level of services to the cannabis industry. No one
knows, though, how extensive those offerings are, or what kinds
of banking relationships do exist. Anecdotal reporting suggests
it is very limited.
Banks confront a serious risk when they bank a marijuana business. Granted, banks are in the business of assessing, controlling,
and mitigating risks, however, to control risks, banks have to be
able to understand and identify them. Currently, that’s extremely
difficult when it comes to the cannabis industry. But if a bank offers products and services to a marijuana-related business, it must
take careful steps to address each and every one of those risks.
Because the risks are high, it requires enhanced due diligence to
understand the business and closely monitor its activities. And,
it requires careful attention to a very fluid situation.
Until Congress changes federal law, possession and distribution
of marijuana is illegal. When banks process transactions associated
with the business, they are laundering the proceeds of an illegal
activity. Will they be prosecuted for it? That’s the great unknown.
Drivers don’t always obey the speed limit and they don’t always
get caught…but there’s always that first time.
Finally, consider this: for many years, state lotteries were frowned
upon and only one state, New Hampshire, had a state lottery.
One-by-one, states began to offer lotteries as they discovered the
tremendous source of revenue that lottery programs had to offer.
Despite the objections of critics who saw gambling as the first step
on the road to moral degradation, income from lotteries and the
use of those funds to support beneficial programs (such as school
funding, environmental assistance programs or crime control)
won out. Now, states that have legalized marijuana are earning
substantial revenue from licensing and taxing marijuana businesses. At a time when states are strapped for cash, that income
can be extremely attractive. The income stream coupled with
changing attitudes among the general population means that a
change in federal law is nearing a tipping point. For the banking
industry caught between state and federal law, a change can’t
come soon enough. ■
ABOUT THE AUTHOR
ROBERT ROWE is Vice President and Associate Chief Counsel,
Center for Regulatory Compliance at the American Bankers
Association (ABA). Since 2008, he has represented the association’s
members in Bank Secrecy Act/Anti-Money Laundering, fair lending
and privacy matters. Rob also serves as the ABA’s representative
to Treasury’s Bank Secrecy Act Advisory Group, where he has been
a representative for more than 20 years. For nearly five years,
Rob has chaired the International Banking Federation’s Financial
Crimes Working Group where he continues as an active member.
Rob also serves as ABA’s liaison on military issues.
In the early 1990s, Rob spent four years with ABA, designing
products, seminars and services to help banks meet their regulatory compliance needs. He then worked with another trade association where he represented community banks on a variety of
compliance issues before returning to ABA in 2008. Rob also has
over a decade of experience as a compliance officer, covering issues
from personal trust to commercial lending.
Rob is a graduate of Bowdoin College, Boston University School
of Law, and he holds a master of laws from Georgetown University.
He is a member of the bar in Pennsylvania, Massachusetts, and the
District of Columbia.
Banks can’t solve the problem
and neither can any regulatory agency.
Unless every state rescinds all the
state laws that permit possession and
distribution of marijuana, a prospect
that is extremely unlikely, it will take
an act of Congress to resolve the conflict.