FinCen Director Defends Marijuana Guidelines as Bank Group Urges Congress To Act

Defending the federal government’s guidance for providing financial services to legal marijuana businesses, a senior U.S. Treasury Department official on Tuesday said more than 100 banks and credit unions are now working with cannabis-industry customers. One consultant who connects banks with marijuana merchants confirms that financial-institution interest in the budding industry is growing. But a banking trade group in Colorado, where retail sales of small amounts of marijuana became legal in January, says Congress still needs to resolve the conflict between federal and state marijuana laws.

The U.S. Department of Justice and Treasury’s Financial Crimes Enforcement Network (FinCen), last winter issued guidelines for banks wishing to serve marijuana-industry businesses in states where cannabis use is legal. In addition to Colorado, Washington state has legalized retail marijuana sales, and 20 states and the District of Columbia permit the use of cannabis for medicinal purposes. Despite the guidelines, the marijuana industry remains mostly cash-based because financial institutions largely refuse to offer services, including business checking accounts and payment card merchant accounts, to cannabis merchants for fear of breaking federal law, which bans the sale of marijuana.

The guidelines say banks serving legal marijuana businesses must do their usual due diligence and file three new types of so-called suspicious-activity reports (SARs). One, dubbed the “marijuana-limited” SAR, simply notifies FinCen that the financial institution’s customer is a legal marijuana seller and no illegal activity is suspected. The other two SARs notify FinCen of possible illegal dealings. The feds’ guidance is meant to prevent marijuana businesses from selling in states where cannabis remains illegal, or abroad, as well as keeping marijuana away from youth.

“Since FinCen’s guidance went into effect in February of this year, we have received more than 1,000 SARs that indicate banks are using our guidance and providing much-needed transparency into their dealings with marijuana-related businesses,” FinCen director Jennifer Shasky Calvery said in a speech at the 2014 Mid-Atlantic Anti-Money Laundering Conference in Washington, D.C. “And based on a review of SARs filed between Feb. 14 and Aug. 8, 2014, there are currently 105 individual financial institutions from states in more than one third of the country engaged in banking relationships with marijuana-related businesses.”

Calvery said that since issuing the guidance, FinCen has received 502 marijuana-limited SARs and 123 “marijuana-priority” SARs that declare that the bank believes a legal marijuana business has violated federal policy or state law. FinCen also has received just over 475 “marijuana-termination” SARs stating that the financial institution ended its relationship with a marijuana seller because retaining that relationship would undermine its anti-money-laundering (AML) compliance program.

“So, from our perspective the guidance is having the intended effect,” Calvery said. “It is facilitating access to financial services, while ensuring that this activity is transparent and the funds are going into regulated financial institutions responsible for implementing appropriate AML safeguards.”

The Colorado Bankers Association issued a statement today reiterating its position that following the guidelines isn’t enough to assuage bankers’ concerns about violating federal law.

“While we sympathize with the marijuana industry, we continue to believe a change of federal law is the only way to adequately address the challenge of banking marijuana businesses,” association president and chief executive Don Childears said. “It’s important to note that the filing of a SAR does not necessarily equate to an ongoing relationship between a bank and a marijuana business. It could amount to something as little as cashing a check for an employee of a marijuana business.” He added: “We are anxious for regulators’ reaction and response to financial institutions banking the industry.”

But consultant Lance Ott, principal of Vancouver, Wash.-based Guardian Data Systems, which specializes in point-of-sale systems and business services for cannabis providers, says he’s getting more calls from bankers inquiring about the industry. Ott says he’s currently working with 14 banks and credit unions.

“The [financial] folks are becoming much more flexible,” Ott tells Digital Transactions News.

Seven of Ott’s financial clients are now offering marijuana businesses demand-deposit accounts. The others are actively looking at providing DDA services or learning about the process of filing SARs, he says.