The Department of Treasury today issued guidance for financial institutions that want to do business with the marijuana industry.
The primary force keeping banks away from the marijuana industry has always been regulations issued by the Financial Crimes Enforcement Network (FinCEN) dealing with money laundering. The Bank Secrecy Act that FinCEN enforces requires banks to investigate their customers and to neither negligently or knowingly do business with bad actors. State-legal marijuana businesses have always fallen into the category of bad actors for the banks, so they avoided potential fines by refusing to provide banking services to marijuana businesses.
Today’s regulations, however, clarify that banks can provide services to marijuana businesses without running afoul of federal regulations, so long as they abide by the following:
- Verify with state authorities that a business is duly licensed and registered.
- Review the license application and related documentation the cannabis business used to obtain its state license to operate its marijuana-related business.
- Request from the state licensing and enforcement authorities available information about the business and related parties.
- Develop an understanding of the normal and expected activity for the business, including the types of products to be sold and the types of customers to be served.
- Monitor publicly available sources for adverse information about the cannabis business and related parties.
- Periodically refresh information obtained as part of customer due diligence using methods and timetables commensurate with the risk.
Most of these guidelines are common sense, but they do have cost. A bank with 200 cannabis business clients will have a lot of work on its plate monitoring publicly available sources for adverse information about the business and related parties.
Additionally banks will need to file Suspicious Activity Reports (SARs) to FinCEN for all their marijuana businesses customers. Banks use SARs to notify regulators that someone may be using their services for an illegal purpose, but banks will be required to issue an SAR for all of their marijuana business clients. There will be no direct consequences arising from these SAR filings, but this does mean that big brother/the federal government will know exactly who you are as a marijuana business, and with whom you are banking.
Banks are also tasked with filing SARs if they believe that one of their cannabis business customers has violated a state law or has failed to act in accordance with the Attorney General’s prior memorandum on marijuana businesses. FinCEN is essentially dragooning banks to act as on-the-ground investigators to snitch on marijuana businesses that are not being as compliant and careful as the federal government believes they should be.
We will have more soon, but this is a good first step. Now we just need to wait and see which banks take the plunge and start marketing their services to marijuana businesses. Based on conversations that we have had with bankers in many states, we anticipate that the marketing will immediately begin in earnest.
