Banks were given a green light Friday to offer services to the legal marijuana industry but must continue to report any suspicious activity from stores to federal authorities.
The historic step brings marijuana businesses closer to legitimacy in states where pot is already legal, but it falls short of the legislative action many banks want to see before doing business with marijuana operators. That will be up to Congress to consider.
In a joint statement, the U.S. Department of Justice and the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury, said the move gives “greater financial transparency” to an industry that remains illegal in nearly every state.
“Law enforcement will now have greater insight into marijuana business activity generally,” FinCEN said in a news release, “and will be able to focus on activity that presents high-priority concerns.”
Banks currently must file a suspicious activity report, or SAR, any time it suspects a transaction has a drug connection. Under the new guidance, banks would have three tiers of those reports they can file dependent on levels of concern.
Colorado-based U.S. Attorney John Walsh said the guidance clarifies how law enforcement and banking will approach what’s been a sticky issue.
The “guidance seeks to mitigate the public safety concerns created by high-volume cash-based businesses without access to banking and the financial system, while at the same time ensuring that criminal organizations, gangs and drug cartels do not have access to the financial system to launder criminal proceeds,” Walsh said in a statement.
Colorado and Washington are the only states to allow legal recreational marijuana sales while 20 about others allow medical marijuana.
But marijuana remains an illegal narcotic under federal law, on the same list as heroin and cocaine.
The fledgling industry saw a lack of banking and credit card services — not all are without it, though most are — as its most serious problem, particularly because it essentially forced those businesses into a cash-only system.
That made for ripe targets and worried business owners, law enforcement and patrons.
Colorado’s medical marijuana industry last year contributed more than $9 million in state sales tax revenues — all of it banked at JPMorgan Chase, one of three to hold a contract for state deposits.
Although JPM happily accepts state funds derived from recreational marijuana proceeds, it will not say whether the government’s announcement will induce it to bank with those businesses directly.
The latest guidance, as with three previous memos issued by the Justice Department, doesn’t carry the same force as law, and bankers are quick to point that out.
A memo issued last summer, known as the Cole Memo, indicated federal authorities were unlikely to waste resources on legal businesses that ensured eight DOJ priorities weren’t breached. Those included keeping legal pot away from minors and funneling proceeds to other states.
As long as a marijuana business does not violate one of those eight priorities, FinCEN’s guidance says a bank need only report that it’s working with a legal marijuana business.
The DOJ has said its core focus is criminal enterprises that would look to use the legal trade as a means to launder other ill-gotten gains, or as fronts for other criminal activity.
The seven-page guidance also notes a number of “red-flag” scenarios that would require a bank to file a SAR, including a customer “depositing cash that smells like marijuana” who might be trying to conceal involvement in marijuana-related business activity.
There have been reports in Colorado and nationwide of robberies, burglaries and other thefts from marijuana businesses, some of it escalating since the drug began legal recreational sales here on Jan. 1.
Most large banks will not openly discuss their plans as it relates to the marijuana industry, many of them citing the uncertainty of federal rules and regulations, which, bankers say, can be changed as quickly as an election cycle.
Trade associations that represent banks — the de facto mouthpieces since they do not deal with regulators directly — have publicly said it’s unlikely anything changes until Congress acts definitively.
Some banks — likely small community banks — have been offering services to marijuana businesses already.
Despite warnings from Visa and MasterCard that their policies were to ensure no illegal transactions entered their systems — and every marijuana buy, no matter the source, was illegal under federal law — some stores had credit-card machines at the ready for check out.
Nevertheless, some banks have sounded the word clearly that no matter the changes in policy or law, whether by Congress or agency, they will not provide banking services to marijuana businesses. They are a resolute “no.”
Pueblo Bank & Trust, one of the nation’s major bank sponsors for privately owned ATMs, recently told providers it will not allow machines to be placed in or near marijuana-selling businesses. And working with pot businesses is unlikely to happen anytime soon, either.
“We don’t see any reason to change that unless required to,” Pueblo president Mike Seppala told The Denver Post. “Given the current makeup of my board and management, I can’t see loosening of our rule even if the federal government eases up.”