Banks need law, not guidance, to deal with MMJ

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It would take an Act of Congress” is an old saying, to be sure, but also applicable in the current situation banks are facing to legally provide services to the marijuana industry.

Despite bankers’ varied attitudes about legalizing marijuana, now that it is legal in Colorado, banks are supportive of government efforts to permit financial services for marijuana businesses. However, numerous obstacles prevent banks from serving marijuana businesses and their customers as they conduct legal activities.

There are several reasons for allowing banks to provide these services.

Colorado can’t regulate or tax an industry for which it cannot track money, public safety risks associated with cash-heavy businesses cause concern, and several federal laws preclude banks from serving these businesses, regardless of state law.

Only Congress can resolve this.

To date, banking has heard only “no” from federal laws, the Department of Justice, bank regulators and others. 

While recent guidance issued by the Department of Justice and the U.S. Treasury is well-intentioned, it provides practically no relief from bank regulatory burdens, and it cannot change the fact marijuana remains illegal at the federal level and banks must follow all laws.

Saying it’s all right doesn’t make it so.

Banks are responsible to regulators, most of which are independent and uncontrolled by the president’s executive branch. The idea of no prosecution is nice, but to banks, regulators have the real power as they can impose various civil money penalties, cease-and-desist orders, fines, and they can ban bankers from their careers for life, should they violate federal law.

To provide services to marijuana businesses, a bank would require numerous clearances. To date, banking has heard only “no” from federal laws, the Department of Justice, bank regulators and others.

The only real solution is an act of Congress, which isn’t likely in the near future, even though it is needed. Elections can bring a change in guidance — and this guidance is the fourth Department of Justice formal position on marijuana in recent years. Put simply: Banks need the permanence of law versus changeable guidance.

A number of federal laws now preclude banks from opening accounts related to marijuana.

The Controlled Substances Act (CSA) prohibits everyone, including banks, from dealing with controlled substances or the proceeds from them, like the cash from a pot shop. A bank commits money laundering by accepting deposits from marijuana activities. The Bank Secrecy Act (BSA), anti-money laundering laws and the Know Your Customer doctrine hold banks responsible when customers engage in federally illegal activities, even if a customer attempts to disguise the true nature of an account or a deposit’s origin.

It’s ironic with all the competition that banks face daily to attract new business, we have to turn away business if it’s related to the marijuana industry. Some bank customers have gone to great lengths to disguise accounts related to marijuana, even spraying deposited cash with Febreze air freshener (an interesting way to “launder” money), for example.

Banks, as bound by these laws aimed at fighting organized crime and terrorism, are on the lookout for attempts at money laundering and must file Suspicious Activity Reports (SARs) if anything appears amiss — and pot-related deposits fall in that category.

Last year, about 1.6 million SARs were filed in the U.S., and 342 people were sentenced to an average of 40 months in prison as the result. Bankers face criminal and civil penalties should they fail to act on their suspicions. These laws can’t simply be swept aside; unfortunately, they are both technically and politically complex.

Among needed clearances are: detailed in-hand guidance from bank regulators about legal and regulatory obligations, and a high probability of no regulatory action against a bank. Others needed are internal regimens to comply with numerous laws requiring special handling and massive reporting on marijuana deposits, and a low likelihood of private litigation, as well as the go-ahead from banks’ own attorneys.

Additionally, a low prospect of prosecution now or in the future must be secured. The Colorado Bankers Association is working to support allowing this industry access to the banking system.

Lonnie Parsons is the regional president for ANB Bank in Colorado Springs.