cannabis banking

Cannabis Banking: The Prospects for Legal Protection

The trend of states legalizing cannabis – 33 states and counting – while it remains illegal under federal law poses a dilemma for U.S. financial institutions. While some banks and credit unions have chosen to serve cannabis businesses, most refuse to do so given the ongoing legal uncertainty. With limited banking access, many cannabis businesses are forced to operate with and store large sums of cash, which can create public safety risks. In recognition of this situation, there is a growing consensus that, regardless of one’s views about legalization itself, the problem of cannabis banking must be addressed.

On July 23, the Senate Banking Committee held an important hearing on the Secure and Fair Enforcement (SAFE) Banking Act, which would provide a level of legal protection for financial institutions serving marijuana-related businesses (MRBs). The heart of the problem is that, so long as cannabis remains illegal at the federal level, all proceeds derived from cannabis-related commerce are considered criminal proceeds for purposes of federal anti-money laundering and Bank Secrecy Act (AML/BSA) laws, even in states where cannabis has been legalized. The result is a multi-billion industry that continues to operate primarily in cash due to a scarcity of legitimate banking and payment options.       

The SAFE Banking Act is not the federal government’s first attempt to expand banking access to the cannabis industry. In 2014, the Treasury Department’s Financial Crime Enforcement Network (FinCEN) issued guidance to financial institutions for how to permissibly bank MRBs consistent with their AML/BSA obligations. The Department of Justice concurrently issued similar guidance to federal prosecutors, but that document, The Cole Memo, was rescinded by Attorney General Jeff Sessions.

The message of the FinCEN guidance is that so long as financial institutions and their MRB customers comply with the FinCEN guidance and relevant state law, they will not face regulatory or criminal sanctions solely for serving MRBs. FinCEN also established a Suspicious Activity Report (SAR) regime exclusively for financial institutions serving MRBs. 

Five years after it was issued, the FinCEN guidance has to be considered a qualified success in bringing some measure of banking access to the cannabis industry. FinCEN releases quarterly results about Marijuana SAR reporting, the most recent of which revealed that more than 600 financial institutions have filed some form of a Marijuana SAR. While not all of those filing institutions are actively and openly accepting MRB customers – anecdotally, that figure is less than 50 – it does reflect a functional system offering some banking relief to the cannabis industry. 

The inherent limitation of the FinCEN guidance, however, is that it is a policy prescription to a legal problem. For the vast majority of financial institutions, even a “hands off” federal policy is insufficient protection to take on MRB accounts, so long as cannabis remains federally illegal. The result is that the demand for MRB banking continues to outstrip supply, leaving much of the cannabis industry frozen out of the U.S. financial system.

The SAFE Banking Act attempts to remedy this problem in a number of ways. First and foremost, it removes the threat of regulatory or criminal sanctions against financial institutions and their officers, directors and employees “solely” for providing financial services to MRBs and ancillary businesses. It addresses the AML/BSA problem by exempting state-legal cannabis-generated proceeds from the definition of “criminal proceeds” as defined by federal money laundering laws. The bill retains the FinCEN SAR reporting regime, and requires the Federal Financial Institutions Examination Council to develop uniform guidance and examination procedures for financial institutions serving MRBs. The bill has garnered broad support among the financial industry, including from the American Bankers Association, the Credit Union National Association, and the Independent Community Bankers of America.

While the SAFE Banking Act enjoys broad support in the House, its fate will ultimately be decided in the Republican-controlled Senate. Many Republicans continue to oppose any form of cannabis legislation and may be reluctant to support a measure that would enable the industry to continue to grow. Others may attempt to expand the scope of the SAFE Banking Act to prevent improper regulatory interference against banking relationships in general, not just as they relate to the cannabis industry. The goal would be to prevent a repeat of the DOJ’s controversial Operation Choke Point, during which federal regulators targeted the bank accounts of certain politically disfavored industries. 

Whatever form of legislation eventually emerges, the primary mission of the SAFE Banking Act is historic – to provide legal protection for banks to serve a federally illegal industry. Whether that ultimately proves to be a bridge too far for this Congress remains to be seen. But the fact that it is a viable possibility is testament to the ever growing support for the U.S. cannabis industry.

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