On Friday, as J.D. Tuccille noted, the Treasury Department and the Justice Department issued guidelines for banks that do business with state-licensed marijuana suppliers. According to Attorney General Eric Holder, the aim of the memos is to reassure financial institutions that are leery of accepting cannabusinesses as customers because they worry it will attract unwanted attention from federal regulators and prosecutors. But as with the August 29 memo in which Deputy Attorey General James Cole said that prosecuting properly regulated marijuana growers and sellers would not be a high priority, there are no guarantees, and that fact is likely to deter traditionally cautious banks more than plucky cannabis entrepreneurs.
The Treasury memo, issued by the department's Financial Crimes Enforcement Network (FinCEN), says the Bank Secrecy Act (BSA) requires financial institutions to file "suspicious activity reports" (SARs) for all marijuana businesses. But FinCEN draws a distinction between marijuana businesses that violate state law or implicate one of the Justice Department's "enforcement priorities" and marijuana businesses that do neither. The former merit "marijuana priority" reports, while the latter fall into a newly invented "marijuana limited" category. According to the memo, this distinction "aligns the information provided by financial institutions in BSA reports with federal and state law enforcement priorities."
What are those priorities? Cole's August 29 memo lists eight: 1) "preventing the distribution of marijuana to minors," 2) "preventing the diversion of marijuana from states where it is legal under state law in some form to other states," 3) "preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use," 4) "preventing the growing of marijuana on public lands," 5) "preventing marijuana possession or use on federal property," 6) "preventing revenue from the sale of marijuana from going to criminal enterprises," 7) "preventing violence and the use of firearms in the cultivation and distribution of marijuana," and 8) "preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs." At the end of the memo, Cole adds that the feds might also intervene for other, unspecified reasons.
The FinCEN memo lists "red flags" that suggest a marijuana business deserves special scrutiny, including "international or interstate activity," an inability to "demonstrate the legitimate source of significant outside investments," signs that the business is "using a state-licensed marijuana-related business as a front or pretext to launder money derived from other criminal activity," and "negative information, such as a criminal record, involvement in the illegal purchase or sale of drugs, violence, or other potential connections to illicit activity." Such red flags are supposed to inform banks' decisions about which customers to reject or drop as well as which sort of SAR to file. FinCEN warns that the red flags it mentions "do not constitute an exhaustive list." Although FinCEN says its advice "should enhance the availability of financial services for, and the financial transparency of, marijuana-related businesses," it never actually says banks that follow the guidelines need not worry about getting into trouble with regulators.
The Justice Department memo that Cole released on Friday, which like his August 29 memo is addressed to U.S. attorneys, has a similar limitation. He notes that the earlier memo "did not specifically address what, if any, impact it would have on certain financial crimes for which marijuana-related conduct is a predicate," such as money laundering or failure to file SARs. The new memo clarifies that prosecution decisions related to those crimes "should be subject to the same consideration and prioritization" as prosecution decisions related to marijuana trafficking. Again, the feds are not making any promises. Here is the closest Cole comes: "If a financial institution or individual offers services to a marijuana-related business whose activities do not implicate any of the eight priority factors, prosecution for these offenses may not be appropriate." Then again, it may! Like Cole's August 29 memo, this one closes with a caveat that is not exactly reassuring: "Nothing herein precludes investigation or prosecution, even in the absence of any one of the factors listed above, in particular circumstances where investigation and prosecution otherwise serves an important federal interest."
This weak tea may be pretty much the best that the Obama administration can do under current law, which is why bankers are calling for congressional action to address the tax, regulatory, and public safety issues raised by forcing marijuana suppliers to deal exclusively in cash. In a press release issued on Friday, Don Childears, president of the Colorado Bankers Association (CBA), does not sound grateful for the new guidance:
After a series of red lights, we expected this guidance to be a yellow one. This isn't close to that. At best, this amounts to "serve these customers at your own risk," and it emphasizes all of the risks. This light is red.
The CBA complains that the guidance from FinCEN and the Justice Department "reiterates reasons for prosecution and is simply a modified reporting system for banks to use," a system that "imposes a heavy burden on them to know and control their customers' activities, and those of their [customers'] customers." The CBA says "no bank can comply" with those expectations. Childears concludes that "an act of Congress is the only way to solve this problem." The Marijuana Businesses Access to Banking Act, introduced last summer by Reps. Ed Perlmutter (D-Colo.) and Denny Heck (D-Wash.), would protect banks that deal with state-legal marijuana businesses from criminal investigation or prosecution and from regulatory repercussions, including loss of federal deposit insurance.