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Colorado Cannabis Credit Union Demands Access to the Federal Reserve System

Is turning away marijuana money illegal, or is it legally required?

Fourth Corner Credit UnionFourth Corner Credit UnionMore than a year ago, Fourth Corner Credit Union, a Colorado financial institution that was founded to serve the newly legal marijuana industry there, applied to the Federal Reserve Bank of Kansas City (FRB-KC) for the "master account" it needs to operate. Opening a master account, which is required to access the Federal Reserve's payment system, is a routine process that ordinarily takes a week or less. But months went by with no reply from FRB-KC, which ultimately rejected Fourth Corner's application last July. Yesterday a lawyer for the credit union told a federal judge in Denver that decision was illegal.

According to The Denver Post, U.S. District Judge R. Brooke Jackson was skeptical of Fourth Corner's argument that FRB-KC has no discretion under federal law to turn away a credit union as long as it has a state charter and is eligible to apply for deposit insurance. But Jackson was sympathetic to the predicament of state-licensed cannabusinesses that are forced to deal entirely in cash because they cannot find financial institutions willing to serve them. In February 2014 the Treasury Department's Financial Crimes Enforcement Network (FinCEN) and Deputy Attorney General James Cole issued guidelines that were supposed to address this problem by assuaging banks' worries about the legal risks of accepting marijuana money. Jackson described those memos as "nothingburgers" because they did not change federal laws that treat marijuana as contraband. The continued federal prohibition of marijuana means financial institutions that handle cannabis cash are arguably committing multiple felonies and regulatory violations.

Similarly, FRB-KC argues that it would be violating federal law if it facilitated marijuana trafficking by letting Fourth Corner open a master account. "It's a risk the Federal Reserve has decided they don't want to take on," a lawyer for FRB-KC told Jackson.  

In its lawsuit against FRB-KC, Fourth Corner notes that the Federal Reserve system is already handling marijuana money, in the form of transfers from the few banks that serve cannabusinesses and deposits from state governments that tax them. The credit union also argues that the "the Monetary Control Act requires the Federal Reserve to provide all depository institutions with equal access to Federal Reserve bank services at nondiscriminatory pricing." It says FRB-KC, which is controlled by large commercial banks, is illegally blocking competition with them by refusing to let Fourth Corner serve the booming marijuana industry.

The credit union concedes that "the Board of Governors of the Federal Reserve System could adopt a rule or policy that strictly prohibits all financial institutions from using Reserve Bank services to bank the marijuana industry because marijuana remains federally illegal." But instead "the Board of Governors adopted a rule that allows all depository institutions to provide services to MRBs [marijuana-related businesses], provided they comply with the FinCEN guidance and the Cole memorandum." Fourth Corner adds that "whatever the rule is, it must be applied equally and not discriminate."

Judge Jackson does not seem inclined to grant a preliminary injunction based on that argument. "I would be forcing the reserve bank to give a master account to a credit union that serves illegal businesses," he said yesterday. "If I were in the Congress, I'd vote for you," he told Fourth Corner's lawyer, "but I've got to do the job of a federal judge here...I think there's a certain unfairness to allowing these big banks to serve this business and keeping you out. But it's not for me, I don't think, to decide issues of fairness or policy. My job is to enforce and apply the law."

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  • Fist of Etiquette||

    The deck is stacked firmly against legalization. This is going to be a long slog.

  • Swiss Servator||

    If only Comrade Obama knew of this injustice...

  • Plàya Manhattan.||

    His newspaper must be late today.

  • CatoTheChipper||

    Maybe CNN will run the story. Obama hasn't been watching much cable news lately, so he may be catching up while he's on vacation.

  • Plàya Manhattan.||

    He has his eye on the Hawaiian Monarchy right now.

  • Hank Phillips||

    What? Liliuokalani got deposed?

  • Hank Phillips||

    Do you know anything of the conditions of slog in those people's States? Where there is no libertarian party? Much of the world is still trapped in Nixon-era mystical violence between liberation armies, military dictators, bomb-planters, rigged secret ballot elections and corrupt soft machines. Americans hold in their mortal hands the power to change everything simply by voting for a 44-year-old party instead of the same looter gerontocracy. John F Kennedy was elected at age 43.

  • Robert||

    The deck is stacked any way the Fed wants it stacked. If the Fed wanted to do biz w ISIS, the State Dept. would have to lump it. If the deck's stacked vs. legaliz'n, it's because the Fed wants it that way.

  • Swiss Servator||

    "But it's not for me, I don't think, to decide issues of fairness or policy. My job is to enforce and apply the law."

    How was this guy ever allowed on the bench?! What about the FEELZ???

  • Jerryskids||

    "Issues of fairness" doesn't cover equal protection of the law? If banks handle that dirty, dirty cannabis tax money for the state and the local government, not to mention the dirty, dirty cannabis money involved in the leasing of storefronts and insuring and supplying the business, why is the business itself excluded? Is not all the money tainted? Can't the feds already go after anybody who knowingly deals with the cannabis business and therefore the banks who knowingly deal with the businesses knowingly dealing with the cannabis business?

  • Swiss Servator||

    That is not the kind of "fairness" I think the judge is addressing.

  • R C Dean||

    Too bad. If he was addressing legal fairness rather than cosmic fairness, he might have been able to hand down a better decision.

  • sarcasmic||

    But Jackson was sympathetic to the predicament of state-licensed cannabusinesses that are forced to deal entirely in cash because they cannot find financial institutions willing to serve them.

    See? Large amounts of cash are proof that someone is dealing drugs!

  • AlmightyJB||

    All that cash being carted around is going to eventually get some people killed. If you're an armed robber, why would you be anywhere else?

  • sarcasmic||

    By "armed robber" you mean "cop" right?

  • AlmightyJB||

    Training Day

  • Swiss Servator||

    "Asset forfeiture"

  • Rich||

    Good thing MJ is "legal", huh?

  • CZmacure||

    It is pretty amazing how "legalization" has acquired the connotation of "liberty" but actually means lots and lots and lots of rules. Orwell on line 4.20...

  • SIV||

    Rape Science

    When the home team scores an upset win rapes rise.

  • R C Dean||

    When the home team scores an upset, the post-game drinking is pretty epic in a football town.

  • Jerryskids||

    The study found that on the day of games, reports of rape by 17- to 24-year-old victims in colleges' local policing areas climbed 28 percent.

    back-of-the-envelope calculations suggested that football games cause between 253 and 770 additional rapes per year across the 128 schools participating in the Division 1 Football Bowl Subdivision

    My back-of-the-envelope calculations suggest that if 253 to 770 additional rapes per year on game days represent a 28% increase, there are somewhere around one to three thousand campus rapes every year. Knowing that one in five college women get raped sometime during their college years, I can deduce that there must be about 15,000 women attending Division 1 schools. Something doesn't quite add up there. I'm gonna guess there must be a typo and rapes shoot up by about 253 to 770 rapes per minute, not per year.

  • R C Dean||

    I don't know how they get from an increase in reports on game days when the home team scores an upset, to the number of increased rapes per year.

    I'd like to see the math on that, starting with how many game days there are when the home team scores an upset.

  • Dallas H.||

    Exactly! How many hole upsets can there be in a given year?

    Generally, the home team is expected to have a home field advantage. So, unless the visiting team is quite obviously a better team, it's not going to be an upset if the home team wins. So, in that already minority of games where the visiting team is a notable favorite, they are going to win the majority of the time - otherwise it wouldn't require an upset.

    So, I'm guessing the number of true "home team upset wins" is a ridiculously small subset of the number of games.

  • Ken Shultz||

    If the government wants to keep its ability to go after drug cartels internationally for laundering marijuana money, they're going to have to allow state licensed dispensaries to use the banking system.

    Otherwise, won't legalization make that tool against the cartels go away, too? Just like laundering money from alcohol sales stopped being an issue with the end of Prohibition.

    They're busy right now busting Venezuelans, especially, for money laundering left and right. If they don't want to give up the ability to do that with the end of marijuana prohibition, then they need to carve out an exception for licensed dispensaries.

  • Hank Phillips||

    Repealing the individual income tax will go a long way toward solving the problem...

  • Hank Phillips||

    All they need to is publicize the way excises, income tax and prohibition have worked together since 1914 to transfer money from the population into the dissolute hands of nonproducing government boodlers. Once folks realize how asset forfeiture triggers flash crashes, and how every laundering and forfeiture law from Hoover to Reagan, Bush, Clinton and Bush Junior has correctly foreshadowed economic ruin, they'll resume avoiding banks. Repeal will come just as it did in 1933, when the Democrats finally enacted the Liberal party's repeal plank of 1931. Non-economic arguments, unfortunately, butter no parsnips.

  • IceTrey||

    It's federally illegal to transport or transmit drug money. So what exactly is Colorado doing with all the cannabis taxes that are paid in cash?

  • Robert||

    Oh, come on now, the Federal Reserve Bank of KC begging off that doing something would be illegal? If the Federal Reserve says jump, Justice or any other US dept. is going to ask, "How high?" The rest of gov't needs permission from the Fed, not vice versa! When you control the $, you have complete control.

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