Cannabis: banking

A chain of federal laws has made banks skittish about support for cannabis businesses operating in states where such activities are legal.

Sale, distribution, or possession of cannabis is illegal under the federal Controlled Substances Act. Further, federal anti-money laundering laws make it illegal to handle the proceeds of such unlawful activities. And finally, the Bank Secrecy Act requires banks to have procedures in place to ensure they are not serving clients engaged in unlawful activities.

So while cannabis sales are legal under numerous state laws, supporting those activities exposes banks to substantial fines and bank employees to potential prison terms.

Both the U.S. Department of Justice and the U.S. Department of Treasury have informal policies that forgo legal action against banks serving cannabis businesses operating legally under state law, but those policies are just that: informal — not law.

Strictly speaking, offering banking services to cannabis businesses is illegal under federal law. Banks that believe a client is engaged in illegal activity are required to file a suspicious activity report (SAR) with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).

However, the approval of cannabis legalization ballot initiatives in Colorado and Washington state prompted the U.S. Department of Justice offered new guidance on cannabis enforcement, with refinements to that guidance issued in 2014. Simultaneous to the second DOJ memo (the so-called Cole memorandum), FinCEN in 2014 issued informal guidance to banks on how they might manage the contradictory legal environment. 

Under the FinCEN guidance, banks are expected to file a marijuana limited SAR regarding client activities that comply with state laws. Banks are expected to file a marijuana priority SAR if they believe client activities would involve federal law enforcement priorities, such as criminal enterprises or sales to minors.

According to the Congressional Research Service, “As of June 30, 2019, FinCEN reported that it has received nearly 90,000 marijuana-related SARs and that over 700 depository institutions reported providing some form of financial services to marijuana-related businesses.”

2014 FinCEN guidance on cannabis and banking

Financial Services for Marijuana Businesses (Congressional Research Service report)

Congress has explored the issue, and legislation to resolve the conflict has been introduced in both chambers.

The Senate Committee on Banking, Housing, and Urban Affairs and a House Financial Services subcommittee both held hearings on the issue in 2019.

Bills in both houses address the issue in different ways:

• The Secure and Fair Enforcement Banking Act (SAFE Banking Act) would constrain federal authority to penalize banks offering services to legally operating cannabis businesses and protect bank employees from liability in such cases (S. 1200, H.R. 1595). The House passed its version of the bill; no action has been taken in the Senate.
• The Marijuana Opportunity Reinvestment and Expungement (MORE) Act would decriminalize cannabis at the federal level, allowing legalization activities at the state level to continue without legal ambiguity (H.R. 3884, S. 2227). 
• The Strengthening the Tenth Amendment Through Entrusting States (STATES) Act would eliminate regulatory controls and administrative, civil, and criminal penalties under the Controlled Substances Act for certain marijuana-related activities that comply with state or tribal law. (S. 1028, H.R. 2093).

Failing action in the closing days of the 116th Congress, the bills will have to be reintroduced in the 117th Congress, which begins Jan. 3, 2021.

TK

Tk