Marijuana Limited

February 18, 2014 at 8:12 am 4 comments

I don’t know what it says about the state of the credit union industry that my most popular blog in recent weeks was about the legal grey area confronting credit unions and banks in the 20 states and the District of Columbia that have legalized, to varying degrees, the possession and distribution of marijuana, even though such laws violate federal statute.

So, I thought you might all be interested in knowing that our good friends at FinCEN issued a thoughtful guidance on Friday afternoon clarifying just how financial institutions can comply with the Bank Secrecy Act and provide banking services to marijuana businesses operating legally under state law. FinCEN’s solution is not directly relevant to states like New York that have yet to legalize marijuana, but given the fact that the pot-legalization movement is moving quicker than Bob Costas’ eye infection, I would keep this guidance in your electronic files. Here are some of the highlights, but remember if any of you are in the 21 jurisdictions directly impacted by this guidance, this is no substitute for reading the entire ruling.

1. In states where marijuana use is not legal, nothing has changed. You would still file a traditional suspicious activity report (SAR) if you have reason to believe that a member is using his or her account to run a pot selling business.

2. In jurisdictions where pot businesses are legal, financial institutions will be expected to do appropriate due diligence when opening an account. For example, they will have to find out whether or not the business is properly licensed and they should also analyze the store’s business model.

3. Let’s assume that we are dealing with a licensed, legal pot business. Under this guidance, even though your credit union is authorized to open the account, it would still be obligated to file SARS on a regular basis. Consistent with existing regulations, financial institutions with SARS requirements may file SARS for continuing activity. These reports are not new. However, when the SAR relates to a marijuana business for which nothing has changed, the filing would include the notation that it is “marijuana limited” in the SARS narrative section. FinCEN has taken the logical position that even though the business might be legal under state law, its activity still violates federal law and it wants to know about it.

Here’s where it gets a little tricky:

4. The Justice Department has decided that it will not prosecute marijuana-related businesses in jurisdictions where they are legal, provided the businesses do not engage in certain types of activity highlighted in the so-called Cole Memorandum such as selling drugs to minors or assisting in money laundering. Consequently, credit unions will have to monitor these businesses and when they suspect that they are engaging in activity red-flagged by the Justice Department, they would have to file a traditional SAR. For example, like any other business, it would be mighty suspicious if a business started doubling its cash deposits. Where a financial institution files a SAR on a marijuana related business that it reasonably believes “implicates one of the Cole Memo priorities. . .” it would file a “marijuana priority SAR” indicating which one of the Cole priorities are implicated.

Entry filed under: Compliance, Regulatory. Tags: , , .

Security Is A Moving Target When it comes to lending it’s about young people, stupid

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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