Pot Banking Up In Smoke

January 5, 2018 at 9:00 am 1 comment

Image result for pot bankingYesterday, Attorney General Jeff Sessions put an end to any straight-faced argument a credit union or bank had for extending banking services to marijuana businesses in states that have legalized marijuana possession and distribution. With a short statement, he retracted the Justice Department’s policy since 2013 that it would not prosecute marijuana crimes in states that legalized marijuana for recreational and medical purposes provided these businesses followed strict protocols. If credit unions and banks are going to be able to provide banking services to pot businesses then they must get Congress to act. It’s that simple.

Regardless of what you think of the policy implications arising from  Sessions’ announcement, his decision clears the legal haze surrounding this strange legal issue. By 2013, 20 states had legalized marijuana use in some form even as it remained illegal as a matter of Federal law. The Obama Administration’s Justice Department, responding to pleas from among others, the Colorado Banker’s Association, issued the so-called Cole Memorandum. This memo stipulated that while the possession and distribution of cannabis remained illegal the Justice Department would effectively adopt a willful ignorance policy. Federal prosecutors were instructed not to prosecute properly run marijuana businesses in legal states.

FinCEN followed suit with a memorandum outlining the conditions under which credit unions and banks could both provide banking services to cannabis businesses and comply with the Bank Secrecy Act. Many financial institutions remained hesitant to provide services and the state of Colorado ultimately chartered a state chartered credit union specifically to provide banking services for these businesses. But the Federal Reserve refused to provide this bank access to the system and the NCUA refused to provide share insurance. A resulting lawsuit has done nothing to clarify the confusion. An Appellate Court ruled that the Federal Reserve acted within its authority but that Colorado could try again to show how it could legally provide banking services.

Yesterday’s announcement makes all this history obsolete. The Cole Memorandum has no legal effect and without the Cole Memorandum, FinCEN’s memo can’t survive. In fact, I would shortly expect an announcement that the memo has been withdrawn.

If you are one of the estimated 400 banks and credit unions across the country that decided to provide services, then you have some awfully tough decisions to make. Simply put, you’re providing services to a business that could be prosecuted for violating Federal drug laws. This is a clear violation of your BSA obligations. Individual US attorneys could decide not to prosecute but this is no basis for maintaining a stable cost intensive lending program.

By the way, I’m not saying any of this because I’m against legalized marijuana. I actually have come to accept that there is a place for the industry at least in states like New York that are willing to permit it for legitimate medical reasons. But I’ve always felt that legalizing cannabis on a state-by-state basis ignores bedrock legal principles: states can’t pick and choose what Federal laws they have to follow. And the Justice Department shouldn’t be in the business of ignoring laws passed by Congress that it doesn’t agree with. Whether you feel that smoking pot is your right or a clearly illegal activity, the banking industry now has clear guidance. The next step has to be to get Congress to change Federal law and allow marijuana to be legal in states that choose to make it legal.




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Authored By:

Henry Meier, Esq., Senior Vice President, 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. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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