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February 14, 2014

Feds give guidance to financial institutions about providing services to marijuana-related businesses

As reported in this lengthy new Denver Post article, headlined "Feds give historic green light to banks working with marijuana businesses," today brought another remarkable and remarkably important new development in the arena of marijuana law, policy and reform. Here are the basics:

Banks were given a green light Friday to offer services to the legal marijuana industry, but must continue to report any suspicious activity specific to that industry to federal authorities.

The historic step brings marijuana businesses closer to legitimacy in states where pot is already legal, but it falls short of the legislative action many banks want to see before doing business with marijuana operators. That will be up to Congress to consider.

In a joint statement, the U.S. Department of Justice and the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury, said the move gives "greater financial transparency" to an industry that remains illegal in nearly every state. It also makes clear that banks would be helping law enforcement with "information that is particularly valuable" in filing regular reports that offer insights about how marijuana businesses work.

"Law enforcement will now have greater insight into marijuana business activity generally," FinCEN said in a news release, "and will be able to focus on activity that presents high-priority concerns." Banks currently must file a suspicious activity report any time they suspect a transaction has a drug connection. Under the new guidance, banks would have three tiers of SARs specific to marijuana businesses dependent on levels of concern.... The marijuana-specific reports are either "marijuana limited," "marijuana priority," and "marijuana termination," which identifies the business as operating normally or having some measure of truly suspicious activity.

Colorado-based U.S. Attorney John Walsh said the guidance clarifies how law enforcement and banking will approach what's been a sticky issue. The "guidance seeks to mitigate the public safety concerns created by high-volume cash-based businesses without access to banking and the financial system, while at the same time ensuring that criminal organizations, gangs and drug cartels do not have access to the financial system to launder criminal proceeds," Walsh said in a statement.

Colorado and Washington are the only states to allow legal recreational marijuana sales while 20 about others allow medical marijuana. "Now that some states have elected to legalize and regulate the marijuana trade, FinCEN seeks to move from the shadows the historically covert financial operations of marijuana businesses," FinCEN director Jennifer Shasky Calvery said in a statement.... "Clearly it is possible to provide financial services to state-regulated marijuana businesses and comply with the Bank Secrecy Act requirements," the FinCEN official said.

The fledgling industry saw a lack of banking and credit card services — not all are without it, though most are — as its most serious problem, particularly because it essentially forced those businesses into a cash-only system. That made for ripe targets and worried business owners, law enforcement and patrons.

Colorado's medical marijuana industry last year contributed more than $9 million in state sales tax revenues — all of it banked at JPMorgan Chase, one of three to hold a contract for state deposits. Although JPM happily accepts state funds derived from recreational marijuana proceeds, it will not say whether the government's announcement will induce it to bank with those businesses directly.

The latest guidance, as with three previous memos issued by the Justice Department, doesn't carry the same force as law, and bankers are quick to point that out. ...

Mike Elliott, the executive director of the Marijuana Industry Group, a trade organization for cannabis stores, said his group is happy the federal government saw the need for marijuana businesses to have banking services. But Elliott said the memo shouldn't be the final word and said federal law still must be changed to give banks greater confidence in working with the industry. "These memos certainly help and provide some cover but ultimately do not solve all the problems," Elliott said. "So I think we're waiting here to see what the banks' reactions are."

The FinCEN memo is available at this link, and here is how its seven, dense pages get started:

The Financial Crimes Enforcement Network (“FinCEN”) is issuing guidance to clarify Bank Secrecy Act (“BSA”) expectations for financial institutions seeking to provide services to marijuana-related businesses.  FinCEN is issuing this guidance in light of recent state initiatives to legalize certain marijuana-related activity and related guidance by the U.S. Department of Justice (“DOJ”) concerning marijuana-related enforcement priorities.  This FinCEN guidance clarifies how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations, and aligns the information provided by financial institutions in BSA reports with federal and state law enforcement priorities.  This FinCEN guidance should enhance the availability of financial services for, and the financial transparency of, marijuana-related businesses.

February 14, 2014 at 03:38 PM | Permalink


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Congress should pass a law that clearly shows that states where marijuana is legal or has legal uses are not subject to federal bans as applied to those things legal pursuant to state law. This is to my understanding the rule in some cases such as certain federal laws that touch upon gambling.

Posted by: Joe | Feb 14, 2014 3:51:47 PM

I would suggest that 5% of tax revenues be assigned to the academic study of the effects of the legalization. Surveys of population use of all intoxicating substances. Tracking ER visits for overdoses. Counting coroners' reports of toxicology of murder, crash victims. The number of impaired drivers with THC in the system vs alcohol.

Then, if money is left over, economic studies of the impact on the economy, and lastly, effects on the criminal justice system. Were prisons emptied out as promised by preventing the incarceration of non-violent offenders? Or were such offenders diverted to the max already, and only the ultra-violent are ending up behind bars?

Posted by: Supremacy Claus | Feb 14, 2014 4:46:02 PM

nice. would have been nicer before they gave those suckers in calif years in prison for this very thing.

Posted by: rodsmith | Feb 14, 2014 6:25:44 PM

Regardless of your opinion on the merits of marijuana legalization, we should all be somewhat troubled by Eric Holder's blatant disregard for federal law. The AG's job is to enforce the law. His job is not to enforce the laws he likes and refuse to enforce those he dislikes. If Congress wants to change the marijuana laws, fine---that is Congress's prerogative. What is not acceptable is for the AG to simply say "Who needs Congress, I can do whatever I want." If that is acceptable, then where does it end? Is a Republican AG free to disregard the tax fraud laws, or Sarbanes Oxley, or the enforcement of banking laws? Finally, how can the AG legitimately give a pass to marijuana dealers in Colorado and the banks who deal with them while continuing to prosecute marijuana dealers in other jurisdictions and continuing to seize money those dealers deposit in banks?

Posted by: Zachary B. | Feb 15, 2014 12:33:19 PM

Zachary B. nails it. Whether wisely or not, federal law unambiguously prohibits selling or otherwise distributing pot. It also makes the proceeds of doing so contraband (just as the proceeds of heroin dealing or bank robbery are contraband) subject to seizure.

Eric Holder is the Attorney General of the United States, not the Attorney General of Colorado or the General Counsel of NORML. He is obliged to advance the interests of his client.

His client right now is running a gargantuan deficit, and could use all the money it can legally obtain. It could certainly use the money generated by federally illegal drug sales (whether pot, heroin, meth or anything else).

If Holder wanted to serve the interests of his client, rather than someone else's, he would move to forfeit the proceeds of drug sales wherever he could find them. Instead he virtually gives instructions to Colorado dealers for keeping and safeguarding money that, under federal law, they have no right to in the first place.

As Zachary B. notes, this is astounding. Its impropriety would be easy to see if a state's law authorized industrial pollution prohibited under federal law, and then Mr. Holder, instead of acting to stop the polluter, told it how to safely bank the profits its pollution helped generate.

Had Alberto Gonzales done such a thing, do you think liberals would have endorsed his action as "accommodating an experiment in federalism?"

Not exactly. They would have been howling for his impeachment.

Posted by: Bill Otis | Feb 15, 2014 2:27:25 PM

That's the first thing you have posted that I agree with Bill.

Posted by: Book38 | Feb 18, 2014 8:07:40 PM

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