The Obama administration issued rules on Friday allowing banks to do business with state-licensed marijuana companies — a substantial move that should free pot businesses from the fear of federal prosecution and embolden states experimenting with marijuana legalization.
The guidance issued by the Justice Department and the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury, does not promise immunity for banks. But it suggests that the federal government is unlikely to pursue companies for money laundering and other banking crimes as long as they meet certain conditions.
“Now that some states have elected to legalize and regulate the marijuana trade, FinCEN seeks to move from the shadows of the historically covert financial operations of marijuana businesses,” FinCEN Director Jennifer Shasky Calvery said in a release. “Our guidance provides financial institutions with clarity on what they must do if they are going to provide financial services to marijuana businesses and what reporting will assist law enforcement.”
Marijuana-related businesses for years have been sitting on larges amounts of cash because banks, fearing prosecution, hesitate to provide them with savings and checking accounts. This has increasingly created public security risks as more states experiment with marijuana legalization, most notably Colorado and Washington state.
In Colorado, for example, pot businesses made $5 million in sales in the first week after it was legalized on Jan. 1. The state expects businesses to generate $578 million annually in wholesale and retail marijuana sales, according to the Legislative Council of the Colorado General Assembly.
U.S. Attorney General Eric Holder recently announced that the Obama administration was planning to make banking easier for marijuana businesses. At a speech at the University of Virginia last month, he said marijuana businesses operating solely in cash area increasingly creating safety concerns.
“There is a public safety component to this,” said Holder. “Huge amounts of cash, substantial amounts of cash just lying around with no place for it to be appropriately deposited, is something that would worry me just from a law enforcement perspective.”
Under the guidance issued Friday, banks must review license applications for marijuana customers and request information about the business. Financial institutions that decide to do business with marijuana companies will have to file a suspicious activity report, or SAR, for every account. Banks will label transactions with legal pot business as “marijuana limited” in reports to FinCEN. Activity with companies that banks suspect are illegal will be marked as “marijuana priority.”
But Friday’s announcement is unlikely to reassure all banks, especially the nation’s federally insured financial institutions. That’s because the federal guidance falls short of legislation bankers want to see approved before doing business – laws that would provide definitive legal authorization.
Although Colorado and Washington have legalized recreational marijuana, and medical cannabis is legal in 20 states and the District of Colombia, the drug remains illegal under federal law, which is why the federal government cannot provide any legal guarantees.
“Guidance or regulation doesn’t alter the underlying challenge for banks,” the American Bankers Association said after Friday’s announcement. “As it stands, possession or distribution of marijuana violates federal law, and banks that provide support for those activities face the risk of prosecution and assorted sanctions.”
Nonetheless, marijuana legalization advocates hailed the announcement. While it doesn’t solve all problems, they say, the rule does provide valuable assurances from the federal government. The move also provides further momentum to a burgeoning movement determined to relax marijuana laws nationwide.
“It appears that the Obama administration is trying to provide as much protection as possible for the marijuana industry, given the constraints of federal law,” said Ethan Nadelmann, executive director of the Drug Policy Alliance, a non-profit that promotes alternatives to global drug policy. “The assurances the administration have provided appear fairly substantial and will hopefully prove sufficient so that banks will feel safe doing business with the marijuana industry.”
With wire services