Restrictive federal banking regulations that have forced most legal marijuana dispensaries to run as cash-only businesses have opened the door to another enterprise — automated teller machines — that seems to be a natural fit.

But the mixture of a booming recreational marijuana trade with easily acquired ATMs has some wondering whether it’s likely to yield more trouble than good.

The overriding worry is that the legal-marijuana industry could quickly become the innocent vehicle for criminal enterprises looking to launder cash through ATMs serving the fledgling, cash-reliant business.

Exacerbating the issue: There are thousands of privately owned ATMs across Colorado, but no one place — not law enforcement, not state or federal banking regulators, not even the ATM networks themselves — knows who owns them all or, for that matter, where they are located.

ATMs owned by banks are regulated by federal banking laws. Privately held ones are regulated by states that choose to do so — and Colorado isn’t one of those that does.

That makes law enforcement and regulators even more nervous.

“That’s not only a disaster waiting to happen; it’s a disaster that will happen,” said Jeff Sweetin, a retired former agent in charge of the U.S. Drug Enforcement Administration in Colorado. “It’s almost an ideal way for the criminal element to operate. Any time you have an easy ability to move large amounts of cash into the system without checks and balances … you’re wide open.”

State and federal officials in law enforcement and banking will not openly discuss issues involving banks and legal marijuana sales — and that includes ATMs. That’s because marijuana remains illegal under federal law, as are the businesses that deal in it.

“Could ATMs be used to launder money? Conceivably, yes,” said Carolyn Tyler, spokeswoman for Colorado Attorney General John Suthers. “But this is a public-policy matter for the legislature. It speaks to the overall need for the banking issues to be remedied at higher federal levels, and our state has been calling for that.”

Because federal law prohibits banks from knowingly working with marijuana — and all ATM networks require a host bank to connect into the system — some banks have already told ATM providers that bank with them not to place the machines in dispensaries or shops.

But they are there anyway — sometimes inside the dispensaries, sometimes right next door.

“The one concern sometimes voiced about ATMs, and it is not a new issue, is in regard to money laundering,” said Bruce Renard, executive director of the National ATM Council, an industry trade group for ATM deployers. “The question is whether legalization of marijuana in Colorado makes it a bigger issue there for potential misuse and abuse of ATMs with cash. I don’t believe it does, but it presents an interesting public-policy debate.”

Owners of medical- and recreational-marijuana shops here who agreed to discuss the issue said they were careful about their choice of ATM providers but expressed surprise that they were not regulated locally.

“I lost the ability to have credit cards in the store overnight,” 3D Cannabis Center owner Toni Fox said of the decision by Visa and MasterCard to reject marijuana sales last year. “So I went to others in the industry who had ATMs. I asked who they used and went with that.”

That advice came from Ean Seeb, co-owner of Denver Relief Center, a medical marijuana dispensary that has since switched to cashless ATM stations at checkout stalls.

“It was just frustrating to deal with all the cash, servicing the machine and running reports,” Seeb said. “We had enough to worry about without having to deal with all the other issues. Otherwise, it worked fine.”

Murky ownership

Some shop owners said they passed on offers to have ATMs at their store, citing worries about murky ownership since the machines can be subleased a number of times without restriction.

The lure, Sweetin said, is the enormous volume of cash that historically has followed the marijuana trade — and still does because of the restrictive banking laws. More than $1 million moved through Colorado’s marijuana trade on the first day of legal recreational retail sale, much of it in cash, and grew each day thereafter.

“Organized crime must, by definition, launder their money, and this simply plays into their hand,” said Sweetin, who retired in 2012. “What a terrific way to get their money into the U.S. banking system.”

Money laundering is the criminal activity of passing ill-gotten “dirty” money through a number of transactions, preferably electronic, so that the funds are “cleaned” to appear as if they were from legal activities.

An ATM transaction spits out cash when a customer inserts a bank-issued card, such as a debit or charge card. The machine connects to an electronic network that ties banks together.

Using a variety of complex signal relays, the ATM causes an amount to be withdrawn from the bank account of the person wanting cash, along with a service-charge assessment that can range as high as $5, and credited to the bank account of the person or business operating the ATM — anywhere in the world.

Though ATMs are located in a number of other legal establishments across the state — bars, restaurants, convenience stores among them — and theoretically subject to the same money-laundering concerns, none processes the volume of cash expected in the marijuana trade.

“ATMs are and have been a very good way to launder money,” said Michelle Hemerley, managing director for the Denver office of FIS Enterprise Governance Risk and Compliance, and an expert on fighting money laundering.

“And whether the ATM is in the (marijuana) dispensary or across the street is of little difference,” said Hemerley, a former examiner for the Federal Reserve. “The key is the ability to feed it the dirty money and make it appear legitimate.”

Federal regulators admit ATMs can be a problem too.

“Privately owned ATMs are particularly susceptible to money laundering and fraud,” says the Federal Financial Institutions Examination Council, an amalgamation of the various federal banking regulators such as the Federal Reserve Bank and the Federal Deposit Insurance Corp.

“Money laundering can occur through privately owned ATMs when an ATM is replenished with illicit currency that is subsequently withdrawn by legitimate customers,” the FFIEC says in its guidelines to bankers.

Bankers aren’t so convinced it’s an issue, though none would speak for this story unless their name wasn’t published, citing concerns that federal regulators frown on such public discussions.

“Banks have a responsibility for knowing where an ATM is, who has access to it and who’s putting money into it,” said a bank executive with one of the nation’s largest ATM operations, though not in Colorado. “You just can’t have some anonymous person stuffing thousands of dollars into the machine.”

Bank-owned ATMs are federally regulated, just as the banks themselves, by the Federal Reserve System. The law requires them to be identified with obvious signs and to follow specific rules regarding safety and accessibility.

But not privately owned ATMs. Some states — though not Colorado — require privately owned ATMs to be registered and labeled as such. In Illinois, the state can instantly track the location and ownership of any ATM, and the information is available to consumers — and law enforcement — on the state’s website.

Despite that, Illinois acknowledges the ease with which anyone can get into the ATM business.

“An owner of a cash-dispensing only ATM(s) has the commercial right to own as many ATMs as desired and locate them virtually anywhere,” according to Illinois law regarding their registration.

But an out-of-state machine can’t be brought into Illinois without being registered. In Colorado, it can.

Consumer complaints

Colorado banking officials acknowledge receiving complaints from consumers about ATM transactions on bank statements that indicate a machine in a state they never visited.

“That can occur with ATMs that are brought in for large events, such as a fair or festival,” former Banking Commissioner Fred Joseph said. “But Colorado does not regulate ATMs.”

Illinois, where medical marijuana sales were just approved by voters and for which regulations are in the development stage, has more than 21,000 ATMs owned by 820 private companies or individuals, state rec-ords show.

No one knows the same information for Colorado.

Some of the nation’s largest electronic-funds-transfer networks, such as STAR, which is owned by Colorado-based First Data, would not comment for this story.

Owning and placing an ATM is relatively simple, according to industry experts.

One can be purchased for as little as $2,000 — or leased for $100 a month. The next step is hooking up with a provider that can link the machine into the ATM electronic network.

“There’s a background credit check the processor requires,” said Lance Ott, co-owner of Guardian Data Systems, which markets ATMs to the medical marijuana industry. “It really just comes down to knowing your customer.”

The ATM industry acknowledges there’s always a security concern when large amounts of cash are involved, and while efforts to vet applicants and newcomers are often extensive, they are not foolproof.

“Every industry has legitimate operators and not,” said Renard of the ATM Council. “Our members … must adhere to strict compliance reporting and the oversight requirements of their sponsoring bank.”

While ATM networks and processors must ultimately have bank accounts to move the money around electronically — and the banks know who are behind these businesses — ownership of the machines themselves can be fuzzy. It gets even fuzzier when owners lease the machines to someone else.

“It becomes more of a challenge when (providers) sell ATMs to, or subcontract with, third- and fourth-level companies whose existence may be unknown to the sponsoring bank,” the FFIEC says in its guidelines. “The sponsoring bank may not know who actually owns the ATM … and who operates the ATMs may remain virtually invisible.”

“A whole bunch of issues”

Things got so fuzzy for MetaBank, a South Dakota-based bank that sponsors many major ATM processors, that it told them in an e-mailed directive last month that ATMs could not be placed in dispensaries.

“MetaBank, as a federally chartered bank subject to federal banking regulation, cannot sponsor ATM terminals that are deployed in any business establishment that distributes marijuana,” according to the e-mail.

MetaBank customer Jason Roth, president of ATMUSA in North Carolina, said conversations with other sponsor banks — including one in Colorado — have met with the same prohibition.

A MetaBank representative would not comment, though a bank executive familiar with the situation but not authorized to comment publicly put it succinctly: “Marijuana dispensaries are illegal businesses under federal law. ATMs cannot be located in an illegal business, no matter who owns it.”

Said Renard: “Banks are federally mandated and regulated, and as such do not allow or support the operation of any ATMs at facilities providing medical or recreational marijuana.”

Should dispensaries be approved for banking, an added concern is the possible commingling of funds should the dispensary owner choose to have an ATM as well.

“Mainly, (the concern is) if you feed your store’s cash flow into the machine, where it comes out to the customer to make a purchase and it goes back into the machine again,” Hemerley said. “In the meantime, the transactions are crediting a bank account somewhere else. That could be a problem.”

In Illinois, any business that owns an ATM — such as a restaurant, bar or liquor store — is required by state law to keep ATM funds separated from the business’ in-store sales and cash flow.

But not in Colorado.

“We fill the machines daily from the cash in the tills,” said Fox of 3D Cannabis, which has a bank account and keeps half of the $2.50 surcharge fee each user is assessed for getting cash from the ATMs in her store. “That’s our agreement for allowing it here. We service it.”

Sweetin, the former DEA regional chief, said a lack of ATM regulations in Colorado should be a concern, especially with the legalization of marijuana sales.

“There are just a whole bunch of issues with this,” Sweetin said. “Most people don’t understand that cash is a banking nuisance. It’s amazing that no one’s considered this in Colorado.”

David Migoya: 303-954-1506, dmigoya@denverpost.com or twitter.com/davidmigoya