Marijuana advocates said they are realistic about the guidance’s potential impact. Banks wary of marijuana business

When it comes to doing business with marijuana sellers, it’s going to take a lot more than a thumbs-up from Eric Holder to get paranoid bankers on board.

The U.S. attorney general made waves last week when he said the Obama administration plans to give banks the go-ahead to make loans or open accounts for marijuana dispensaries in states where they’re legal without running afoul of federal laws, which still consider cannabis an illegal substance.


While the reassurance from Holder is nice, bankers say it’s not that simple.

Financial firms must comply with a slew of anti-money-laundering rules enforced by bank regulators, and the risk of violations could be big for banks that choose to do business with companies that are breaking federal laws.

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Also, the DOJ directive wouldn’t be binding, and there have been past examples of prosecutors who disagree with similar guidance ignoring the directive. The next administration could also wipe it off the books. All it takes is one U.S. attorney to file criminal charges, and a bank could lose its charter and be forced to shut down.

With this in mind, for many banks — even with assurances from Justice as well as Treasury’s anti-money-laundering division — the risks still outweigh the rewards.

“From my conversations with bankers, I don’t see that there’s anything they can do that’s going to give a bank the comfort they need until Congress changes the law,” said Rob Rowe, senior counsel at the American Bankers Association.

Banks have faced a conundrum ever since states started loosening laws to allow the sale of marijuana for medicinal purposes, and the issue has picked up as sellers in Colorado and Washington, which legalized all sales last year, look for safe places to park their proceeds.

In the meantime, banks and credit unions in states where sales are legal are in the awkward position of having to turn away business.

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The Denver-based Public Service Credit Union first took on marijuana business customers soon after the state passed its law. But the credit union closed the accounts after state regulators told it they couldn’t guarantee how the feds would react.

“Everybody’s been a little bit nervous because of the risks with the federal issue,” said Cyndi Koan, the credit union’s executive vice president. “We don’t want to discriminate against a small business … and obviously, now they’re at risk because they don’t have access to basic financial services.”

In a speech at the University of Virginia last week, Holder said it’s a public safety concern.

“Huge amounts of cash — substantial amounts of cash just kind of lying around with no place for it to be appropriately deposited is something that would worry me, just from a law enforcement perspective,” he said.

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Dispensaries are eager to use the banking system, and banks in legal states are eager to get in on the business opportunity.

But Don Childears, the president of the Colorado Bankers Association, which has pushed hard for changes to the rules, said he is not convinced that an opinion from the executive branch is enough.

“It’s a murky area,” Childears said. “It literally will take an act of Congress.”

Though the details are still unclear, industry sources and marijuana advocates said they expect the Justice Department guidance to mirror an August memo that instructed U.S. attorneys not to make pot cases a priority.

But federal prosecutors would still have the discretion to bring charges. For example, Melinda Haag, the U.S. attorney for Northern California, has shown no signs of slowing her pursuit of cases against medical marijuana dispensaries in her district — where sales are legal under state law — despite the August memo.

Also, there’s nothing to stop a future administration from reversing the policy. That’s enough to scare off some banks.

“Because there’s nothing hard and fast that gives them a safe harbor from prosecution … this is a risk they just don’t want to take,” Rowe said.

DOJ has also been working with Treasury’s Financial Crimes Enforcement Network (FinCEN) on “clarifying guidance” to help banks navigate requirements under federal anti-money-laundering laws, primarily the USA PATRIOT Act and the Bank Secrecy Act.

For example, banks are required to monitor and report to regulators any suspicious transactions that might indicate a client is breaking federal laws. Those suspicious activity reports are more than just a paperwork hassle — they have tripped up a number of large banks and led to multibillion-dollar settlements in recent years.

Ideally, FinCEN would spell out the heightened steps a bank must take, including strict controls to prevent money laundering or other illicit activity, in order for regulators to approve of it doing business with marijuana shops.

But it will be very difficult for regulators to draw bright lines, because money laundering requirements are dictated largely by the amount of risk that a bank takes, bank lawyers said. The more risky business a bank takes on, the more sophisticated — read: expensive — compliance program it must develop.

It’s up to a bank’s regulator to determine whether its program is good enough and, not surprisingly, results can vary.

It’s for this reason that banks — and big banks, especially — routinely avoid all kinds of high-risk clients, from nongovernmental organizations that operate in terrorist hot spots to companies that transmit money overseas, even if banking with those customers is technically legal.

Now, laws that were meant to bring transparency to the financial system and root out illicit transactions risk driving legal business out of banks and into unmonitored areas of the system.

“Because these types of clients are perceived as too hot to handle, the banks are just not taking them on,” said Katrina Carroll, a lawyer at the firm Wilmer Hale and a former money laundering official at the Treasury Department. “Until there is either a legislative fix or a very overt statement by DOJ and also word from FinCEN and the bank regulators … that they’re comfortable with this, it’s hard to envision major banks providing services to marijuana growers.”

After a handful of high-profile money laundering settlements with big banks, sources said regulators weren’t exactly eager to encourage banks to wade into such a high-risk business.

It’s not clear whether the federal bank regulators — the Office of the Comptroller of the Currency, Federal Deposit Insurance Corp. and Federal Reserve — plan to issue guidance or policy statements that complement FinCEN’s guidance.

Going forward, regulators could also issue so-called no action letters that essentially condone the activity of a specific institution but are often used as a road map for the rest of the industry.

“We are working closely with our colleagues at the Justice Department and with the other federal banking regulators,” FinCEN spokesman Steve Hudak said. “We hope to have more information available soon.”

On Capitol Hill, Reps. Ed Perlmutter (D-Colo.) and Denny Heck (D-Wash.) have introduced a measure that would prohibit the feds from going after banks and credit unions that are providing services to marijuana-related businesses in states where it is legalized.

“There needs to be some amendments to the law that says if a state has a regulatory structure in place — whether for medical marijuana or adult use — that that state is exempt from the money laundering” laws, Perlmutter said.

“We don’t need to have a big robbery or some kind of terrible crime to elevate this thing,” he added. “We can see the potential dangers and should address them.”

But one important piece of the puzzle is missing: widespread support from the banking industry.

Yes, banks in Colorado and Washington are pressing for changes to the rules, but trade groups say the issue hasn’t picked up steam among their broader membership, who has plenty of other issues to deal with, such as new rules from the 2010 Dodd-Frank law.

Only one industry trade group, the Credit Union National Association, reported lobbying on the issue in the fourth quarter, according to disclosures filed this month.

“I don’t think this issue is quite ripe for members yet but certainly is one that is not going away anytime soon,” said James Ballentine, the ABA’s executive vice president for congressional relations and political affairs, adding that the bill is not on the group’s priority list.

Until then, marijuana advocates said they are realistic about the guidance’s potential impact.

“It’s a good start, it should likely lay out a framework that we can hopefully build on, but it probably won’t be incredibly specific or binding,” said Erik Altieri, a spokesman for NORML, which advocates for marijuana legalization . “Some smaller players will be comfortable … whereas your larger, national banks will probably still hold back.”