Feds say they won't target legal pot businesses with proper paperwork. Feds help banks with pot shops

The Obama administration on Friday released new guidelines aimed at making it easier for banks to serve marijuana businesses in states where selling the drug is now legal.

Banks have been reluctant to open accounts for pot shops because they remain illegal under federal law and financial institutions don’t want to face a crackdown from the Justice Department or regulators.


While financial institutions welcomed the new guidelines put out Friday by Justice and Treasury’s Financial Crimes Enforcement Network, they cautioned that unless Congress acts to remove the differences between federal and state laws they will remain apprehensive about opening their doors to weed sellers.

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“Guidance is all well and good but it doesn’t change the fact that we’re still in violation of the law surrounding this,” said Laurie Stewart, CEO of Sound Community Bank, which is headquartered in Seattle, Washington where the sale of marijuana is legal. “It’s kind of a question of how much risk can you can take.”

The issue of banks role in the legalized marijuana business has received increased attention in recent months after Colorado and Washington legalized the sale of the drug, going beyond other states that allow its use for medicinal purposes. Tales of pot shop owners driving around with thousands of dollars in cash and no place to put it highlighted the conundrum over what role banks and credit unions should play.

The guidance released Friday by Justice and Treasury essentially tell banks that as long as marijuana businesses are following state law and the proper paperwork is filed, they won’t be targeted by the federal government.

“The department shares the concerns of public officials and law enforcement about the public safety risks associated with businesses that handle significant amounts of cash,” Justice spokeswoman Allison Price said in a statement. “These guidelines, together with the Treasury Department’s guidance to financial institutions, are intended to increase the availability of financial services for marijuana businesses — that are licensed and regulated — while at the same time preserving and enhancing important law enforcement tools.”

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Friday’s actions are intended to allow banks to provide marijuana businesses with services such as accepting deposits, handling payroll checks and making it easier to accept credit cards.

The guidance will apply to banks doing business with either medicinal or recreational marijuana outlets that are licensed and regulated under state law. According to FinCEN, 20 states and the District of Columbia have legalized at least some marijuana usage.

The directives from Justice and Treasury attempt to walk a fine line of easing banks’ concerns while not endorsing activities illegal under federal law.

This lack of certainty in the guidance may reflect the Obama administration’s sensitivity at the moment to allegations that it is ignoring federal law. In recent weeks, GOP lawmakers have been slamming the president and his aides for immigration and health care reform policies that lawmakers say ignore congressional statutes.

Those pushing for more leniency when enforcing federal laws that clash with the legalization of marijuana on the state level still believe federal legislation will ultimately be needed but said the new guidance will help alleviate some concerns.

“This is a giant step forward, and I think it’s enough for some financial institutions to feel comfortable — but not all. This solves the problem in the immediate future,” Rep. Denny Heck (D-Wash.) said in an interview. “Still, while it’s a giant step forward — it’s still one step in a journey.”

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Heck and Rep. Ed Perlmutter (D-Colo.) have introduced legislation that would prohibit the feds from going after banks and credit unions that are providing services to marijuana-related businesses in states where they are legal. The bill’s chances of moving through Congress remain a long shot.

Some bankers were dismissive of the guidance, particularly sections they said would require them to do more than they feel is reasonable to ensure their customers aren’t running afoul of the new directives.

“We were disappointed to say the least,” said Colorado Bankers Association President Don Childears. “We were hoping for at least a yellow light – but we think this is another red light. It does nothing to encourage our members to provide banking services to these businesses.”

He highlighted two parts of the guidance put out by Justice regarding what activities prosecutors should focus on as being particularly confusing to interpret for banks: preventing marijuana possession or use on federal property and preventing drugged-driving.

“Drugged driving? Smoking on federal property? How the hell do we determine that?” Childears said.

The new guidance lays out both what will guide Justice when deciding which cases to pursue and what information banks will have to collect and provide the government in order to comply with anti-money laundering laws.

Under the new guidelines, a memo issued in August 2013 by Deputy Attorney General James M. Cole, instructing federal prosecutors on how they should view marijuana cases in states where it is legal will now apply to the role financial institutions play in the sale of the drug.

The memo states that prosecutors should focus their resources in eight areas with regard to marijuana businesses in states where they are legal, including whether they are selling the drug to minors, using their businesses as a front to sell other illegal drugs, or working with drug cartels and gangs.

To follow anti-money-laundering laws, FinCEN said banks will have to verify with state authorities whether the marijuana businesses they are dealing with are licensed. Banks must also monitor these businesses and report any suspicious activity, which under the guidance mostly focuses on whether the stores are making much more money than expected from just the sale of legal marijuana.

Justice and FinCEN officials said the new guidance does not grant any activities immunity from prosecution.

There is little expectation that large national banks will get into this businesses, and there are concerns about the lengths any bank will have to go to in order to check that pot dealers aren’t violating federal laws.

But Justice and Treasury officials on Friday expressed confidence that the new guidance would assuage the worries of smaller institutions that may be interested.

“Through our outreach, we were led to believe that there would be perhaps some banks that would be willing to offer these services and probably some of the smaller, medium banks, rather than some of the largest ones in this country,” a senior FinCEN official said.

Banks and their lobbying groups said one worry is whether the cost and hassle of following anti-money-laundering laws for a marijuana business will be worth it at a time when federal regulators have been focused overall on how criminal enterprises are moving money through banks.

There also is a concern that the next administration could change the policy, creating an air of uncertainty about serving these new customers.

Stewart said Sound Community Bank currently has a “don’t ask, don’t tell” policy when opening up deposit accounts for business customers. If it’s discovered the customer runs a marijuana business — typically by the aroma coming off the cash being deposited — the account is closed. Stewart expects the new guidance may allow them to open up new accounts for pot businesses, but services beyond that would likely be limited.

Denver-based Public Service Credit Union (PSCU) took on marijuana business customers after the state passed its law, but closed the accounts after state regulators told officials they couldn’t guarantee how the feds would react.

The new memo from Washington might be enough to get the credit union back in the market.

“We’ll take a second look at it,” said PSCU executive vice president Cyndi Koan. “It’s a first step – but it’s still not the law.”