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 Administration officials said the policy shift seeks to address
problems faced by newly licensed recreational marijuana retailers in
Colorado, and medical cannabis dispensaries in other states, that
must operate on a cash-only basis, without access to financial
services or credit.
It remained to be seen whether many banks would feel sufficiently
assured by the new policy, which the Justice and Treasury
departments outlined in writing to federal prosecutors and financial
institutions nationwide.
The guidance stopped short of promising immunity for banks. But it
said criminal prosecution for money laundering and other crimes is
unlikely if banks meet a series of conditions, such as avoiding
business with marijuana operations that sell to minors or engage in
illegal drug trafficking.
If banks turn a blind eye to illegal activity by failing, for
example, "to conduct appropriate due diligence of the customers'
activities, such prosecution might be appropriate," Deputy Attorney
General James Cole warned in the memorandum.
The memo builds on guidelines issued in August when the
administration promised new leeway to states experimenting with
legalization of marijuana, saying it would focus enforcement against
pot suppliers found to be operating outside of state regulation or
as a front for outlawed narcotics trade.
The latest directive is designed to address public safety issues
raised by legitimate, state-licensed cannabis suppliers' lack of
access to financial services, officials said.
Proprietors of state-permitted marijuana distributors in Colorado
and elsewhere have complained of having to purchase inventory, pay
employees and conduct sales entirely in cash, requiring elaborate
and expensive security measures and putting them at risk of robbery.
It also has made accounting for state sales tax collection
difficult.
Last month, Colorado became the first state to open retail outlets
legally permitted to sell marijuana to adults for recreational
purposes, in a system similar to what many states have long had in
place for alcohol sales. Washington state is expected to follow
Colorado's lead later this year.
The number of states approving marijuana for medical purposes also
has been growing. California was the first in 1996. It has since
been followed by about 20 other states and the District of Columbia.
U.S. Attorney General Eric Holder said last month that the
administration was planning ways to accommodate marijuana businesses
so they would not always be dealing in cash.
"There's a public safety component to this. 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," Holder said on January
23 at an appearance at the University of Virginia.
The American Bankers Association expressed skepticism the guidance
would make much difference. Pot sales still violate federal law, as
the government noted in its memo, so banks are still at risk, said
Rob Rowe, a lawyer for the trade group.
"Compliance by a bank will still require extensive resources to
monitor any of these businesses, and it's unlikely the benefits
would exceed the costs," Rowe said in an email to Reuters.
TWO MEMOS
A separate memorandum from the Treasury Department's Financial
Crimes Enforcement Network (FinCEN) laid out the due diligence that
banks should carry out, both before working with a marijuana
business and during the relationship.
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Financial companies should verify state licenses, understand the
normal activity for the business and monitor for suspicious
activity, the memo said.
"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,"
agency Director Jennifer Shasky Calvery said in a statement.
FinCEN expects big banks will still be wary about holding the money
of pot retailers with state licenses, a senior official at the
agency said.
Still, after consulting with state banking regulators, particularly
those in Colorado and Washington state, federal authorities said
they believe the new guidance will get more marijuana money into the
banking system.
Those most likely to open their doors to marijuana business first
would be "probably some of the smaller or medium banks rather than
some of the largest ones in this country," a FinCEN official said,
adding that some banks were already in the practice of flagging
money from marijuana businesses in their filings with regulators.
"The amount of money in this business is significant," the official
said.
STILL PRESSING FOR CHANGES
Advocates for the marijuana industry said they would continue to
press Congress for changes in federal law that would offer more
reassurance and that would survive beyond the Obama administration.
President Barack Obama is scheduled to leave office in January 2017.
"Congress must act quickly to solve the problem before we witness a
tragedy," Michael Elliott, executive director of the Marijuana
Industry Group, which represents pot retailers in Colorado, said in
a statement.
The guidance would not protect banks from state laws, and if a wire
transfer that moved marijuana-linked money touched a state where the
drug is under strict control, a bank that handled the transfer could
be open to state prosecution, experts in money-laundering said.
Individual banks may have difficulty identifying which
state-licensed businesses would run afoul of the federal guidance,
said Peter Djinis, a former regulatory policy official with FinCEN,
now in private practice in Florida.
"These complicated and vague policies continue the uncertainty that
banks have in determining whether to take the risk of conducting
financial transactions with otherwise legitimate marijuana
businesses," Djinis said.
(Additional reporting by Aruna
Viswanatha, Steve Gorman and Brett Wolf; editing by Howard Goller,
Jan Paschal, Jonathan Oatis and Richard Chang)
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