A bipartisan marijuana banking bill is still pending in the Senate. Congress researchers released a study outlining the criminal penalties that are still looming over financial institutions who work with state-licensed businesses.
The Congressional Research Service’s (CRS) report shows that despite federal prohibition, hundreds of banks and credit-unions report serving state-legal cannabis-operators. Regulators generally do not take enforcement actions against this activity.
CRS reported that “due to legal risks under federal laws, many financial institutions have refused to provide common banking services to state-authorized cannabis businesses, such as debit or credit cards payment services, business loan services, electronic payroll services and checking accounts.” Some argue that, in turn this refusal has, reportedly, stifled the growth of state-authorized cannabis businesses and forced them into operating largely in cash. This raises public safety and compliance concerns.
The report states that there are several legal liabilities when providing banking services to marijuana-related businesses because of the “discordant federal and state marijuana legal regimes.” This includes criminal penalties under the Controlled Substances Act, anti-money laundering laws (AML), and the Bank Secrecy Act.
CRS stated that individuals could face a 20-year prison term and criminal money penalties for engaging in financial transactions with marijuana-related proceeds, with the intention of promoting a subsequent offense. “For instance, a bank may violate the [statute] if it withdraws funds from a checking to pay salaries for medical marijuana dispensary staff on behalf of the dispensary.”
The research service notes that there are limited guidelines from the Financial Crimes Enforcement Network, which has been in place since 2014. These provide requirements for Financial Institutions that choose to serve the cannabis industry.
CRS stated that the guidance identified transactions which could trigger federal enforcement priorities. These include distribution to minors, and support of drug cartels or other criminal enterprises. The FinCEN guidance lists “red flags”, which may indicate that marijuana priority SARs are appropriate. For example, if businesses fail to document state law compliance.
FinCEN released its latest quarterly report in September, which showed that the numbers of financial institutions willing to provide services for state-legal marijuana businesses have increased over time despite federal prohibition. In the second quarter 2023, 812 banks and credit cooperatives reported working actively with marijuana companies. This is a record since FinCEN began tracking this data in 2014.
CRS’s new report explains that, despite the fact that these hundreds of banks technically engage in an activity which could be construed to be federally criminal, under different statutes. This is why legislators in both chambers are working on a legislative solution.
reports describe how this issue can be resolved, for instance, under the Secure and Fair Enforcement Regulation Banking Act. The bill passed through the Senate Banking Committee on September. However, it must still pass the House. In recent sessions, the House has approved seven versions.
The report states that “The SAFER Banking Act, and the very similar version of SAFE Banking Act enacted by the 118th Congress has two primary goals.” First, they would limit federal banking regulators’ ability to penalize institutions that provide financial services to marijuana companies complying with state law. They would also protect depository institution personnel and some of their legal liabilities under BSA, AML and asset forfeiture laws, when they provide financial services or invest proceeds from serving marijuana businesses that comply with state laws.
A coalition of 20 Democratic congressional members is calling on the Treasury Department to update its federal guidance in order to stop financial institutions from discriminating marijuana business owners based on prior cannabis-related activities that have since become legal at state level.
The bicameral legislators wrote to Treasury Secretary Janet Yellen on Tuesday and FinCEN director Andrea Gacki to say that the current Obama-era guidance was “prior to the actions taken by many states to allow marijuana possession and sale, and it red-flags unnecessary businesses whose owners were engaged in marijuana-related activities that are not criminalized at state level.”
Yellen said in March that regulatory agencies are also looking at options to address the unique issues associated with the cannabis industry. Last year, the Secretary said it was “extremely disappointing” that Congress had not passed legislation such as the SAFE Banking Act and that Treasury “supports” the proposal.
CRS published a separate report this month warning that, if cannabis was eventually legalized by lawmakers, they should consider the possible unintended effects of imposing high taxes on marijuana products. The analysis is part of an ongoing administrative review on marijuana’s classification under the CSA.
Ohio GOP Senate leader says ‘All hands on deck’ to change voter-approved marijuana law before it takes effect next month
The post Congressional researchers flag legal liabilities for banks that work with marijuana businesses while reform bill lingers in Senate first appeared on Marijuana Moment.
