Feds loosen marijuana banking restrictions although banks remain cautious

Staff writerFebruary 14, 2014 

Call it a very conditional Valentine’s Day gift from the federal government to marijuana entrepreneurs in Washington and Colorado.

The Justice and Treasury departments on Friday outlined the new policy to federal prosecutors and financial institutions nationwide. The guidance stopped short of promising immunity for banks and credit unions that would do business with the marijuana industry, but the guidance did clarify the government position.

Criminal prosecution for money laundering and other crimes is unlikely if the financial institutions meet a series of conditions.

Those conditions include significant due diligence on the part of banks and credit unions aimed at potential customers who are in the marijuana trade. In order to ensure compliance with the guidelines, among other requirements the banks and credit unions must verify licenses, review license applications and other documentation, monitor publicly available sources for adverse information about the businesses and continually monitor accounts for suspicious activities.

Scott Jarvis, director of the state Department of Financial Institutions, on Friday applauded the efforts by officials in Washington, D.C.

“I’m thankful for all the work they’ve done,” he said. “I know this has been challenging. I’m guardedly optimistic that there will be some of my state charters who will read this through, and be comfortable making a decision to bank I-502 businesses.”

Initiative 502, passed by Washington voters, allows legal commerce in the production, processing and sale of marijuana and related products.

Because no licenses have yet been issued in Washington, Jarvis said “We have a window of time to consider this guidance.”

He noted that the latest guidance does not apply to the medical marijuana industry in Washington. Entrepreneurs in the medical marijuana industry do not currently qualify given the guidelines outlined in Friday’s memoranda.

Hal Russell, president and CEO of Tacoma-based Commencement Bank and chairman of the Community Bankers of Washington, said that his association board met Friday and discussed the revised government stance.

“The guidance adds a little more comfort, but it’s not a green light,” he said. “We believe it’s not definitive enough for us to proceed. Until we get something more definitive, at that point we’ll decide. It hasn’t crossed the goal line yet. We’re going to suggest people proceed very cautiously.”

Denny Eliason, lobbyist for the Washington Bankers Association, echoed Russell’s caution.

“We are reviewing this important guidance. It does provide an important first step in the ability of banks to consider whether to offer these services to this emerging industry. It will set forth a fairly complicated process that banks will have to go through. Each financial institution will have to decide on their own whether to set up those systems and set up the due diligence.”

The guidance, he said, “does provide a pathway. What we don’t know is whether financial institutions will go down the pathway.”

Credit unions as well as banks have been deciding whether to provide services to the industry.

Lynn Heider, vice president for public relations and communications at the Northwest Credit Union Association, said Friday that her group appreciates the work of regulators on the issue.

“We encourage our credit union management and legal staff to carefully review the guidance and compliance requirements before determining whether to proceed,” she said in a statement. “It is important to note that the policy issued today is guidance and not law. Congressional action is still needed, to mitigate risks long term. We expect further guidance from the National Credit Union Administration shortly.”

Todd Pietzsch, spokesman for BECU, said the company is “having our counsel digest it all so we can understand the risks, and the monitoring that goes with it. We’re going to review it and understand the risks.”

JoAnne Coy, spokeswoman for Tacoma-based Columbia Bank, said Friday, “It’s still too early for us to make a final determination. We need to do a thorough evaluation of the new guidance.”

Lara Underhill, spokeswoman for Wells Fargo, echoed other banks.

“It is currently Wells Fargo’s policy not to bank marijuana businesses, based on federal laws – under which the sale and use of marijuana is still illegal. We are reviewing the guidance,” she stated.

According to the guidance issued by the Department of the Treasury Financial Crimes Enforcement Network, financial institutions will be required to file a Suspicious Activity Report if the institution “knows, suspects, or has reason to suspect” that a transaction involves funds derived from illegal activity. 

The guidance goes on to say, “Because federal law prohibits the distribution and sale of marijuana, financial transactions involving marijuana-related business would generally involve funds derived from illegal activity.”

Hilary Bricken, a Seattle lawyer for marijuana businesses, was hopeful her clients would soon have an easier time opening bank accounts. 

The guidance should persuade banks to at least accept the companies' deposits, she said.

"I think it's going to be enough for these banks who have been chomping at the bit to get a piece of this action," Bricken said.

Bricken also predicted marijuana businesses would now have an easier time accepting credit cards and debit cards. But she isn't so sure it would persuade banks to make loans to the businesses.

The guidance could also remove an obstacle to finding investors, Bricken said. Some have been leery because of questions of how they would keep track of the money they invest in the industry.

Chris Kealy, who is seeking a state license to grow and process marijuana on the Tacoma Tideflats, recently solicited Bank of America to handle his banking needs.

He said the bank hasn't yet agreed to take his business, but he's confident he'll be able to secure a bank account somewhere.

The alternative would involve, among other things, handing tax collectors millions of dollars in cash. “We want to be able to write a check to pay taxes," he said.

Pierce County cannabis entrepreneur Angel Swanson, who has applied for a license to sell recreational cannabis products, said Friday that she is pleased by the action from the Other Washington.

“I’m curious how this plays,” she said. “We’re used to jumping through hoops. I will jump through all the hoops they want me to jump through. I’m hopeful that this is enough to let the banks move forward. That’s what I’m hoping. Everybody is so scared and worried. I’m hopeful and I’m thrilled that they are finally addressing it. It’s a wonderful move.”

Staff writer Jordan Schrader and David Ingram and Jason Lange of Reuters contributed to this report.

 

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