Financial Industry Should Remain Cautious Despite Marijuana Banking Guidance


The sale of medical or recreational marijuana is legal in at least twenty states and the District of Columbia. The sale of the drug generates a lot of cash. But banks have been reluctant to permit marijuana-related businesses to bank proceeds of marijuana sales or otherwise provide financial services to the marijuana industry. The reason is simple. Banks are concerned about running afoul of federal law, including the Bank Secrecy Act (‘‘BSA’’), which requires banks to monitor money passing through their institutions for potential money laundering activities.

To comply with the BSA, banks are required to file Suspicious Activity Reports (‘‘SARs’’) related to transactions they suspect involve potential money laundering. Because the cultivation, possession, and distribution of marijuana are illegal under the federal Controlled Substances Act, any proceeds deriving from those transactions would be proceeds of an illegal transaction. Any marijuana-related business attempting to bank proceeds of marijuana sales would trigger the bank’s obligation to file a SAR. Banks that fail to file a SAR for a reportable activity face criminal and civil fines and other penalties. Similar concerns have kept banks from extending loans to marijuana-related businesses and start-ups. Not only could such action be viewed as ‘‘aiding and abetting’’ a federal offense, but any collateral securing those loans could be subject to federal forfeiture laws. These, and many other issues have kept banks on the sidelines of pot commerce.

Originally Posted in Bloomberg BNA's BNA Banking Report - February 25, 2014.

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