Issues Affecting Banks and Marijuana-Related Businesses
The Missouri Bankers Association has received several inquiries related to banking relationships for marijuana-related businesses. This document presents information about how banks are structured and the impact of federal laws and regulations on these relationships.
What types of financial institutions are affected?
All depository financial institutions in the state of Missouri, including banks, savings & loan associations and credit unions, are affected. Depending on how the institution is structured, they are regulated by different government agencies. Some institutions are state-chartered, meaning they are organized according to Missouri laws, and some institutions are federally-chartered, organized according to federal law. A federally-chartered institution’s name will contain wording signifying that structure, such as “Federal” or “National” or “n.a.” or “f.a.” Deposits in banks and savings and loan associations are covered by the Federal Deposit Insurance Corporation (FDIC) deposit insurance rules, and deposits in credit unions are covered by the National Credit Union Administration (NCUA) rules.
Regardless of structure, ALL of these institutions are subject to the federal law known as the Bank Secrecy Act (BSA). The BSA is a federal anti-money laundering law and is intended in part to detect, report and prevent criminal financial activity. There is no difference in how the BSA and other federal anti-money laundering laws apply to regulated financial institutions.
Regulatory agencies send examiners into financial institutions to determine their compliance with a myriad of federal and state laws and regulations, including the BSA. State-chartered banks and savings and loan associations are examined by the Missouri Division of Finance and also either the FDIC or the Federal Reserve. National banks and federal savings and loan associations are examined by the Office of the Comptroller of the Currency (OCC). Credit unions are examined by the state or by the NCUA. All of these agencies follow the Interagency BSA/AML Examination Manual and Procedures. Violations of the BSA can be severe, including civil money penalties, criminal penalties and regulatory enforcement actions.
The Financial Crimes Enforcement Network (FinCEN) is an agency of the U.S. Treasury Department that promulgates rules, regulations, forms and guidance related to BSA requirements. The involvement of U.S. attorneys and federal, state and local law enforcement agencies can result in litigation related to BSA violations.
For the rest of this document, the term “bank” will be used, with the understanding that savings and loan associations and credit unions are under the same requirements.
What does the BSA and banking regulations require banks to do?
Along with many other requirements, the BSA requires banks to report illegal activities that are conducted or attempted to be conducted through a bank. Because marijuana is a Schedule One controlled substance and therefore considered illegal under federal law, any financial transaction related to marijuana is deemed to be illegal (for example, any bank deposit account transaction of a state-licensed medical marijuana dispensary). The bank detecting this activity would be required to file a seven-page Suspicious Activity Report (SAR) with FinCEN. If the bank maintains an ongoing relationship with a marijuana-related business (MRB), a SAR would have to be filed every 90 days. In addition, the bank is required to undertake extensive due diligence and monitoring of the account relationship.
All of these activities cause banks to incur extensive costs and increase risks to banks, including risks that are unknown and cannot be predicted or mitigated. Increased scrutiny by bank examiners can be anticipated. In addition, there is no “safe harbor” for banks that have these relationships, even if the bank follows the FinCEN guidance issued in 2014. For example, banks have become defendants in lawsuits merely because they had a banking relationship with the MRB that was the target of the lawsuit.
Are MRBs treated the same?
MRBs are generally divided into two categories: directly related and indirectly related. Directly-related businesses include growers/cultivators, processors/manufacturers and dispensaries. Indirectly-related businesses provide goods or services to directly-related businesses (for example, a commercial landlord that leases property to a dispensary or a business that sells supplies to a marijuana grower). Another category might be employees who work for MRBs. Banks may make different decisions as to relationships with different categories of businesses. For example, they might not provide services to a directly-related business but might provide services to an indirectly-related business or to employees who receive income from these businesses. Or, they might decide to not provide any services at all to any type of business that might receive revenues from any marijuana-related activity. In addition, if a relationship is established, the bank may decide to terminate it at some point because of the increased risks or costs associated with that relationship. A bank might also terminate a relationship that did not start out involving marijuana activity but evolved to include marijuana activity after the relationship was established.
Is there a list of banks that are preparing to bank MRBs?
Banks will make their decisions and decide how to communicate those decisions to their existing customers and potential customers, and they will decide if they wish to make their services known to the general public. There will not be any “list” of banks that have decided to offer services to MRBs.
What needs to happen to minimize these risks so that banks can offer services to MRBs in Missouri?
As long as federal laws exist in their current form, this conflict will continue, the same as it does in other states. Only action at the federal level – likely federal legislation that legalizes marijuana or that establishes a “safe harbor” for banks that offer services to MRBs – can resolve these issues.
Missouri Bankers Association
June 7, 2019