If you remember back to the beginning of January, I wrote a blog entitled “Looking Ahead,” in which I referenced an interesting article that discussed the confusion over whether or not a financial institution could provide financial services to marijuana businesses. Well, FinCEN issued guidance late Friday referencing U.S. Department of Justice Deputy Attorney General James M. Cole’s memorandum (the “Cole Memo”). The guidance provides clarification with respect to financial institution’s ability to provide such financial services. FinCEN stated that the guidance is provided in hopes to “promote greater financial transparency in the marijuana industry and mitigate the dangers associated with conducting an all-cash business.”
I first want to point out that the beginning of the guidance makes it very clear that Congress’s stance on marijuana has not changed, as the article states “marijuana is a dangerous drug and that the illegal distribution and sale of marijuana is a serious crime that provides a significant source of revenue to large-scale criminal enterprises, gangs, and cartels.” The article goes on further to state that the Department of Justice will focus its resources to combat persons or organizations that undermine the “Cole Priorities” (see page two of the guidance). In other words, for lack of better words, you have been warned.
So here is what the guidance says in general:
The decision to open, close, or refuse any particular account or relationship should be made by each financial institution based on different factors specific to that financial institution such as:
- Business objectives
- Evaluation of the risks associated with offering a particular product or service
- The financial institution’s capacity to manage the associated risks effectively
The guidance explains that in order to assess the risk to the financial institution enhanced due diligence should be conducted that among other things, verifies licensing, obtains adequate documentation, determines an understanding of the business, monitoring for adverse information about the business, monitors for suspicious activity and does not violate a “Cole Priority.” See page 2 and 3 for a more detailed list of FinCEN’s due diligence guidance.
Long story short, if your credit union decides to offer financial services to a marijuana businesses, your credit union should absolutely ensure that it has a strong BSA program, conducts enhanced due diligence prior to opening the account and continued due diligence going forward. The credit union should also provide adequate training, and implement adequate internal controls to ensure continual monitoring of the businesses.
Finally, the guidance provides specific information with respect to filing SARs on marijuana business and specifically states that these businesses are not eligible for CTR exemption.