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Marijuana and Banks II

On August 29, 2013 Deputy Attorney General James Cole issued a memo concerning enforcement of the Controlled Substances Act “in light of state ballot initiatives that legalize under state law the possession of small amounts and provide for the regulation of marijuana production, processing, and sale.”1 The memo noted that “the federal government has traditionally relied on states and local law enforcement agencies to address marijuana activity through enforcement of their own narcotics laws.”2 However, Cole noted 8 enforcement priorities (Cole Memo priorities) that have continued importance for the federal government:

  • “Preventing the distribution of marijuana to minors;
  • Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels;
  • Preventing the diversion of marijuana from states where it is legal under state law in some form to other states;
  • Preventing state authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
  • Preventing violence and the use of firearms in the cultivation and distribution of marijuana;
  • Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;
  • Preventing the growing of marijuana on public lands and the attendant public safety and environment dangers posed by marijuana production on public lands; and
  • Preventing marijuana possession or use on federal property.”

3 However, the August 29 memo did not clear up uncertainty as to the legal exposure of financial institutions engaged in transactions with marijuana-related businesses. In my last post, I discussed criminal liability under 18 U.S.C. 1956. Furthermore, Deputy Attorney General Cole noted that “[f]inancial transactions involving proceeds generated by marijuana-related conduct can form the basis for prosecution under the money laundering statutes (18 U.S.C. §§ 1956 and 1957), the unlicensed money transmitter statute (18 U.S.C. § 1960), and the BSA” (Bank Secrecy Act).4 Although it seems clear that financial transactions with marijuana-related businesses would violate that law, it was unclear if prosecution would be pursued. To clear this uncertainty up, The Financial Crimes Enforcement Network (FinCEN) and The Department of Justice issued concurrent memos on February 14, 2014, providing guidance as to BSA expectations, and money laundering and unlicensed money transmitter statute enforcement.

The FinCEN memo noted that to meet BSA obligations (i.e. “failing to identify or report financial transactions that involved the proceeds of marijuana-related conduct”5) the financial institution should conduct due diligence including verifying that the business is licensed, reviewing the license application, requesting information from state authorities about the related parties, understanding the normal activity of the business, ongoing monitoring for monitoring for suspicious activity and adverse information about the business, and periodically updating information on business to conduct due diligence.6 The FinCEN memo also notes that a particularly important factor in conducting due diligence for the purpose of determining whether to provide financial services to a marijuana-related business is “whether a marijuana-related business implicates one of the Cole Memo priorities.”7 Financial institutions would still be required to file a suspicious activity report (SAR) on activity involving marijuana-related business.8 If the financial institution reasonably believes that the business does not implicate a Cole Memo priority, it should file a “Marijuana Limited” SAR including:

  • “identifying information of the subject and related parties”
  •  “addresses of the subject and related parties”
  • “the fact that the filing institution is filing the SAR solely because the subject is engaged in a marijuana-related business”
  • “the fact that no additional suspicious activity has been identified.”

9 However, if the business does implicate a Cole Memo priority, the financial institution should file a “Marijuana Priority” SAR including:

  • “identifying information of the subject and related parties”
  •  “addresses of the subject and related parties”
  • the Cole Memo priority implicated
  • “dates, amounts, and other relevant details of financial transactions involved in the suspicious activity.”

The FinCEN memo includes a list of “redflags” to aid financial institutions in determining if a priority SAR is required.10

The Concurrent DOJ memo stated “in determining whether to charge individuals or institutions with any offenses based on marijuana-related violations of the CSA [Controlled Substance Act], prosecutors should apply the eight enforcement priorities”(Cole Memo priorities).11  If the business to which the service is provided does not implicate a Cole Memo priority, then “prosecution for these offenses may not be appropriate.”12 Of course, a glaring word in the previous sentence is “may” indicating the permissive rather than required nature of the guidance. The DOJ memo clarifies this, noting that the memo does not alter federal law, create rights, or preclude prosecution.13

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  1. Memorandum, James M. Cole, Deputy Attorney General, U.S. Department of Justice, Guidance Regarding Marijuana Enforcement (Aug. 29, 2013) (available at http://www.dfi.wa.gov/banks/pdf/dept-of-justice-memo.pdf). 

  2. Id. 

  3. Id. 

  4. Memorandum, James M. Cole, Deputy Attorney General, U.S. Department of Justice, Guidance Regarding Marijuana Related Financial Crimes (Feb. 14, 2014) (available at http://www.justice.gov/iso/opa/resources/3052013829132756857467.pdf). 

  5. Id. 

  6. Guidance, Financial Crimes Enforcement Network, BSA Expectations Regarding Marijuana-Related Business (Feb. 14, 2014) (available at http://www.fincen.gov/statutes_regs/guidance/pdf/FIN-2014-G001.pdf). 

  7. Id. 

  8. Id. 

  9. Id. 

  10. Id. 

  11. Cole, supra note 4. 

  12. Id. 

  13. Id. 

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Joseph Guerra

Vol. 3 Associate Editor

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