On January 23, Attorney General Eric Holder announced that the federal government was taking steps towards making it easier for depository institutions to do business with marijuana sellers. ((Josh Gerstein, Holder: Feds to Set Rules for Banks and Pot Money, Poltico (Jan. 23, 2014), http://www.politico.com/blogs/under-the-radar/2014/01/holder-feds-to-let-banks-handle-pot-money-181777.html.)) Holder cited “public safety” concerns noting, “substantial amounts of cash just kind of lying around with no place for it to be appropriately deposited is something that would worry me, just from a law enforcement perspective.” ((Id.)) The logic seems to be that because these sellers currently do not have a place to deposit cash legally, they must hold on to the cash, thus subjecting themselves to the risk of theft or robbery. Of course, an easy solution to this problem is to allow marijuana sellers to engage in the same practice as businesses in other industries. That is, allow them utilize insured depository institutions. Easy enough, right? In theory, yes, but the complication here comes from the fact that under federal law it is unlawful “for any person knowingly or intentionally to manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense” marijuana. ((21 U.S.C.A. § 841 (West 2010).)) Holder’s announcement of making it easier to conduct business is not based on an attempt to change the legality of marijuana, but rather on a statement that banks would not face Federal prosecution. The problem is that it doesn’t make the conduct legal, and thus, does suffice as a binding safe harbor. Although details of the directive have not been released, Politico noted “federal prosecutors would still have the discretion to bring charges.” ((Kate Davidson, Babjs still wary about marijuana business, Poltico (Jan. 29, 2014), http://www.politico.com/story/2014/01/marijuana-banks-doj-eric-holder-102838.html.)) Furthermore, just as easy as Holder issued the guidance, a future Attorney General could change the direction subjecting the banks to liability.
So what are the risks? Principally, depository institutions should be worried about running afoul of federal money laundering laws. The relevant portion of one of the statute states:
(a)(1) Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity–
(A)(i) with the intent to promote the carrying on of specified unlawful activity
((18 U.S.C.A. § 1956 (West 2012).)) Clearly, if the institution knew they were dealing with a marijuana seller it would not be difficult to satisfy the knowledge requirement of knowing that “the property involved in the transaction represented proceeds from some form . . . of activity that constitutes a felony.” ((18 U.S.C.A. § 1956(c)(1) (West 2012).)) The institution knew the other party was a marijuana seller , it likely knew that doing so is a felony, and it knows that the deposits are, at least in part, from the sale of marijuana. The requirement of conducting a financial transaction, similarly, would not be a difficult task to satisfy. Section 1956 (c)(2) notes that “‘conducts’ includes initiating, concluding, or participating in initiating, or concluding a transaction” and section 1956 (c)(3) notes that a “transaction” includes deposits as well as loans. Generally speaking, depository institutions (i.e. banks) are in the business of taking demand deposits and making commercial loans. ((18 U.S.C.A. 1841(c)(1)(B) (West 2012).)) Thus, it is likely that the kind of business that the depository institution would be engaged in with a marijuana seller would be that of accepting deposits or making loans, both transactions under section 1956.
An interesting question is whether it could be proven that the institution had the requisite “intent to promote the carrying on of specified unlawful activity”. The manufacture, sale, or distribution of Marijuana would qualify as a “specified unlawful activity”. ((16 U.S.C. § 1956(c)(7)(B)(i) (West 2012).)) Surprisingly, there is not much guidance in the case law as to what qualifies as promotion of the unlawful activity. Furthermore, looking at model jury instructions does not improve the clarity the analysis. The 10th Circuit model jury instructions, the circuit that includes Colorado within its jurisdiction, state that “the defendant [conducted] [attempted to conduct] the financial transaction with the intent to promote the carrying on of [specify unlawful activity from 18 U.S.C. § 1956(c)(7)].” ((10th Circuit Criminal Pattern Jury Instructions (2011), available at http://www.ca10.uscourts.gov/downloads/pji10-cir-crim.pdf.)) This adds nothing to the analysis past the actual text of the statute. The 9th Circuit jury instructions, the circuit that includes Washington within its jursidction, states that “the defendant did something that was a substantial step toward committing the crime. Mere preparation is not a substantial step toward committing the crime. To constitute a substantial step, a defendant’s act or actions must demonstrate that the crime will take place unless interrupted by independent circumstances.” ((9th Model Criminal Jury Instructions (2010), available at http://www3.ce9.uscourts.gov/jury-instructions/node/606)). Under this strict standard, issuing a loan to a marijuana seller seems to more easily be characterized as promoting the manufacture, distribution, or sale of marijuana relative to taking a deposit. Giving a loan for the purpose of running a marijuana business will result in the crime unless something independently interrupts. The argument for taking a deposit might prove to be less persuasive. However, there is an argument that storage of funds is an indispensable function in the ongoing illegal enterprise. Furthermore, other circuits apply a less strict standard with regard to proving intent to promote the specified unlawful activity. For instance, the 11th Circuit states “that the Defendant must have [conducted] [attempted to conduct] the financial transaction for the purpose of making easier or helping to bring about the “specified unlawful activity” as just defined.” ((11th Circuit Pattern Jury Instructions (2010), available at http://www.ca11.uscourts.gov/documents/jury/CriminalJury2010.pdf.))
The takeaway might be that this is currently an unresolved question. Of course, there are more issues that will be addressed in a subsequent post.