FinCEN Issues Guidance on Offering Financial Services to Marijuana-Related Businesses

Washington credit unions can provide financial services to marijuana-related businesses, the federal Financial Crimes Enforcement Network (FinCEN) said in a guidance issued Friday afternoon, but the decision to do so comes with increased due diligence and very specific risk-analysis requirements.

The guidance applies to financial institutions in the District of Columbia and the 20 states that have legalized marijuana for medicinal or recreational use. Marijuana remains illegal under federal law, however, and FinCEN’s guidance reiterated the Department of Justice’s continuing policy of investigating and enforcing federal civil and criminal statutes.

In a memo to U.S. Attorneys in August 2013, Deputy Attorney General James M. Cole said the department would focus on eight priorities for enforcing the Controlled Substances Act, including preventing revenue from the sale of marijuana from going to criminal enterprises and preventing state-authorized marijuana activity from being used as a cover for illegal activity. Before making the decision to offer financial services to marijuana businesses, FinCEN said, financial institutions should weigh their ability to effectively manage risks posed by the Cole memo.

“Thorough customer due diligence is a critical aspect of making this assessment,” FinCEN said, and financial institutions should understand that the process goes way beyond verifying and reviewing business licenses. Ongoing monitoring for suspicious activity and so-called “red flags” will also be required, as will the filing of Suspicious Activity and Currency Transaction reports.

The goal of the new rules, FinCEN Director Jennifer Shasky Calvery said, is to promote greater financial transparency in the marijuana industry and mitigate the dangers associated with conducting an all-cash business.

 “Now that some states have elected to legalize and regulate the marijuana trade, FinCEN seeks to move from the shadows the historically covert financial operations of marijuana businesses,” Shasky Calvery said.

Washington’s Department of Financial Institutions (DFI) forwarded both the FinCEN guidance and the Cole memo to its state-chartered credit unions Friday, along with a letter from Director Scott Jarvis and Director of Credit Unions Linda Jekel reiterating that the guidance “is applicable only as to those in compliance with I-502.”

“Boards and management teams of our state-chartered financial institutions should carefully review this guidance and discuss it with legal counsel when considering whether and how to provide banking services to I-502-compliant entities and individuals, and/or whether to accept I-502 tax proceeds for transmission to the Washington state Department of Revenue,” the DFI letter said.

The letter, which was also signed by Director of Banks Rick Riccobono, said DFI will instruct its examiners to follow the FinCEN guidance in future examinations. “We will be discussing this guidance with our federal regulatory counterparts,” the letter said, “and will communicate any important information those conversations produce.”

David Curtis, the NWCUA’s director of compliance, said Friday that the Association would issue a Compliance Bulletin detailing the steps that credit unions would need to follow to be in compliance with FinCEN’s guidance. But it is important to note, the Association said in a statement, “that the policy issued today is guidance and not law. Congressional action is still needed to mitigate long-term risks.”

 “The documents issued today address many of the questions and concerns financial institutions shared with us and with regulators about the complexities involved with banking these businesses,” said Lynn Heider, the NWCUA’s vice president for public relations and communications. “We encourage our credit union management and legal staff to carefully review the guidance and compliance requirements before determining whether to proceed.”

The Association expects further guidance from the National Credit Union Administration shortly, but “the NWUCA supports our credit unions’ right to self-determine their direction on this issue,” Heider said.

The guidance released Friday is available online at FinCEN’s website.

Hal Scoggins, an attorney with the law firm Farleigh Wada Witt, says FinCEN’s guidance certainly provides clarity but brings minimal regulatory relief. Look for his anaysis Feb. 19 in Anthem.

Questions? Contact Gary Stein: 503.350.2216, gstein@nwcua.org.

Posted in Compliance, Federal, NWCUA.