ST. LOUIS (Thomson Reuters Accelus) - Major banks are getting increasingly wary of some transactions with smaller banks that have begun to allow marijuana businesses to open accounts. Officials at the bigger institutions say they fear being in breach of anti-money laundering laws and are pressing federal authorities to make it clear what is legitimate and what is illegal.
The problem arises because in Colorado and Washington states, marijuana for general use is legal, and in a host of other states it is legal for certain medicinal purposes. But the business is still illegal under federal law, and U.S. banks are required to report transactions that they suspect involve money earned through illegal activities.
The bankers, including anti-money laundering officials at three of the biggest U.S. banks, expressed concern that their firms could face civil and even criminal penalties not only for dealing with any of the businesses directly but also handling money from the estimated dozens of small and mid-sized banks that have begun working with the marijuana shops or their suppliers.
The bankers say the U.S. Treasury Department's anti-money laundering unit needs to clarify its expectations for the handling and reporting of wire transfers and other payments that involve people and entities linked to state-sanctioned marijuana businesses.
For example, said one banker, if a marijuana business deposits money into an account at a bank which then wires funds to pay for supplies such as soil, seeds, or packaging, the banks handling the other side of the transactions need to know if they risk charges for lapses in their anti-money laundering programs, or even criminal money laundering.
Banks need to know if they could still be liable if they don't report indirect payments from non-customers linked to the marijuana industry, said a senior bank compliance executive.
The bank officials did not say whether they had taken their concerns directly to the U.S. Treasury. Candice Basso, spokeswoman for the Treasury's Financial Crimes Enforcement Network (FinCEN), said a "variety" of financial institutions, which she declined to further characterize, have asked the agency for guidance over this "indirect" banking activity.
The worried bankers say their compliance teams are working to address the issue internally. But they said they want to know if they should reject the "indirect" transactions and whether they must report them to FinCEN.
FinCEN issued guidance in February that outlined detailed steps that financial institutions must take if they serve the marijuana industry.
The guidance was intended to coax wary banks into serving legitimate state-approved businesses. Marijuana stores have complained that an inability to open bank accounts forces them to purchase inventory, pay employees and conduct sales entirely in cash, putting them at risk of robbery.
But questions emerged after the guidance came out, Basso said.
"While FinCEN's February guidance primarily focused on direct activity, we are now working to provide clarity for a variety of institutions related to the issue of indirect activity," she said in an emailed statement.
The February guidance mentioned indirect activity in a footnote, and said banks that detect it "may file" a report with authorities. It added they should make "a risk-based decision" regarding whether or not to process the transactions.
Basso said FinCEN plans to discuss the issue with law enforcement officials, but declined to say whether FinCEN intends to issue related guidance in the near future.
The Justice Department has also stopped short of promising immunity for banks, but said in February that criminal prosecution for money laundering and other crimes was unlikely if banks avoided doing business with marijuana operations that engage in illicit activities such as selling to minors.
The federal stance has helped a growing number of state-sanctioned marijuana businesses in recent months obtain accounts at small and mid-size banks, said Shawn Coleman, a marijuana industry lobbyist. FinCEN has estimated that more than 100 banks have relationships with marijuana businesses, FinCEN Director Jennifer Shasky-Calvery said this month.
Said Coleman: "Some banks are saying 'Oh, well if they're doing it, we can give it a try,'"
There is still unease, though. "Marijuana banking is still a delicate flower, it's going to take a bit longer for the banks to feel comfortable," Coleman added.
Editing by Randall Mikkelsen, Martin Howell