(Recasting to add policy details, uncertainty of banking
By David Ingram and Jason Lange
WASHINGTON Feb 14 The Obama administration on
Friday issued new law-enforcement guidelines aimed at
encouraging banks to start doing business with state-licensed
marijuana suppliers, like those in Colorado, even though such
enterprises remain illegal under federal law.
Administration officials said the policy shift seeks to
address problems faced by newly licensed recreational marijuana
retailers in Colorado, and medical cannabis dispensaries in
other states, that must operate on a cash-only basis, without
access to financial services or credit.
It remained to be seen whether many banks would feel
sufficiently assured by the new policy, which the Justice and
Treasury departments outlined in writing to federal prosecutors
and financial institutions nationwide.
The guidance stopped short of promising immunity for banks.
But it said criminal prosecution for money laundering and other
crimes is unlikely if banks meet a series of conditions, such as
avoiding business with marijuana operations that sell to minors
or engage in illegal drug trafficking.
If banks turn a blind eye to illegal activity by failing,
for example, "to conduct appropriate due diligence of the
customers' activities, such prosecution might be appropriate,"
Deputy Attorney General James Cole warned in the memorandum.
The memo builds on guidelines issued in August when the
administration promised new leeway to states experimenting with
legalization of marijuana, saying it would focus enforcement
against pot suppliers found to be operating outside of state
regulation or as a front for outlawed narcotics trade.
The latest directive is designed to address public safety
issues raised by legitimate, state-licensed cannabis suppliers'
lack of access to financial services, officials said.
Proprietors of state-permitted marijuana distributors in
Colorado and elsewhere have complained of having to purchase
inventory, pay employees and conduct sales entirely in cash,
requiring elaborate and expensive security measures and putting
them at risk of robbery.
It also has made accounting for state sales tax collection
Last month, Colorado became the first state to open retail
outlets legally permitted to sell marijuana to adults for
recreational purposes, in a system similar to what many states
have long had in place for alcohol sales. Washington state is
expected to follow Colorado's lead later this year.
The number of states approving marijuana for medical
purposes also has been growing. California was the first in
1996. It has since been followed by about 20 other states and
the District of Columbia.
U.S. Attorney General Eric Holder said last month that the
administration was planning ways to accommodate marijuana
businesses so they would not always be dealing in cash.
"There's a public safety component to this. Huge amounts of
cash, 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," Holder
said on January 23 at an appearance at the University of
The American Bankers Association expressed skepticism the
guidance would make much difference. Pot sales still violate
federal law, as the government noted in its memo, so banks are
still at risk, said Rob Rowe, a lawyer for the trade group.
"Compliance by a bank will still require extensive resources
to monitor any of these businesses, and it's unlikely the
benefits would exceed the costs," Rowe said in an email to
A separate memorandum from the Treasury Department's
Financial Crimes Enforcement Network (FinCEN) laid out the due
diligence that banks should carry out, both before working with
a marijuana business and during the relationship.
Financial companies should verify state licenses, understand
the normal activity for the business and monitor for suspicious
activity, the memo said.
"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," agency Director Jennifer Shasky Calvery said in a
FinCEN expects big banks will still be wary about holding
the money of pot retailers with state licenses, a senior
official at the agency said.
Still, after consulting with state banking regulators,
particularly those in Colorado and Washington state, federal
authorities said they believe the new guidance will get more
marijuana money into the banking system.
Those most likely to open their doors to marijuana business
first would be "probably some of the smaller or medium banks
rather than some of the largest ones in this country," a FinCEN
official said, adding that some banks were already in the
practice of flagging money from marijuana businesses in their
filings with regulators.
"The amount of money in this business is significant," the
STILL PRESSING FOR CHANGES
Advocates for the marijuana industry said they would
continue to press Congress for changes in federal law that would
offer more reassurance and that would survive beyond the Obama
administration. President Barack Obama is scheduled to leave
office in January 2017.
"Congress must act quickly to solve the problem before we
witness a tragedy," Michael Elliott, executive director of the
Marijuana Industry Group, which represents pot retailers in
Colorado, said in a statement.
The guidance would not protect banks from state laws, and if
a wire transfer that moved marijuana-linked money touched a
state where the drug is under strict control, a bank that
handled the transfer could be open to state prosecution, experts
in money-laundering said.
Individual banks may have difficulty identifying which
state-licensed businesses would run afoul of the federal
guidance, said Peter Djinis, a former regulatory policy official
with FinCEN, now in private practice in Florida.
"These complicated and vague policies continue the
uncertainty that banks have in determining whether to take the
risk of conducting financial transactions with otherwise
legitimate marijuana businesses," Djinis said.
(Additional reporting by Aruna Viswanatha, Steve Gorman and
Brett Wolf; Editing by Howard Goller, Jan Paschal, Jonathan
Oatis and Richard Chang)