Cannabis in banking and impact on Bank Secrecy Act practices

In today’s economy, the number of businesses that are involved, one way or another, in cannabis and marijuana-related activity is continuously growing. Naturally, this means that more and more financial institutions are deciding to bank marijuana-related businesses (MRB).

The decision to bank an MRB creates additional steps for the bank in regard to their Bank Secrecy Act (BSA) practices. This article highlights some of the additional steps that should be taken if you choose to bank an MRB. Please note that this is not an exhaustive list, but rather some of the steps that should be implemented.

Banking MRBs & the Bank Secrecy Act

The first thing you should do is make the decision whether to bank an MRB. If the decision is made to not bank an MRB, this should be very clearly documented in your bank’s BSA policy. This could read something as simply as “the bank will not knowingly bank an MRB,” but this documentation could be as detailed as your bank feels is necessary to convey their stance.

If the decision is made to bank MRB customers, there are a few additional steps you should take in regard to BSA procedures. Many of these topics are derived from FinCEN (Financial Crimes Enforcement Network) guidance. These include, but are not limited to, the following:

• Customer Due Diligence (CDD) – As with any high-risk customer, there is an enormous amount of due diligence that can and should be performed. With MRBs, some of the additional steps that are suggested include things such as:
  • Verifying the business is properly licensed and registered with their state authorities;
  • Gaining a thorough understanding of the expected activity of the business, including understanding the types of products offered and customers served; and
  • Performing continuous monitoring of the business for things such as negative publicity, adverse actions taken against the business and potentially suspicious activity.
• Suspicious Activity Reporting (SAR) – As mentioned in the CDD section, one of the steps that should be implemented with an MRB is continuous monitoring for potentially suspicious activity. “As of June 30, 2019, FinCEN received a total of 87,249 SARs using the key phrases associated with MRBs.”¹ This puts into perspective the amount of MRB activity in the banking industry. The following are the three types of marijuana-related SARS that can be filed:
  • Marijuana-limited SARs should be considered if your CDD brings to light something that does not violate either the applicable state law(s) or any priority of the Cole Memo. “The Cole Memo reiterates Congress’s determination that marijuana is a dangerous drug and that the illegal distribution and sale of marijuana is a serious crime that provides a significant source of revenue to large-scale criminal enterprises, gangs, and cartels.”2 Some of the most prevalent Cole Memo priorities include preventing:
    • Distribution of marijuana to minors,
    • Revenue from marijuana sales from going to criminal enterprises,
    • Violence and the use of firearms in the cultivation and distribution of marijuana, and
    • Marijuana possession or use on federal property.²
  • Marijuana-priority SARs should be considered when your CDD brings to light something that either violates a state law or implicates one of the Cole Memo priorities. FinCEN provides a list of red flags for things to look for when considering if a priority SAR should be filed. Some of these red flags include if the business:
    • Receives substantially more revenue than may be reasonably expected given the state limitations,
    • Deposits more cash than is commensurate with the amount of marijuana-related revenue it is reporting for tax purposes, or
    • Engages in rapid movement of funds, such as cash deposits followed by immediate withdrawals.²
  • Marijuana-termination SARs should be considered when you determine that the relationship with the MRB needs to be terminated. This would be the case if their activity could cause your AML program to fall out of compliance.