Financial institutions that bank marijuana related businesses (MRBs) may have a storm coming.
Yesterday afternoon, the Department of Justice issued a memo on marijuana enforcement that rescinds previous guidance, which some banks and credit unions have relied on in allowing MRBs to bank with them.
The Cole Memo
The Controlled Substances Act (CSA) of 1970 generally prohibits the cultivation, distribution, and possession of marijuana on a federal level. In recent years, however, many states have passed laws that permit medicinal or recreational use of marijuana that directly contradicts the federal law which considers usage a crime, and in some cases, a felony.
Due to the contradiction between Federal and state laws, Deputy Attorney General James Cole issued on memo on August 29, 2013 titled Guidance Regarding Marijuana Enforcement. Citing limited investigative and prosecutorial resources, this memo essentially outlined a list of eight “priorities” that attorneys should use in marijuana enforcement. These priorities included:
- Preventing the distribution of marijuana to minors;
- Preventing revenue from the sale of marijuana fro going to criminal enterprises, gangs, and cartels;
- Preventing the diversion of marijuana from states where it is legal under state law in some form to other states;
- Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
- Preventing violence and the use of firearms in the cultivation and distribution of marijuana;
- Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;
- Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and
- Preventing marijuana possession or use on federal property.
The memo continues on to explain that law violations outside of these priorities should be governed by local authorities, who may rely on state laws to guide their enforcement efforts.
In conjunction with this memo, the Financial Crimes Enforcement Network (FInCEN) - who is responsible for anti-money laundering rules in banks and credit unions - issued guidance (FIN-2014-G001) to financial institutions in regards to banking marijuana related businesses (MRBs). This guidance reiterated the Cole memo and provided guidance to financial institutions regarding how to file Suspicious Activity Reports (SARs) for such institutions. Basically, a SAR would be filed for all types of MRBs, though activity that aligned with the Cole priorities would be filed as a “Marijuana Priority” SAR filing.
The New DOJ Memo
The new memo, authored by Attorney General Jeff Sessions, directs US Attorneys to enforce the laws prohibiting marijuana use and to follow well-established principles when pursuing prosecutions related to marijuana activities. Sessions states that “these principles require federal prosecutors deciding which cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.”
Sessions then continues by clearly rescinding the previous Cole memo: “Given the Department’s well-established general principles, previous nationwide guidance specific to marijuana enforcement is unnecessary and is rescinded, effective immediately. This memorandum is intended solely as a guide to the exercise of investigative and prosecutorial discretion in accordance with all applicable laws, regulations, and appropriations. It is not intended to, does not, and may not be relied upon to create any rights, substantive or procedural, enforceable at law by any part in any matter civil or criminal.”
As the Cole memo has now been rescinded, FinCEN’s FIL 2014-G001 appears to be obsolete - as it was based on guidance that is no longer correct.
Application to Financial Institutions
Many community banks and credit unions have decided to not bank MRBs and therefore should not be effected by this memo. That said, some financial institutions relied on the Cole memo and FinCEN guidance and have opened accounts for MRBs. Those institutions are going to need to take a hard look at the new DOJ guidance as well as the FinCEN FIL 2014-G001 and weigh the risk of continuing existing MRB relationships. We have already heard reports of financial institutions considering “desiring” MRB relationships due to the now heightened risk these businesses present.
Financial institutions should watch for additional guidance from FinCEN regarding this topic - if such guidance ever does become available.
The entire DOJ memo can be found here: https://www.justice.gov/opa/pr/justice-department-issues-memo-marijuana-enforcement