Marijuana Law, Policy, and Authority

Federal Marijuana Banking Bill Advances (a Little)

Posted by on Saturday, March 30, 2019 in News, Updates.

As reported by Tom Angell, the House Committee on Financial Services just voted (45-15) to approve a version of the Secure and Fair Enforcement (SAFE) Banking Act. You can find the full story at Forbes here. Here is the text of the original House bill (HR 1595): SAFE Banking Act (Original House version).   The Forbes article linked above succinctly describes minor changes Committee members made to the bill (all seemingly expanding its scope). Originally proposed by a bi-partisan group of Senators back in May 2017, the SAFE Banking Act (Act) now goes to the full House.

The Act is designed to make it easier for state-licensed marijuana suppliers to get banking services—including checking accounts, deposit accounts, loans, and access to electronic payment systems. As discussed in the book (pages 681-695), many banks now refuse to offer these services to marijuana businesses, or else charge marijuana businesses steep fees for them. One reason is that providing financial services to marijuana businesses puts banks in violation of federal law. For example, federal money laundering statutes prohibit banks from conducting financial transactions involving money derived from criminal activity, which, under federal law, includes selling marijuana. Although the DOJ once suggested it wouldn’t punish banks for breaking these laws, many banks want something more than a non-binding assurance from the federal government that they won’t face any consequences for ignoring federal statutes; and in any event, the DOJ’s financial crimes non-enforcement guidance was rescinded by then Attorney General Jeff Sessions back in January 2018.

In addition to incurring potential legal liability, banks must perform cumbersome monitoring and reporting requirements when they provide financial service to marijuana businesses. For example, under the Bank Secrecy Act (BSA), banks are required to complete Suspicious Activity Reports (SARs) on transactions they believe involve illegal activity, which includes almost any transaction involving a business that grows or sells marijuana (again, given the federal ban on those activities). To be sure, 2014 guidance issued by Treasury Department’s Financial Crimes Enforcement Network (FinCEN) (see here) streamlined somewhat the process for filing SARs concerning marijuana businesses. But even though this FinCEN guidance remains in effect—i.e., it was not rescinded by the Attorney General, the burden of having to closely monitor and report on marijuana businesses provides another reason why banks remain reluctant to serve this industry.

The Act seeks to ease the path to marijuana banking by creating a “safe harbor” for banks that serve the state-licensed marijuana industry. In particular, it bars federal banking regulators from penalizing banks and other depository institutions for providing financial services to “cannabis-related legitimate businesses.” SAFE Banking Act, Section 2. For example, Section 2(5) provides that a federal banking regulator may not

“prohibit or penalize a depository institution . . . for, or otherwise discourage a depository institution . . .  from, authorizing, processing, clearing, settling, billing, transferring, reconciling, or collecting payments for a cannabis-related legitimate business, where such payment is made by any means, including a credit, debit, or other payment card, an account, check, or electronic funds transfer.”

By shielding banks from potential liability, the Act could thus make it easier for marijuana businesses to get access to financial services.

Let me offer two quick thoughts on the measure:

First, although the Act lessens the legal risks banks face, I’m not sure it will lessen the cumbersome monitoring and reporting requirements they trigger when serving marijuana businesses. For one thing, the Act’s safe harbor only applies when banks serve compliant marijuana businesses. This follows from the Act’s definition of “cannabis-related legitimate businesses” as businesses that produce/sell marijuana “pursuant to a law established by a State.” Id. at Section 8(3) (emphases added). Thus, to avoid legal liability under federal law, banks will still need to closely monitor the activities of their marijuana related clients to make sure they are complying with a variety of complex state marijuana regulations. In addition, the Act makes clear that banks will still need to complete those Suspicious Activity Reports (SARs) when they handle transactions for the marijuana industry, in compliance with FinCEN guidance. SAFE Banking Act, Section 6. To be sure, the Act requires the Treasury Secretary to “ensure that the [FinCEN] guidance is consistent with the purpose and intent of the SAFE Banking Act . . . and does not significantly inhibit the provision of financial services to a cannabis related legitimate business . . . .” However, it is unclear whether this language requires the Treasury Secretary to relax existing FinCEN guidance, compliance with which, as noted above, adds to the cost of providing financial services to the marijuana industry.

In sum, I think the Act will make it easier for marijuana businesses to obtain banking services, but those businesses will still probably pay more for those services than do other, similarly situated companies operating in federally lawful industries.

Second, although the bill made it through the House Financial Services Committee, it still has a way to go before it becomes law. I think it will pass the full House, and I also think President Trump would sign it. But first it must pass the Senate – and that’s always a big hurdle. As noted above, the SAFE Banking Act was originally introduced in the Senate back in 2017, where it was assigned to the Committee on Banking, Housing, and Urban Affairs. The Committee held hearings, but as far as I can tell, it did not take a vote on the measure. The bill would need to be re-introduced in the current Congress before the Senate considers it again.

That’s it for now. I’ll post on any future developments concerning this legislation that I consider significant, but you can track the proposal’s status yourself on Congress.gov.

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