Many more questions were submitted to the Banking Cannabis with Confidence: Complying with Federal Guidelines webinar than we were able to answer in the time allotted and additional questions were submitted after the webinar ended. The following responses are offered by Link to Banking. We did not correct any apparent grammatical or spelling errors in the questions as submitted but rather responded to our interpretation of what was being asked.
On the Industry
1. The Marijuana Businesses Access to Banking Act of 2015 does define "Marijuana Related Legitimate Business"
The referenced Act is proposed legislation and is not final. At this time, to our knowledge there is no formal federal definition of “Marijuana Related Business.” The term “Legitimate” in the proposed legislation was added to distinguish MRBs operating under state laws which have decriminalized or legalized marijuana.
2. How does hemp production fall into these guidelines?
The guidelines are specific to marijuana and do not address hemp. Please see the next question and answer regarding the legalization of industrial hemp.
3. Hemp is in the cannabis family and remains illegal to grow under federal law. should we handle hemp growers in states where it is legal the same as MRBs?
Hemp is in the cannabis family, however, President Obama signed the Agricultural Act of 2014, or the 2014 Farm Bill, which featured Section 7606 allowing for universities and state departments of agriculture to begin cultivating industrial hemp for limited purposes. At least 28 states have laws in place related to industrial hemp. More information can be found on the web page for the National Conference of State Legislators at - http://www.ncsl.org/research/agriculture-and-rural-development/state-industrial-hemp-statutes.aspx - Interested parties should check this site for information relevant to the state where you operate.
4. What is the average annual cost of "Seed-to-Sale" software? Is it typically dependent on the size of the bank or number of MRBs monitored?
Seed-to-sale software is used by the MRBs to track cultivation, extraction, sales, etc. and the software is not used by banks. Software that a bank could use to access and utilize MRB data could be priced by either bank size or volume of entities monitored in the software, depending on how the vendor prices the product.
5. Currently in our state mrb are not legal, but we do have tribal entities that are looking into getting into this industry. Do you see the tribal authority being handled similar to the state laws?
Sovereign Nation law is recognized by the federal government similarly to state law.
On Ancillary Businesses
1. can you repeat again the difference between MRB and other business that are providing services to the MRB, and are these supporting businesses need the same due diligence too?
Generally, “marijuana related businesses” or “MRBs” refer to the entities that actually touch the marijuana plant. That would include cultivators, dispensaries, producers of products using the plant including extraction of substances from the plant, and infusion of those products into other substances such as edibles. “Ancillary businesses” would be any entity that provides goods or services to the MRBs. The reasoning here is that the ancillary business is being paid with proceeds from the sale of marijuana or marijuana products which under the Controlled Substances Act is currently illegal. Included in this category would be a huge variety of businesses such as those that sell soil, lighting, ventilation systems, packaging products, landlords, security companies, armored car services, and any other business that gets paid with the proceeds of the sale of marijuana or marijuana production or products. Also included in this category would be employees of the MRB.
Appropriate due diligence, as with any customer, would depend on the bank’s assessment of the risk to the bank from the customer. At this point there is no official guidance on ancillary businesses but a reasonable approach would be similar to recommendations on multifaceted businesses that provide retail as well as financial services. That is, if the entity obtains more than 50% of its gross revenues from financial services it should be considered a Money Services Business or MSB, but if less than 50% of its gross revenue is from other than financial services it should be considered a retail business that also provides financial services. Assumedly the greater the amount of gross revenue an ancillary business receives from an MRB, the greater the risk that ancillary business could be used or abused for nefarious purposes.
2. Given the large number of ancillary businesses, who has to register as an MRB?
No one has to register as an MRB. There is no registration process at this time for marijuana related businesses. We explained in the webinar that the Marijuana Limited SAR acts like a registration process in that it provides only minimal information on the business but does in fact notify the federal government that the business is operating as an MRB.
3. What about a Bank that has a Downstream Correspondent Bank that has MRB as a customer of theirs? In this case we do not see the customer's transactions directly.
If you’re referring to a correspondent bank that deposits in your institution, we would consider this an ancillary business. For more information on this please see the discussion on Ancillary Businesses in the response to question #1 in this section.
4. What about ancillary businesses. Do you suggest enhanced monitoring?
As with any other account or customer, the bank should assess the risk and conduct appropriate due diligence accordingly. We can safely assume that examiners are going to consider ancillary businesses as higher risk customers, and they will expect appropriate enhanced due diligence. As suggested in a previous Q&A since there currently is no guidance on ancillary businesses, a reasonable approach would be to look at the amount of gross revenue the business receives from MRBs and factor that into the risk assessment and due diligence process.
On SARs
1. When discussing ancillary businesses, there's a common attitude that you must file either a regular SAR or a SAR marijuana limited in cases like a Landlord. What is your opinion on this situation, and how many levels of separation is appropriate for not filing SARs
Until guidance is issued addressing ancillary businesses and the filing of SARs on their activity and transactions it would be prudent to file SARs under the same instructions in the current FinCEN guidance. We don’t think “levels of separation” is an appropriate parameter for SAR filing determination, however, the assessment of risk to the bank presented by any ancillary business and its involvement with MRBs is appropriate to determining if any activity fits the parameters warranting the filing of a SAR.
2. Do the repeat SARs use the term "MARIJUANA LIMITED"?
The guidance anticipates the filing of repeat SARs after the initial “Marijuana Limited” SAR is filed and the same key word should be used on subsequent filings. If additional suspect activity is being reported a new string of repeat SARs should be started unless the account is closed. However, it should be realized that repeat SARs do not apply only to “Marijuana Limited” SARs.
3. Are you supposed to file a MR-SAR if the account is not held at your bank, however your customer is still a MRB?
It appears that you’re stating that your customer has a personal account at your bank, but that customer owns an MRB, and the MRB account, if there is one, is held at another institution. If this is the case, and you don’t suspect that transactions conducted to your account or at your institution include MRB funds, then you would not need to file an MRB SAR. However, if you suspect that transactions conducted at your institution include MRB related funds, then you would need to file a SAR and indicate in the narrative that you suspect such activity involves marijuana-related funds. Please see the next Q&A for additional information.
4. We have a business customer that operates a MRB business in a state where it is legalized. We are concerned that large cash deposits into the account in our state where MRB is not legalized. The business account here is NOT a MRB account. Should we report this in a SAR?
It sounds possible that your customer is using your account to covertly deposit marijuana-related funds. If after investigating the matter you know, suspect or have reason to suspect that your account is being used in that covert manner then you should file a SAR and indicate the activity you suspect.
5. Texas is a non-legalized state; can a business who operates a MRB in Colorado (a legalized state) open a business account for that MRB in a Texas bank and deposit cash from the MRB into the TX FI.
This question would be better stated as, “Can a bank in Texas offer banking services to MRBs from states where marijuana has been legalized?” To our knowledge, the FinCEN guidelines do not restrict banking services to only those states that have legalized marijuana to some extent. So it would appear, at least under the federal guidelines, that any bank could offer banking services to MRBs regardless of the status of legalization in the jurisdiction where the bank operates. However, current state laws for the jurisdiction in which that bank operates should be considered for any ramifications that may exist. Check with your state banking department.
6. Customer A has a business account for his commercial real estate business here at this FI in Texas ( non legalized MRB state). Customer A also owns and operates a second business in Colorado (a legalized MRB state) which is a MRB. Customer A is depositing large cash deposits into his commercial real estate account. The Tx FI feels these funds could be from the MRB in Colorado. Should a SAR be filed for money laundering in Texas? If so what language would be used in the narrative, Marijuana Priority?
Please see the response to question #4 in this section. This situation is very similar. If after investigating the matter you know, suspect or have reason to suspect that your account is being used in a covert manner then you should file a SAR and indicate the activity you suspect. Also please see the response to the previous question. The guidelines and the suggested key terms are relevant to banking marijuana businesses, which, per the preceding response your bank could do, but from the tone of your question, that does not appear to be a service you offer, so, technically none of the key terms would actually apply to your scenario. Filing a SAR should be sufficient, however, after checking your state law requirements, and in the spirit of SAR filing to provide law enforcement with the most accurate information, the key term “Marijuana Priority” would get attention, unless of course you are closing the account in which case “Marijuana Termination” would be more appropriate. Realize of course that you are not reporting a possible indication of a Cole memo priority but rather that you are reporting covert activity by your customer.
On Laws/Regulation
1. If all you are stating is true, why did the Federal Reserve not approve the Credit Union in Colorado to process transactions?
There are probably two main reasons for the Federal Reserve’s decision in that situation. First, it is the Federal Reserve’s policy, at least at this point, to not accept the proceeds of marijuana sales, and second, no banking regulator would want to approve a single purpose bank, especially if the bank’s only customers would all be high risk entities such as MRBs.
2. MRB's illegal federally but legal at state level...do federal regulators have standing to enforce or regulate MRB's?
At this point federal regulators do not have authority to regulate MRBs but DOJ does have the ability and authority to enforce federal law where MRBs are concerned. The Cole memos make it clear that DOJ has such authority but that they are deferring to the states to regulate and enforce under state law provisions. If and when MRBs become federally legal and required by federal statute to be regulated by a designated agency of the federal government, they will be supervised by federal regulators.
3. Can you comment on the court ruling related to Fourth Federal in Colorado?
Assuming this question is referring to the case in which Fourth Corner Credit Union sued the Federal Reserve to grant it an account. The judge ruled against the credit union because there is no law that requires any bank to open an account for any specific customer. The customers to whom services are extended is a matter of policy and it is the policy of the Federal Reserve to not accept marijuana-related proceeds.
4. Are there any OCC regulated banks that service MRBs today?
While there are many banks currently offering services to the marijuana industry, we don’t have a comprehensive list of them and are not sure if any national banks are offering such services. Our guess would be yes.
5. FinCEN & DOJ pronouncement represent Exec. Branch policy which could be changed upon change of Administration. Correct?
Current and future administrations could influence the policy, but many in the federal government and private sector don’t think it is likely to happen.
6. You stated that you have spoken with Fed Regulators, however what are you doing to move Fed regulators to put into writing that they support the FinCEN 2/14 memo. At this time, regulators are very concerned about loans to MRB's and thusly profits from MJ industry into the Bank's bottom line.