Bank Secrecy Act Training Series 2018

Lesson 9 | December 13, 2018

The topic of the year for BSA compliance has easily been marijuana banking. The compliance hotline has fielded numerous questions on how to handle requests for accounts and loans, and compliance officers across the state are dealing with finding they have unintentionally opened accounts serving the industry or related businesses. Today's lesson is a new addition to our series and intended to dispel myths, lay out facts, and help you feel more comfortable with the current state of marijuana banking, even though it can change tomorrow!

Thank you for participating and please let me know if you have questions or feedback.

Status of Marijuana Banking
Across the U.S., voters in at least 33 states have approved legalizing marijuana. Some are for recreational use and others (like Montana) are only for medical use. As the industry grows (and is accepted) in the states, marijuana remains classified as a Schedule 1 substance under the Controlled Substances Act. That makes it illegal at the federal level, and no state law can override that. So, why does this impact credit unions?

Medical marijuana is a booming business and new storefronts and related support businesses open daily in communities across our state. With their local nature, credit unions want to serve their members and communities, but see risk to the credit union reputation if they choose to take on this industry. Many credit unions also don't have the staff or systems in place to monitor the accounts at the level that is expected. 

Additional concerns include the safety of the employees and community if that amount of cash is not within the financial system and pushed into alleys. Employees may need to be paid in cash, so they have little to no proof of income for gaining loans or filing taxes. 

Marijuana-related businesses (MRSs) are very cash intensive, so it is challenging to serve them, at least not without a great deal of monitoring and reporting of the activity, and of course the risk of possible seizure of funds if the federal government were to raid them. Since credit unions are often federally chartered and most are federally insured, it further limits their ability to serve an industry that is illegal at the federal level.

During the Obama Administration, the federal government agreed to let states manage their programs without interference, as long as they were not violating federal law. The Trump Administration has hinted at changes and more enforcement, but other than rescinding the Cole Memos (discussed below), they have not stepped up enforcement.

States continue to approve legalization of marijuana, and several groups are pushing for a change to the federal classification. In the meantime, more credit unions and banks are taking the risk of choosing to serve the industry. That is done with high fees, strong oversight, appropriate internal controls, and increased staffs. 

It is difficult to see where this goes, but having a good paper trail of the industry and their activity only benefits all of us in the fight against money laundering.
Cole Memos Priorities
The new year had barely started when U.S. Attorney General Jeff Sessions rescinded the Cole Memos, which financial institutions and marijuana providers across the country had relied upon. As CNN Politics reported, he "rescinded a trio of memos from the Obama administration that had adopted a policy of non-interference with marijuana-friendly state laws.

The move essentially shifts federal policy from the hands-off approach adopted under the previous administration to unleashing federal prosecutors across the country to decide individually how to prioritize resources to crack down on pot possession, distribution, and cultivation of the drug in states where it is legal."

Until FinCEN, the Department of Justice, or a new attorney general state otherwise, many jurisdictions still consider the Cole Memos a benchmark of expectations for SAR filing and enforcement. The priorities laid out in them include preventing the following:
  • Distribution of marijuana to minors; 
  • Revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels; 
  • The diversion of marijuana from states where it is legal under state law in some form to other states;
  • State-authorized marijuana activity being used as a cover or pretext for the trafficking of illegal drugs or other illegal activity; 
  • Violence and the use of firearms in the cultivation and distribution of marijuana; 
  • Drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use; 
  • The growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and 
  • Marijuana possession or use on federal property.
If your credit union becomes aware that any of the above are occurring through an account, your SAR filing should specifically reference the priorities your staff believe are being violated.
Montana Timeline of Medical Marijuana
Below is some of the history of legal medical marijuana in our state. You can see it has been a roller coaster. With the 2019 legislative session just weeks away, there is sure to be further refinement.

2004: Voter Initiative I-148 passes with nearly 62% of voters supporting allowing the measure which allows for  the production, possession, and use of marijuana by patients with debilitating medical conditions.

2011: SB 423 amended the voter-passed statute to ban advertisements, limit dispensaries to three patients, and require the review of doctors who prescribe medical marijuana for more than 25 patients.

2012: The 2011 Legislature placed IR-124 on the ballot to gain voter approval of SB 423 and its repeal of I-148. The measure passed. 

2012-2016: Court challenges struck some provisions and retained others, and SB 423 was finally effective on Aug. 31, 2016.

Nov. 2016: I-182, which repealed the three-patient limit, passed with nearly 58% of voters approving the measure.

Late 2016 -
 March 2017
: A number of court cases ruled on some issues with I-182's language and the intended effective date, and the legislature passed SB131 to remove the three patient limit and correct other language.

Feb. 2018: DPHHS adopted the most recent rules to implement the provisions of the statutes and medical marijuana program in Montana.
SAR Filing Expectations
FinCEN issued guidance in 2014 titled BSA Expectations Regarding Marijuana-Related Businesses. Even with changes in state law, the recent rescission of the Cole Memos, and the industry's growth, FinCEN's publication is still considered the primary guidance for what reports are expected to be filed by your credit union. You may have filings even if you don't choose to serve the industry, so make sure your policy is up to date.

The following three SAR filings may be necessary in various situations and would be noted by naming them appropriately in the narrative section.

Marijuana Limited SAR 
--  filed if your credit union is providing financial services to a marijuana-related business that you reasonably believe, based on your member due diligence, does not implicate one of the Cole Memo priorities or violate state law. It would mainly identify the name and address of the subject and related parties.

Marijuana Priority SAR -- filed on a marijuana-related business that the credit union reasonably believes, based on its member due diligence, implicates one of the Cole Memos priorities or violates state law. The filing would identify the party, detail the Cole Memos priorities or state law that is being violated, and provide details on transactions.

Marijuana Termination SAR --  filed when the credit union terminates an account or relationship with a marijuana-related business. Even if you do not serve the industry, you may occasionally need to file this if you discover accounts are already open or being used for that purpose.


Q: How do we know if one our of members is involved with an MRB? 

A: You might be seeing activity to indicate a member is running or working at a medical marijuana dispensary. DPHHS maintains a comprehensive website on the Montana Medical Marijuana Program . It includes a list of registered providers and their employees (look to the left column for the link to the registry list). It is a good start if you suspect involvement or need to confirm that a business you are seeing related activity from is following the rules laid out in our state. This includes the registration of all employees.

The rules are expected to continue to evolve with the upcoming legislative session, so keep it bookmarked as a reference.
Policy on Serving MRBs
It is highly recommended that your credit union have a board-approved policy on whether or not you are choosing to serve the marijuana industry. 

If you do not serve MRBs, your policy should include detail on how your credit union will respond if you are approached about accounts or loans, as well as steps that will be taken if you find you already have accounts open that serve the industry.

If you do choose to serve the industry, your policy should lay out the steps you will take for filing the necessary SARs and collecting and tracking needed information.

There are two great examples available in CU PolicyPro in #2113 (Not Servicing Marijuana-Related Business Accounts) and #2112 (Marijuana-Related Business Accounts). You may need to incorporate references to specific Montana features such as the DPHHS website and the fact that only medical marijuana is currently legal in our state.
Donya Parrish

Donya Parrish, BSACS, CUDE

VP-Risk Management
(o) 406.324.7374
(c) 406.459.3497