Medical Marijuana Shops – Can you Bank Them ?
Federal marijuana laws are the laws the federal government enacted to criminalize marijuana possession, sale, and cultivation. While each U.S. state has passed their own laws, but when state laws are in conflict with the federal laws, or when criminal actions or the proceeds cross state boundaries of involved federally insured institutions, the federal laws win. Drug crimes have traditionally been prosecuted under state law, but because some states have decriminalized marijuana or legalized its sale and use for medicinal purposes, federal prosecutions for marijuana possession/sale/cultivation are on the rise.
The Federal Government does not recognize the legality of “medical marijuana,” – period! This means that even if a state has explicitly authorized a company or person to grow marijuana, federal agents can still arrest them and come after the financial institutions for laundering monies derived from the crime.
The AML Laws are Federal Laws and if a company, bank, etc.. knowingly is doing business with a “State Licensed Marijuana Dealer or Grower” the predicate crime is open and notorious and you, the banker or broker or car salesman or travel agent, are dealing with a known crime and may be guilty of helping to launder money.
What to do??? First, please seek advise of legal counsel in addressing conflicts between state and federal legislation. Second, your institution may wish to obtain a list of the licensed growers and dispensaries and scrub your client lists against these names. The states where institutions need to pay particular attention, are, Alaska, Arizona, California, Colorado, Washington, D.C., Delaware, Hawaii, Maine, Michigan, Montana, Nevada, New Jersey, New Mexico, Oregon, Rhode Island, Vermont, and Washington. (please note that as other states enact new legislation to approve sale and/or use of medical marijuana, you should assess how you may need to incorporate such changes into your processes)
Once you have a list, scrub the clients, on all positive hits – investigate and validate any due diligence performed to Know Your Customers, file any necessary SARs immediately and as may be appropriate, and work to determine if how and when you might elect to disengage from the client relationship. Better yet, you may wish to consider what types of research you perform in your client on-boarding and client due diligence processes, and whether you should not even open the accounts in the first place.
In our opinion is this a big deal ? No, but it is an easy mark and there are those in the industry that expect some action on this shortly. For those who ignore this, our counsel is to be prepared to spend money on lawyers, compliance professionals and potential payment of fines.