When I started representing cannabis businesses in 2010, the biggest epidemic in the industry next to I.R.C. 280E was the overwhelming lack of cannabis banking. This inability to access financial institutions for just depository accounts was staggering to businesses, leading to endless public safety hazards and organizational chaos. Almost 14 years later, the cannabis banking crisis has somewhat improved due to the 2014 FinCEN guidelines. But they’re not enough on either side of the aisle, and Congressional Research Services (“CRS”) echoed that point in a recent “Legal Sidebar”, detailing the myriad liabilities financial institutions to face if they want to bank cannabis businesses.
FinCEN guidelines are an “okay” band-aid for cannabis banking
Due to the Bank Secrecy Act, anti-money laundering laws, and a slew of other regulations governing the financial services industry, cannabis banking violates federal law. However, after Colorado and Washington State legalized cannabis for adults 21 and up in 2012, in 2014, the Financial Crimes Enforcement Network (“FinCEN”) issued its own guidelines about banking cannabis companies. Of course, this was after the DOJ issued the “Cole Memo” (which no longer exists), and the FinCEN guidelines pay significant credence to that memo. The FinCEN guidelines represent a couple of things. First, they’re the only path for financial institutions to legitimately engage in cannabis banking, but they do not change the laws governing the federal prohibition against cannabis banking. Second, these guidelines are really “know your customer” directives on steroids. Essentially, financial institutions have to know (and report to the federal government) every material detail about the structure and transactions of their cannabis business customers. Third, the FinCEN guidelines indicate that the Department of Treasury is thinking differently than the DOJ about cannabis banking. When the DOJ rescinded all cannabis-related enforcement guidance in 2018 (including the Cole Memo), the Treasury left the FinCEN guidelines in place, which is a good thing. It’s no secret that the ability to bank makes a cannabis business more transparent and financially accountable to regulators. However, while cannabis businesses and financial institutions have a lifeline to do business together thanks to the FinCEN guidelines, financial institutions still face the heat of federal law anyway.Banks are in a rough spot with cannabis companies
Just because financial institutions follow the FinCEN guidelines to a tee doesn’t mean they’re safe from federal criminal, civil, and administrative liabilities. In its Legal Sidebar, CRS highlights just a few of the liabilities financial institutions still face if they bank the cannabis industry:- violations of the Controlled Substances Act for aiding, abetting, and conspiracy by virtue of servicing cannabis businesses, which can lead to criminal prosecution;
- anti-money laundering laws;
- Civil, criminal, and administrative asset forfeiture of any assets used in or derived from cannabis crimes;
- the Bank Secrecy Act; and
- any number of other regulatory violations set by federal banking regulators.