The cannabis banking conundrum is getting better.. but still has a long way to go.
That is the finding of recently released information by the Financial Crime Enforcement Network (FinCEN) that charted cannabis banking activity from January, 2014 to March, 2017.
The FinCEN report showed that depository institutions that provided banking services to marijuana-related businesses (MRBs) – banks and credit unions – both showed significant increases, especially since September, 2014.
The total number of combined institutions actively banking cannabis businesses as of March was reported at 368.
But there was a clear difference. The disparity between the two institutions became clearer as time went on.
Credit unions basically stayed at a level of approximately 60 institutions year-over-year serving the cannabis industry, while banks serving the industry soared to over 300 by March, 2017 – doubling their growth from the same month in 2015.
The FinCEN report also found that, as of March 2017, the enforcement network received a total of 28,651 suspicious activity reports (SARs) about possible money-laundering activity with MRBs.
FinCEN’s regulations allow federal, state, local, and foreign (European Union) law enforcement agencies, through FinCEN, to reach out to more than 39,000 points of contact at more than 16,000 financial institutions to locate accounts and transactions of persons that may be involved in suspicious activity related to either terrorism or money laundering.
Of those reported SARs to FinCEN, 20,288 came from 45 states, D.C., and Puerto Rico and showed that those businesses had done their due diligence and were compliant with the Cole memo.
Another 2,007 reports from 40 states, D.C. and Puerto Rico indicated those institutions were not completely compliant and were under ongoing investigation.
Finally, 7,326 SARS were filed in 50 states, D.C. and Puerto Rico that resulted in those institutions ending any banking relationship with an MRB.
While all this sounds promising as the number of banks serving MRBs are trending up, the total institutions banking MRBs is still just a small percentage of all U.S. banks and credit unions. There are 5,922 credit unions in the U.S. as of May, 2017, according to the Credit Union National Association, while the Federal Deposit Insurance Corporation (FDIC) lists 6,799 commercial banks.
The bottom line remains that, as long as financial institutions are in compliance with the eight priorities listed in the Cole memo – not distributing cannabis to minors, not diverting cannabis from a legal state to a non-legal state, not growing on public lands, among others – banking for the cannabis businesses will work out.
But according to the Cole memo, if a financial institution or individual provides banking services to a marijuana-related business knowing that the business is diverting marijuana from a state where marijuana sales are regulated to ones where such sales are illegal under state law, or is being used by a criminal organization to conduct financial transactions for its criminal goals, such as the concealment of funds derived from other illegal activity or the use of marijuana proceeds to support other illegal activity, that institution will face charges.
The memo also reminds institutions that they have the burden of due diligence when it comes to compliance, stating that “if the financial institution or individual is willfully blind to such activity by, for example, failing to conduct appropriate due diligence of the customers’ activities, such prosecution might be appropriate.”
The FDIC is doing its part to encourage institutions to take a risk-based approach in assessing individual customer relationships rather than declining to provide banking services to entire categories of customers, like those represented by MRBs. “The FDIC is aware that some institutions may be hesitant to provide certain types of banking services due to concerns that they will be unable to comply with the associated requirements of the Bank Secrecy Act (BSA),” a statement on banking released by the FDIC reads. “The FDIC and the other federal banking agencies recognize that as a practical matter, it is not possible for a financial institution to detect and report all potentially illicit transactions that flow through an institution. When an institution follows existing guidance and establishes and maintains an appropriate risk-based program, the institution will be well-positioned to appropriately manage customer accounts, while generally detecting and deterring illicit financial transactions.”
While the current industry thinking is that just smaller institutions are getting involved with the cannabis industry, there is evidence that that is not the case. A recent report in American Banker magazine after analysis of applications revealed that Bank of America, Citi, and JP Morgan banks or their subsidiaries were working with medical dispensaries in Massachusetts.