Why the SAFE Banking Act is the Wrong Solution to the Right Problem.

By: Robert Baron, CAMS

As a cannabis banking expert, and a Certified Anti-Money Laundering Specialist (CAMS), I believe the cannabis industry deserves access to banking. Unfortunately, they have limited options because there aren’t enough financial institutions willing to bank them.

The lack of banking options has forced thousands of businesses to disguise the true nature of their state-licensed cannabis operations and commit bank fraud and money laundering to obtain an essential business checking account. Alternatively, those businesses that don’t choose this route continue to operate in cash, posing a public safety risk for our communities.

So why aren’t bankers willing to provide banking services to state-licensed cannabis businesses? The reason isn’t that cannabis is federally illegal; they simply don’t want to bank it.

The SAFE Banking Act is the Wrong Solution to the Right Problem.

The cannabis industry has been led to believe that the government can solve this problem. Since 2019, Congress has tried multiple times to pass what is known as the Secure and Fair Enforcement Banking Act (SAFE Banking Act) to solve the cannabis banking problem. This legislation would exempt bankers from prosecution for money laundering state-licensed cannabis proceeds, persuading banks and credit unions to come rushing in to serve this underserved market.

While the SAFE Banking Act would be a step in the right direction, the argument that it would resolve the banking challenges of the cannabis industry is complete bullshit.

If the SAFE Banking Act enacts into law, there would be little to no change in the availability of banking and financial services for the cannabis industry. Here are the top three (3) reasons why the SAFE Banking Act is unnecessary:

1. Current federal guidance is crystal clear; financial institutions can already bank cannabis “consistent with their [regulatory] obligations.” (FIN-2014-G001)
2. The Federal Reserve Bank accepts cannabis proceeds based on this guidance.
3. There are over 200 financial institutions already banking cannabis, and none have been fined or shut down solely for banking state-licensed cannabis businesses.

So, if banking cannabis is already permissible, then what gives? Why aren’t more financial institutions engaged in serving this underserved market?

Our elected officials and business leaders are attempting to solve the right problem in the wrong way. There is a lack of access to banking, but it’s not because bankers are afraid to bank cannabis; it’s because of the burdens that come with it.

Financial institutions don’t enter the space due to the costs and complexity of performing unnecessary compliance tasks required to bank cannabis. These challenges include:

Financial Institutions Can Already Bank Cannabis According to the U.S. Government

Despite misconceptions that banking state-licensed cannabis proceeds are illegal, the  Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Department of the Treasury, issued guidance in 2014 that “clarifies how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations” (FIN-2014-G001). FinCEN is responsible for enforcing the Bank Secrecy Act (BSA) and combatting illicit finance and money laundering, which it accomplishes using federal and state banking regulators (i.e., FDIC, NCUA, OCC, etc.). Since these regulators follow Anti-Money Laundering (AML) requirements issued by FinCEN, this guidance has essentially become the constitution of cannabis banking.

A primary role of FinCEN has been to aggregate a series of Currency Transaction Reports (CTRs) and Suspicious Activity Reports (SARs), which financial institutions file to report (1) large cash transactions exceeding $10,000 and (2) any suspicious or illegal activity discovered. While FinCEN has always required bankers to file SARs whenever they suspect or discover suspicious or illegal activity, the agency imposed additional SAR burdens on bankers that have chosen to bank cannabis.

In its guidance issued in 2014, FinCEN required bankers to file a specialized SAR called a “Marijuana Limited SAR” when they open an account in any state-licensed cannabis business. This unique SAR contains basic business information such as the business name, contact information, beneficial owner names, and personally identifiable information. Beyond that, no suspicious or actionable information is contained in these reports.

Unfortunately, for the banker, this filing is not a one-time event. A new Marijuana Limited SAR must be filed continuously as long as the account is open for every 90 days of account activity, even when there is no evidence of illegal or suspicious activity. As of December 31, 2020, FinCEN has received over 130,709 SARs. That’s over 130,709 Suspicious Activity Reports that don’t declare any “Suspicious Activity.”

A Modest Proposal to Make Cannabis Banking More Sustainable

Since Marijuana Limited SARs indicate no valuable information for law enforcement, it’s high time the requirement is removed. Instead, an institution should file a SAR if the suspicious or illegal activity (other than the fact that the business is involved in state-licensed cannabis commerce) is found. Otherwise, we will continue to have over 130,709 reports that unnecessarily clog FinCEN’s databases.

Burdens like the Marijuana Limited SAR are why most bankers don’t wish to bank the cannabis industry. Without automation and technology, banking cannabis requires multiple full-time, highly skilled employees to track and file these useless reports. Failure to file these reports can lead to regulatory sanctions, civil monetary penalties against the financial institution, and criminal prosecution. However, the risk of prosecution isn’t due to the legality of cannabis; it’s due to a failure to follow restrictive and useless guidance (not laws) issued by FinCEN.

These requirements cause even the largest financial institutions to scale back their service to the cannabis industry or to avoid banking the sector altogether. The risks of non-compliance, opportunity costs, and expense of managing these pointless regulatory requirements make banking cannabis not profitable enough for large financial institutions, leading many to abandon or avoid serving an already underserved industry. Those who remain willing to bank cannabis spend time and resources filling out useless government paperwork instead of focusing their efforts on effective AML and fraud risk mitigation.

New legislation won’t solve the banking problems faced by the cannabis industry. With meaningful regulatory reform and the adoption of new data-driven automation and technology, financial institutions can achieve efficiencies to ensure that banking cannabis can be a sustainable endeavor. This will increase the availability and lower the cost of banking options for the cannabis industry by reducing the compliance costs of banking cannabis.

The cannabis industry, estimated to be over $75 Billion (and growing), deserves to be treated equally to other cash-intensive businesses such as bars, restaurants, convenience stores, and laundromats (where money laundering occurs with greater frequency). They deserve access to cost-effective banking, merchant processing, lending and credit facilities, affordable commercial insurance, and much more. They deserve to be treated fairly. Join me in petitioning our lawmakers, regulators, and industry leaders to support targeted and meaningful change that can make this happen.