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FEATURE Marijuana-Related Businesses


IMPLICATIONS FOR COMMUNITY BANKS Paul J. Cambridge | Partner, Armstrong Teasdale LLP | pcambridge@ArmstrongTeasdale.com


Thirty-three states have legalized medical marijuana, with ten of them also legalizing marijuana for recreational use. Despite the growing number of states permitting marijuana use, it remains illegal under the federal Controlled Substances Act. Given the vastly different treatment of marijuana under federal and state law, financial institutions are left in the uncomfortable position of having to choose between strict compliance with federal law and turning away customers involved in marijuana activities legalized by the states.


While marijuana remains illegal under federal law, the U.S.


Department of Justice (DOJ) has chosen not to prosecute activities conducted in compliance with applicable state laws and licensing regimes. This policy was spelled out in the Cole Memorandum issued by then Deputy Attorney General James Cole in August 2013, which suggested that United States Attorneys should refrain from prosecuting state-authorized marijuana conduct that does not interfere with federal law enforcement priorities enumerated in the Cole Memorandum. In addition, federal legislation first passed in December 2014, known as the Rohrabacher-Farr Amendment, prohibits the DOJ from using any funds to prevent implementation of state laws authorizing the use, distribution, possession or cultivation of medical marijuana. In February 2014, the Financial Crimes Enforcement Network


(FinCEN) issued guidance to clarify the Bank Secrecy Act (BSA) expectations for financial institutions providing services to marijuana-related businesses (MRBs). The FinCEN guidance relies heavily on the Cole Memorandum, despite it being rescinded in January 2018 by then Attorney General Jeff Sessions in a largely symbolic gesture. The FinCEN guidance is the only official federal guidance available to financial institutions regarding marijuana banking. The FinCEN guidance has two key areas of focus: (1) customer diligence and (2) suspicious activity report (SAR) filing. As part of a financial institution’s risk assessment when entering


into a relationship with an MRB, the FinCEN guidance requires substantial customer due diligence to verify that the MRB’s activities are in compliance with state law and that there are no red flags for potential violation of the enforcement priorities described in the Cole Memorandum. Not only must appropriate due diligence be conducted before establishing a customer relationship with an MRB, but ongoing monitoring of the MRB customer and its account activity must continue throughout the life of the relationship.


Paul Cambridge will be speaking on


Marijuana-Related Businesses at the Community Banking Conferences on Aug. 22 (St. Charles, Missouri) and on Oct. 8 (Lincoln, Nebraska)


10 MIDWEST INDEPENDENT BANK MIBANC.com


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