The Financial Crimes Enforcement Network (FinCEN) issued guidance in February clarifying its “customer due diligence” expectations and Bank Secrecy Act reporting requirements for financial institutions seeking to provide services to marijuana-related businesses.
FinCEN issued the guidance in light of recent state initiatives to legalize certain marijuana-related activity and related guidance by the Justice Department concerning marijuana-related enforcement priorities under the federal Controlled Substances Act (CSA).
The Justice Department maintains “marijuana is a dangerous drug,” “the illegal distribution and sale of marijuana is a serious crime,” and the Justice Department is “committed to the enforcement of the CSA.”
According to a memo by Deputy Attorney General James M. Cole, the Justice Department guidance clarified that it would focus its efforts on certain enforcement priorities that are particularly important to the federal government, such as preventing:
Distribution of marijuana to minors;
Revenue from the sale of marijuana from going to criminal enterprises;
Diversion to other states;
State-authorized marijuana activity from being used as a cover for tra?cking other illegal drugs or other illegal activity; and
Drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use.
Until Congress changes the federal law so that marijuana-related businesses are no longer illegal, institutions might be taking a great risk providing financial services to these businesses. But it’s up to each institution to decide whether it’s worth the risk.
In assessing the risk of providing services to a marijuana-related business, a financial institution must conduct customer due diligence that includes considering whether a business violates state law or one of the Justice Department enforcement priorities mentioned above.
An institution also would need to:
Verify with the appropriate state authorities whether the business is duly licensed and registered;
Review the license application (and related documentation) submitted by the business for obtaining a state license to operate its marijuana-related business;
Request from state licensing and enforcement authorities available information about the business and related parties;
Develop an understanding of the normal and expected activity for the business, including the types of products sold and the type of customers served (e.g., medical versus recreational customers);
Conduct ongoing monitoring of publicly available sources for adverse information about the business and related parties;
Conduct ongoing monitoring for suspicious activity, including for any of the red flags described in this guidance; and
Refresh information obtained as part of customer due diligence on a periodic basis and commensurate with the risk.
In addition, a financial institution’s obligation to file a Suspicious Activity Report (SAR) is unaffected by state laws legalizing marijuanarelated activities. The FinCEN provides specific guidelines for SAR filings related to serving these businesses. A financial institution would file a:
“Marijuana limited” SAR if it reasonably believes (based on customer due diligence) that the marijuana-related business doesn’t violate state law or implicate one of the Justice Department’s enforcement priorities.
“Marijuana priority” SAR if it reasonably believes (based on customer due diligence) the business being conducted implicates one of the Justice Department’s enforcement priorities or violated state law.
“Marijuana termination” SAR if the institution terminates a member/ customer for reasons related to its anti-money laundering compliance program. FinCEN’s guidance also clarifies that a business engaged in marijuana-related activity shouldn’t be treated as a “nonlisted business” and therefore, isn’t eligible for consideration for an exemption from filing Currency Transaction Reports.