FinCEN, DOJ issue guidance to clarify expectations on marijuana banking
AML AND COMPLIANCE NEWS |
In February, the Financial Crimes Enforcement Network (FinCEN) issued guidance explaining how banks can serve legal marijuana businesses while remaining in compliance with provisions of the Bank Secrecy Act (BSA). While federal law makes it illegal to manufacture, distribute or dispense marijuana, FinCEN and the Justice Department acknowledged that 20 states and the District of Columbia have legalized the substance for recreational or medicinal purposes – making guidance critical for financial institutions in those jurisdictions.
Broadly stated, the new guidance says financial institutions are responsible for adequate due diligence in any account relationship. This includes verification of licensing, reviewing any license applications and related documentation, developing an understanding of the product and business model and ongoing monitoring to stay abreast of any adverse information or suspicious activity.
Banks are required to file suspicious activity reports (SARs) if they choose to work with a marijuana-related enterprise. The bank should file a “Marijuana Limited” SAR if the business is not in violation of state laws. The notation “Marijuana Limited” is to be placed in the SAR narrative section and lowers the company’s risk profile with federal authorities. The Bank should file a “Marijuana Priority” SAR if they reasonably believe the business is in violation of state or federal law, noting “Marijuana Priority” in the SAR narrative section. Red flags that might trigger a “Marijuana Priority” SAR include the appearance of money laundering, unsatisfactory documentation or a marijuana business with frequent or large cash transactions with interstate or international parties. The guidance lists several red flags that may indicate a marijuana-related business may be engaged in activity that violates state law or implicates one of the “Cole Memo” priorities (see the guidance for discussion on the Cole Memo). The Bank should note “Marijuana Termination” in the SAR narrative section if it necessary to terminate a relationship with a marijuana-related business in order to maintain an effective anti-money laundering compliance program.
With regard to other BSA requirements, the guidance states, “Financial institutions and other persons subject to FinCEN’s regulations must report currency transactions in connection with marijuana-related businesses the same as they would in any other context, consistent with existing regulations and with the same thresholds that apply.”
To review the complete FinCEN guidance document, please see: http://www.fincen.gov/statutes_regs/guidance/pdf/FIN-2014-G001.pdf