An easy fix could give the marijuana industry access to banking

05-Apr-2019

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Cannabis is now legal in a number of states, but the money it generates is still seen as tainted.

The reason for this is the clash between state laws legalizing recreational marijuana and federal laws that label it a controlled substance. As a result, some business owners operating legally under state laws have been fingered as potential money launderers, and many have been kicked out of the banking system altogether. Federal regulators need to remedy the situation.

Currently, very few banks and credit unions accept marijuana-related businesses as customers, even though they are legally allowed to, according to the U.S. Treasury’s Financial Crimes Enforcement Network. Treasury has provided guidance to banks and credit unions advising them that handling such business is legal. But the guidance doesn’t effectively address the core reason many banks won’t deal with customers in the marijuana trade: expensive and onerous paperwork required from the banks about such customers under anti-money-laundering regulations.

CEOs of cannabis companies have had their personal bank accounts closed, and their storefront employees have as well.

Federal regulations against money laundering require filing suspicious-activity reports on customers banks suspect are depositing revenue garnered from illegal activities. Filing these reports is expensive and can open up banks to potentially large fines and regulatory sanctions. Once a bank has identified a customer as suspicious, it has to continually file on both deposits and payments. This makes sense if the idea is to follow the money to uncover hidden criminal enterprises. But it makes no sense when applied to state-licensed marijuana businesses, which operate openly and are easily located on Google Maps.

Still, as marijuana has become legal in more places, the number of suspicious-activity reports filed by banks has mushroomed. About 3 million such reports were filed in 2017, more than double the 1.3 million filed in 2010. There’s no way of saying for sure how many of these additional 1.7 million suspicious transactions involve cannabis, since information contained in the filings is secret. But something is driving this spike. Today, one in five Americans live in a state with commercial recreational cannabis.

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