The Financial Crimes Enforcement Network (“FinCEN”) has issued guidance that clarifies customer due diligence expectations and reporting requirements under the Bank Secrecy Act (“BSA”) for financial services provided to marijuana-related businesses. The February 14 guidance was coordinated with additional guidance from the U.S. Department of Justice (“DOJ”) related to enforcement of marijuana-related crimes under the federal Controlled Substances Act (“CSA”). The FinCEN guidance outlines a risk-based approach to a bank’s decision to open, close or refuse any particular account or relationship with a marijuana-related business in connection with the consideration of the CSA enforcement priorities described by the DOJ. The FinCEN guidance lists seven due diligence procedures that must be performed, at a minimum, when assessing the risk of providing services directly to a marijuana-related business, and identifies 23 red flags that should be incorporated into a bank’s ongoing monitoring program. Because federal law prohibits the distribution and sale of marijuana, banks are required to file Suspicious Activity Reports (“SARs”) on activity involving any marijuana-related business even if it is licensed under state law. The FinCEN guidance establishes a special SAR filing framework for banks reporting marijuana-related activity: “Marijuana Limited” SARs (filed when a bank determines to provide financial services to a marijuana-related business operating in compliance with state law and not implicating any of DOJ’s CSA enforcement priorities), “Marijuana Priority” SARs (filed when a bank believes that a marijuana-related business implicates one of DOJ’s CSA enforcement priorities or violates state law) and “Marijuana Termination” SARs (filed when a bank terminates a relationship with a marijuana-related business).
Nutter Notes: On November 6, 2012, Massachusetts voters approved a ballot initiative legalizing the use of marijuana for medical purposes, which has been implemented by regulations issued by the Massachusetts Executive Office of Health and Human Services. Nevertheless, it is a federal crime under the CSA to manufacture, distribute or dispense marijuana. On August 29, 2013, Deputy Attorney General James M. Cole issued a memorandum (the “Cole Memo”) to all United States Attorneys clarifying the DOJ’s CSA enforcement priorities for marijuana-related crimes in light of state laws that legalize the possession of small amounts of marijuana and provide for the regulation of marijuana production, processing and sale. The Cole Memo lists eight enforcement priorities (the “Cole Priorities”) to guide decisions by federal law enforcement authorities about whether to prosecute marijuana-related violations of the CSA regardless of state law. Activities that do not implicate one or more of the Cole Priorities are less likely to become subject to federal CSA enforcement action. However, the Cole Priorities are described in broad terms that encompass a wide range of potential conduct that may result in federal enforcement of the CSA. As a result, a bank that reasonably determines that a marijuana-related business does not implicate one of the Cole Priorities or violate state law, based on the performance of due diligence in compliance with the FinCEN guidance, is still at risk for civil or criminal enforcement of the CSA if the bank provides financial services to that business. In addition, while the FinCEN guidance is meant to clarify how a bank can provide services to a marijuana-related business consistent with the bank’s BSA obligations, the FDIC, Federal Reserve and OCC have not provided any guidance as to whether compliance with the seven FinCEN-recommended due diligence procedures and monitoring for the 23 FinCEN red flags would provide any sort of safe harbor from examination criticism or regulatory enforcement action for providing financial services to a marijuana-related business.