Pubdate: Sat, 15 Feb 2014
Source: Day, The (New London,CT)
Contact:  2014 Associated Press
Website: http://www.theday.com/
Details: http://www.mapinc.org/media/293
Author: Pete Yost, Associated Press

BANKS, POT SELLERS GET OK TO DO BUSINESS

White House Clears Way, but Financial Officials Are Hesitant

Washington (AP) - The Obama administration on Friday gave banks a 
road map for conducting transactions with legal marijuana sellers so 
these new businesses can stash away savings, make payroll and pay 
taxes like any other enterprise. It's not clear banks will get on board.

Guidance issued by the Justice and Treasury departments is the latest 
step by the federal government toward enabling a legalized marijuana 
industry to operate in states that approve it. The intent is to make 
banks feel more comfortable working with marijuana businesses that 
are licensed and regulated.

Others have a keen interest, too, in a regulated financial pipeline 
for an industry that is just emerging from the underground. Marijuana 
businesses that can't use banks may have too much cash they can't 
safely put away, leaving them vulnerable to criminals. And 
governments that allow marijuana sales want a channel to receive taxes.

But a leading financial services trade group immediately expressed 
misgivings and others, too, said the guidelines don't go far enough 
in protecting banks.

"After a series of red lights, we expected this guidance to be a 
yellow one," said Don Childears, president and CEO of the Colorado 
Bankers Association. "This isn't close to that. At best, this amounts 
to 'serve these customers at your own risk' and it emphasizes all of 
the risks. This light is red."

Washington and Colorado in 2012 became the first states to approve 
recreational use of marijuana. A group is hoping to make Alaska the 
third state in the nation to do so.

Currently, processing money from marijuana sales puts federally 
insured banks at risk of drug racketeering charges, so they've 
refused to open accounts for marijuana-related businesses.

Friday's move was designed to let financial institutions serve such 
businesses while ensuring that they know their customers' legitimacy 
and remain obligated to report possible criminal activity, said the 
Treasury Department's Financial Crimes Enforcement Network, or FinCEN.

But in response, the American Bankers Association said "guidance or 
regulation doesn't alter the underlying challenge for banks. As it 
stands, possession or distribution of marijuana violates federal law, 
and banks that provide support for those activities face the risk of 
prosecution and assorted sanctions."

The group says banks will only be comfortable serving marijuana 
businesses if federal prohibitions on the drug are changed in law.

Denny Eliason, a lobbyist for the Washington Bankers Association, 
said it will take some time before banks decide whether to take 
advantage of the guidance. He called it a good first step, but said 
it sets forth a complicated process for the banks to follow - for 
example, by filing suspicious activity reports designated "marijuana 
limited" in the case of business that seem to be complying with the 
rules, and "marijuana priority" for those acting questionably.

"They'll have to have a real awareness of the activities of their 
customers," he said.

State banking regulators in Colorado and Washington appear to believe 
that mainly small and medium-sized banks will be interested in 
handling financial transactions with legal marijuana stores, not the 
big ones, a FinCEN official said, speaking only on condition of 
anonymity to talk about internal deliberations.

"This is a decision that each financial institution needs to make on 
its own," the official said. "We feel quite comfortable that we have 
acted within the scope of our authority" and therefore don't expect 
legal challenges to the new procedures.

FinCEN writes the rules that U. S. financial institutions must follow 
to help protect the system from money laundering and the financing of 
terrorism. The office said it expects financial institutions to 
perform thorough customer due diligence on marijuana businesses and 
file reports that will be valuable to law enforcement.

Under the guidance, banks must review state license applications for 
marijuana customers, request information about the business, develop 
an understanding of the types of products to be sold and monitor 
publicly available sources for any negative information about the business.

Asked about the conflict in federal and state laws on marijuana use, 
the official said the agency sought to balance competing interests. 
One of them is the concern about having so much cash on the street 
without an ability to get those funds into the safety of a bank.

The guidance provided the banks with more than 20 "red flags" that 
may indicate a violation of state law. Among them: if a business 
receives substantially more revenue than its local competitors, 
deposits more cash than is in line with the amount of 
marijuana-related revenue it is reporting for federal and state tax 
purposes, or experiences a surge in activity by third parties 
offering goods or services such as equipment suppliers or shipping services.

If a marijuana-related business is seen engaging in international or 
interstate activity, such as the receipt of cash deposits from 
locations outside the state, that's a red flag, too.

It has been difficult for legal marijuana sellers to operate without 
banks in the mix.

"It's not just banks that are wary about handling our money, it's 
everybody - security businesses, lawyers, you name it, no one wants 
to take the risk of taking our money," said Caitlin McGuire, owner of 
Breckenridge Cannabis Club in Breckenridge, Colo.

McGuire's shop had an account with a local credit union for years, 
but the credit union cut them off last year.

"They basically told us they wanted to keep our accounts, but it was 
too big of a risk. They were questioned by their auditors, ' Why do 
you have this marijuana account?' It just ended up being too much for them."

The pot shop now pays its bills with money orders and cash. It's not 
easy, McGuire said.

"It's made it very difficult to pay our bills, to pay our employees, 
to pay our taxes, to do anything."
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MAP posted-by: Jay Bergstrom