Pubdate: Sat, 15 Feb 2014
Source: Seattle Times (WA)
Copyright: 2014 The Seattle Times Company
Contact:  http://seattletimes.nwsource.com/
Details: http://www.mapinc.org/media/409
Author: Bob Young

FEDS OFFER BANK RULES FOR SERVING LEGAL POT MERCHANTS

Boost for New Industry

Some Skeptical, but State's Smaller Banks Might Be First to Provide 
Credit, Accounts

In what some hailed as a historic step for legal marijuana, the 
federal government announced Friday new rules aimed at encouraging 
banking services for pot businesses in Washington and Colorado.

But because marijuana remains a dangerous illegal drug under federal 
law, some banks - particularly large ones - may still opt not to 
provide checking accounts, credit cards and other services to legal 
pot merchants.

"My general reaction is this is an important step, albeit a first 
step," said Denny Eliason, lobbyist for the Washington Bankers Association.

Marijuana advocates, who want to move the legal industry out of its 
risky, cash-only operations, were more enthused. Taylor West, deputy 
director of the National Cannabis Industry Association, called the 
news "a sweet valentine" for the industry.

While the so-called federal guidance provides a pathway for banks to 
serve legal pot merchants without being prosecuted, there was 
agreement among regulators, bankers, lawmakers and pot entrepreneurs 
that some banks would remain uncomfortable with the federal 
prohibition of marijuana, or with marijuana itself.

"Those that operate in all 50 states have to deal with different laws 
and views, so they may have other stakeholder issues," said Scott 
Jarvis, director of the state's Department of Financial Institutions, 
which oversees the banking industry.

National banks could lose customers in more conservative states by 
taking on marijuana business. Smaller banks chartered in Washington 
and Colorado only have to worry about their reputations in those 
states, Jarvis said.

But even small, local banks could be cowed by the federal guidance 
handed down by the Justice and Treasury departments. Federal 
authorities were clear that banks could be prosecuted if they do 
business with pot merchants who don't adhere to eight federal 
priorities laid out in August by the Department of Justice (DOJ).

"I don't see banks leaping into the market, given what the memos 
actually say," said John Davis, a Seattle pot entrepreneur and 
director of a local industry group, the Coalition for Cannabis 
Standards and Ethics.

U.S. Rep. Denny Heck, D-Olympia, said he expects banks and credit 
unions to walk very slowly into pot commerce.

But Heck, who pushed for the guidance, said the issue isn't if some 
banks will opt out, but rather if a few will opt in.

"We don't need all of them do it. We only need some. I'm confident 
the growers, processors and retailers will have access to banking," Heck said.

Banks' watchdog role

The long-awaited guidance on banking revolves around rules for 
Suspicious Activity Reports banks are required to file when they 
suspect money-laundering other illicit activities.

Under the guidance, banks and credit unions would file one kind of 
report if they believe pot merchants were engaged in illegitimate 
activities, and another if they believe the marijuana-related 
accounts are legal.

It's too soon to know which banks might be willing to serve the 
marijuana industry, said Mark MacDonald, president and executive 
director of the Community Bankers of Washington.

"I can tell you there are banks that have indicated that, given the 
appropriate assurance, they're in - they'll bank this industry," 
MacDonald said Friday. "But I can also guarantee that none will go on 
record this afternoon, until they really understand whether this is 
assurance or guidelines."

Banking is about risk management, MacDonald said. And it's going to 
be up to bank managers and board members to determine if their risk 
is acceptable, he said.

The main rub, according to the American Banking Association (ABA), is 
that guidance can be changed more easily than law, particularly if 
federal policy toward marijuana changes under a new presidential 
administration.

ABA officials said they'd be comfortable only if Congress changes 
federal law to provide them legal protection when dealing with 
legitimate pot businesses.

A top Treasury Department official tried to allay those concerns.

"The guidance is clear. We're not looking to have a gotcha 
enforcement regime," said Jennifer Shasky Calvery, director of 
Treasury's Financial Crimes Enforcement Network. "We're going to 
focus on institutions that willfully act in contravention of 
guidance, not some technical mishap."

Complicated issues

But pot commerce presents practical challenges for banks, short of 
being prosecuted. Severing a relationship with a customer suspected 
of illicit activities is not as easy as just closing an account. "You 
don't just close a loan," said MacDonald of the local bankers group. 
What if real estate is involved? That would complicate matters, he said.

A spokeswoman for the 106 credit unions in Washington noted that 
decisions are not made by trade groups and associations. Ultimately, 
it's up to individual banks and credit unions to determine what's in 
their best interest, said Lynn Heider, of the Northwest Credit Union 
Association.

John Zmolek, CEO of Verity Credit Union in Seattle, said his members 
might be interested in pot commerce, but it's not an easy call.

Verity jumped into the medical-marijuana business, Zmolek said, and 
had about 15 accounts. But last year state regulators reminded Verity 
it faced risks with those accounts because of federal law.

Verity decided it couldn't continue serving the accounts, he said.

Zmolek said the credit union will analyze the federal guidance 
closely before trying again to serve pot entrepreneurs. "Having 
jumped in once and having to pull out, we don't want to do that 
again," he said.

The new rules would apply to licensed recreational-pot businesses in 
Washington. They appear to exclude medical marijuana, which does not 
fall under a state licensing system.

Heck agreed the best way to resolve the concerns of financial 
institutions is for Congress to change federal law. He and Colorado 
Congressman Ed Perlmutter have sponsored a bill to do so, but it has 
not received a committee hearing.

It's going to take a while, he said, as only 20 states have medical 
marijuana and just two allow recreational weed.

"It will depend on how many states adopt recreational or medical 
marijuana, which depends on how effective we are in establishing a 
well-regulated market," Heck said. "Today's announcement is one giant 
step forward in enabling us to do it right."

[sidebar]

Federal Marijuana Priorities

The Department of Justice has said legal pot commerce is allowed in 
Washington as long as merchants adhere to eight priorities:

Keeping pot from minors;  Keeping pot money from going to organized 
crime;  Keeping pot from going to other states;  Preventing legal pot 
from being a cover for illegal activities;  Keeping violence and 
firearms out of legal pot;  Preventing drugged driving;  Keeping 
pot-growing off public lands; Keeping pot off federal property.

U.S. Department of Justice
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MAP posted-by: Jay Bergstrom