The feds have come out with the long-awaited guidelines to enable bankers to accept marijuana business deposits without going to jail.
Well, the general reaction is: Be careful what you wish for, you may get it.
Initially, banks knew they were risking regulatory sanctions and even felony charges if they took pot money, but specifics were lacking. Now, the guidelines spell out how you can end up in the slammer, prompting most bankers to say, “Now I know why I didn’t wanna do it in the first place.”
A bank is no longer presumed to be engaging in abetting money laundering if accepting deposits from marijuana businesses in Colorado and other states where the trade is legal under state law. (Remember, it’s still illegal under federal statutes, and federal law trumps state law.)
The guidance is still excessively vague, requiring, for example, that banks know the products marketed by marijuana businesses, as well as being sure that the source of the money deposited isn’t tainted by illegal activities beyond the legal ones permitted by state law. That kind of oversight is a nightmare for a financial institution.
Suspicious Activity Reports are documents that banks are required to file in the event that they suspect a customer has engaged in an illegal act. The feds’ pot guidance provides for two classes of SARs. One, if something relatively innocuous is suspected, and another if it looks like a really bad perp might be lurking. Just try making that judgment call and getting it right every time.
Part of the trepidation stems from the view that the guidance could be one of those “coat hanger regs” that scare bankers to death. This is a law or regulation that, if the examiners or the Justice Department really doesn’t like what you’re doing, but can’t find enough rope to hang you, they’ve got the coat hanger; it’s pretty certain that, if you’re doing business in a certain area, you almost certainly have made a mistake somewhere down the line. It’s like jailing Al Capone for tax evasion, the only felony that could be proven.
(And bankers are chronically scared. That calm demeanor, enhanced by the three-piece suit, is many times just for show. Like airline pilots, they’re often terrified underneath.)
The banks that I’ve spoken to recently are opting out of taking pot money, but there will be some that will. Right now, the cost/benefit equation makes little sense. Banks have more deposits than they need; if they can’t get the money out in loans, and they’re struggling to do so, then, given the cost of administration, the money’s not worth having around.
But the bandwagon will grow. I have no crystal ball, but it seems a good bet that pot will ultimately be legal nationwide. State governments are salivating over the potential tax revenue that can be smoked out of the industry. When loan demand is high, and cash is short, financial institutions will be a lot friendlier to the marijuana business.
Someday, the pioneers in the pot business may be business icons. Right now, though, bankers are a bit fearful of having rap sheets to go along with the certificates of appreciation.
Pat Dalrymple is a western Colorado native and has spent almost 50 years in mortgage lending and banking in the Roaring Fork Valley. He’ll be happy to answer your questions or hear your comments. His e-mail is firstname.lastname@example.org.