Feds keep bank reports that flag pot money
Rocky Mountain PBS I-News
The federal government is stockpiling hundreds of “suspicious activity reports” that could provide federal agents with sufficient evidence to shut down any state-legalized marijuana business.
While it may appear that federal authorities have taken a wait-and-see approach to marijuana legalization in the 23 states that now allow either medical or recreational use, these reports are poised like a blade over the budding industry should federal laws be enforced.
This risk of federal prosecution has led some cannabis companies to literally launder their money.
“You used to be able to just smell it,” said Jennifer Waller, vice president of the Colorado Bankers Association, speaking of the cash from marijuana shops. “But now they are using Febreze a lot, putting the money in dryers, a lot of different things to try to disguise the scent because marijuana has such a distinct odor.”
And that distinct odor is considered a red flag by federal authorities who require that banks file a suspicious activity report for every transaction that might be associated with illegal activity, including selling marijuana, even for state licensed businesses.
“It’s because of the illegal nature of it,” Waller said. “In banking, if you are accepting the funds from a marijuana company and you are aware of it … you can be charged with money laundering yourself.”
Banks fear the repercussions of holding deposits related to marijuana, still a Schedule I illegal drug under federal law. That could mean prison time for individual tellers, fines for the bank, and the bank could even lose its federal deposit insurance, meaning it could be also be closed.
If a marijuana store is charged with money laundering, it could lose everything.
“Even before a conviction, the feds could freeze your assets,” said Chris Myklebust, commissioner of the Colorado Division of Financial Services. “And if there is a money laundering conviction, the feds can seize the assets, too.”
The federal government has already collected over 1,100 reports that implicate different cannabis companies in financial crimes nationwide.
“Just in a moment’s notice, the U.S. Justice Department could literally take down every single dispensary in Colorado, probably within about a day.” said Rob Corry, a Denver attorney and marijuana advocate. Corry has worked on several cases where federal agents have seized assets — cars, cash, bank accounts — though many of the records are sealed and it’s hard to gauge just how often this occurs.
More often, banks simply shut down marijuana-related accounts. Between February and August 2014, banks filed more than 475 “Marijuana Termination” suspicious activity reports — indicating they closed hundreds of accounts because of possible criminal activity.
“I’ve lost my personal bank account, my brothers have lost their personal bank accounts,” said Sally Vander Veer, operator of Medicine Man dispensary in Denver. The dispensary also lost its account in August. She says that without a bank account, all Medicine Man employees are paid in cash. “I can’t protect them. They walk out of here with a pocket full of cash and, in essence, they become another target and a potential victim of not having banking in the marijuana industry,” Vander Veer said.
The dilemma has resulted in private businesses like Blue Line Protection Group that employ former military or law enforcement officers equipped with handguns, bulletproof vests, tactical training and armored trucks to transport cash and product to undisclosed locations for safekeeping.
“When we started, the clients we were picking up had a manager taking (cash) in a Honda Civic or some kind of Subaru, unarmed, no vests, no tactics, no skills,” said Dominic Powelson, who works for Blue Line Protection Group. “People are gladly saying, ‘Yea, just go, we will pay you some money to do it for us.’”
State regulators in Colorado and Washington have also tried to ease access to banking. Myklebust, the Colorado financial services commissioner, issued a charter to the first ever marijuana-focused credit union in November. The new credit union will not immediately have federal credit insurance, although it has applied.
Myklebust said the new credit union must also file suspicious activity reports.
The so called “SARs” stem from the guidelines set forth by the Financial Crimes Enforcement Network, or FinCEN, a branch of the U.S. Treasury Department. The guidelines were meant to ease access to banks.
“Banks are required by law to report when they think that a business is making money from something illegal, and marijuana is still federally illegal,” said Steve Hudak, spokesman for FinCEN. “We attempted to provide guidance that would help to get cash off the streets and some of the public danger that is associated with that, so we went about as far as we could.”
But the guidelines didn’t actually legalize banking for marijuana businesses — only Congress can do that. And so far, Congressional leaders have been opposed.
“(FinCEN’s) guidance is dangerously misleading,” wrote U.S. Sens. Chuck Grassley, R-Iowa, and Dianne Feinstein, D-California, in a letter of reprimand to the agency. “Indeed, following the guidance may expose financial institutions to civil or criminal liability.”
Still, some U.S. representatives from Colorado and other states have introduced legislation to federally legalize state-approved marijuana, or at least legalize the industry’s access to banking. But those bills have not advanced. As is, state-approved marijuana businesses operate solely as a matter of federal discretion. And that could change at any time.
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