Marijuana banking rules remain hazy

How is it possible that on the same day New York’s Department of Health was announcing the five companies that can legally manufacture and distribute medical marijuana next year, a credit union was suing in Colorado federal court for the right to provide banking services to legal marijuana businesses? Quite simply, the federal government has adopted a “don’t ask, don’t tell” policy with regard to one of our nation’s most high profile issues.

Even as New York, 21 other states and Washington, D.C., legalize marijuana to varying degrees, the federal government has refused to clearly authorize financial institutions to provide banking services to legal marijuana businesses.

This situation is unsustainable for credit unions and for that matter banks caught in between diametrically opposed federal and state laws.

Even those opposed to the legalization or decriminalization of marijuana-a group in which I count myself- should agree that it makes sense to give legal marijuana businesses access to banking services. Credit unions and banks provide a place for legitimate businesses to safeguard their funds (not to mention, the banking system can also track money diverted to illegal activities, and financial institutions play a key role in the collection of taxes). Unfortunately the federal government has been unwilling to unequivocally authorize credit unions and banks to provide these basic services in spite of the fact that an appropriate framework is already in place.

The existing system of anti-money laundering laws works well, so long as everyone knows what is and is not illegal activity.. But it can’t work effectively when a business engages in an activity that is either perfectly legal or blatantly illegal depending on whether a credit union consults state or federal law.

This is the conundrum that institutions considering opening accounts for legal marijuana face. Marijuana still remains illegal under the federal Controlled Substances Act, even though California legalized it for medical purposes in 1996. Are credit unions acting illegally if they open up their services to companies violating federal law?

Federal efforts to address this dilemma have so far proven to be woefully inadequate. In December of 2013, both the Justice Department and the Financial Crimes Enforcement Network, or FinCEN—the financial regulator responsible for overseeing BSA compliance—issued memoranda explaining the circumstances under which financial institutions are authorized to service marijuana businesses. For example, the Justice Department said it would not prosecute businesses in states where marijuana was legal provided that a business was not being used to hinder core law enforcement priorities, such as preventing the distribution of drugs to minors or helping to fund gang activities. The FinCEN guidance established a burdensome framework of continuous regulatory filings for any institution serving pot businesses. As the Colorado Bankers Association said, these memos told financial institutions to “serve these customers at your own risk.” They emphasized that federal law makes marijuana possession and distribution illegal, and imposed record keeping requirements that make servicing the marijuana industry infeasible for all but the largest of institutions.

The Justice Department and FinCen are not to blame. As long as Congress refuses to act, regulators can at best decide to look the other way when it comes to marijuana. And regulatory guidance is only as binding as the president and attorney general charged with enforcing it. New Jersey Gov. Chris Christie, a former federal prosecutor, has stated that one of the first things he would do as president is repeal the Justice Department’s memorandum. This is hardly the type of certainty credit unions are looking for as they consider whether or not to open their doors to marijuana businesses.

Is there a way out of this legal mess? Perhaps the lawsuits against the NCUA and the Kansas City Federal Reserve will help provide some brighter lines. But ultimately Congress must deal with the issue on the federal level once and for all. No industry can sustain itself cut off from the banking system. Either it is legal to provide banking services to marijuana businesses in states where marijuana is legal, or, notwithstanding the broad-based and growing support for legalizing marijuana in this country, cannabis remains illegal as a matter of federal law and the statutes of 22 states are void.