Legal marijuana sellers, shut out of the US banking system and forced to store large amounts of cash on their own, are unlikely to see relief soon, according to public statements made by those set to manage the Justice Department for the next few years.
Acting Deputy Attorney General Sally Quillian Yates, in written testimony to the Senate Judiciary Committee published this month, promised to uphold drug war laws that discourage banks from doing business with pot dealers operating in compliance with state law in places like Colorado and Washington.
“Financial institutions must continue to apply appropriate risk-based anti-money laundering policies, procedures, and controls sufficient to address the risks posed by customers engaged in marijuana-related activity,” Yates said.
She also noted that she is opposed to the legalization of marijuana and remains “committed to enforcing the Controlled Substances Act and federal money laundering laws.”
Yates did acknowledge, however, that the department’s resources should be applied in a way to “address the most significant threats to public health and safety”—an approach used by Attorney General Eric Holder to deter US attorneys from prosecuting a number of marijuana-related CSA offenses in states that have legalized consumption of the plant.
But many aboveboard marijuana businesses are more concerned about being denied the opportunity to enjoy the full fruits of legitimacy rather than an unexpected drug raid by federal agents. Since marijuana is still illegal at the federal level, banks that accept money from lawful marijuana businesses could be slapped with money laundering charges and, as such, are often reluctant to do so.
Although the Justice and Treasury Departments issued a new guidance in January 2014 allowing banks to do business with medical and recreational pot enterprises in permitting states, that order required financial institutions to adopt onerous new policies to monitor their pot clients, and it still leaves them vulnerable to federal prosecution—a litigation risk that most institutions are unwilling to take, despite the rising value of the multi-billion dollar industry.
A Colorado credit union, which received the state’s blessing to open accounts for marijuana sellers, has, for example, yet to receive approval from the Federal Reserve to open a “master account”—a fixture that would allow the bank to deposit and transfer its funds electronically with other banks around the country.
The Fourth Corner Credit Union submitted its application with the Fed in January, but has still not received a response—an unprecedented delay that’s prompted inquiries from a United States Senator.
In March, Sen. Michael Bennett (D-Colo.) wrote to Federal Reserve Board Chair Janet Yellen, urging the fed to work with the credit union to open a master account.
Also taking on the issue is Rep. Earl Blumenauer, (D-Ore.), who penned a note to the Federal Deposit Insurance Corporation, asking what role the agency played in discouraging an Oregon bank from opening accounts for Colorado pot businesses.
In January, that institution, Mbank, promised it would cater to legal marijuana sellers, but was forced to renege on the commitment weeks later after the FDIC began investigating the bank on unrelated matters. Sources told the Denver Post that the bank’s reconsideration was “forced by regulators who recently audited bank records over an extended period, eventually downgrading the institution’s rating and indicating marijuana deposits might be too risky to handle.”
“If this is true, it raises serious questions about the application of federal financial oversight.” Rep. Blumenauer said in his letter. He added that banks “need confidence that they can provide banking services to legitimate marijuana businesses without threat that their regulators will penalize them.”
Until then, business owners and banks dealing with pot remain in a precarious position.
“Everyone acknowledges the insanity and unfairness of requiring legal businesses to pay their taxes with shopping bags full of $20 bills,” Rep. Blumenauer noted.
On the same day the Senate confirmed Loretta Lynch to be the next Attorney General, the Judiciary Committee voted 18-2 to approve Yates as deputy AG. Yates’ nomination still faces a vote on the floor of the Senate before it can be finalized.
Like her deputy, Lynch has made similar hawkish statements about the drug war. During her nomination hearing, Lynch said she’s opposed to marijuana legalization, and intends to continue enforcing federal laws against the drug. She also said she never smoked marijuana, but disagreed with President Obama’s assertion that the drug is less harmful than alcohol.
