Pubdate: Mon, 21 Mar 2011
Source: AlterNet (US Web)
Copyright: 2011 Independent Media Institute
Website: http://www.alternet.org/
Author: Clarence Walker
Note: Clarence Walker is a veteran Houston-based journalist who 
writes on criminal justice issues.

FEDS PUSH BANKS TO SPY ON LEGAL MARIJUANA DEALERS

Federal regulators ignited a firestorm of controversy recently when 
they ordered banks located in the North Coast area of California to 
spy on transactions of customers who are suspected of making money in 
the marijuana business. In a bid to crack down on California's 
marijuana industry, regulators have ordered banks to look out for 
suspicious activity by those running such operations, but that is 
leaving legal -- under state, but not federal law -- medical 
marijuana businesses out in the cold.

Although DEA and FBI officials are not specifically targeting medical 
marijuana, they say they are looking for drug traffickers and money 
launderers, and they regard any marijuana-related banking activities 
with suspicion. The banks are not being ordered to not do business 
with dispensaries, but are instead closing accounts rather than put 
up with the hassles of investigating and reporting those transactions.

Banks in the North Coast region, including Savings Bank, Wells Fargo, 
the Exchange Bank, and Ukiah Bank, as well as other financial 
institutions in the Sacramento and San Joaquin areas are scrambling 
to comply with the government's order as the feds continue their 
onslaught against the legal marijuana trade.

The enforcement action is the result of the North Coast's widespread 
reputation for marijuana production and also includes the arrest of 
citizens in the area operating legal medical marijuana businesses 
under California state law. California voters passed Proposition 215 
in 1996, legalizing the medical use of marijuana for patients whose 
doctors have recommended they use it.

According to the Santa Rosa Press-Democrat, the policy took effect 
last month when the largest bank in Mendocino County informed 
shareholders that federal banking regulators would now require the 
North Coast banks to scrutinize deposit accounts because the area had 
been designated a high-risk area for money laundering, particularly 
from those in the medical marijuana business.

"This area in general has been targeted by Washington because the 
amount of cash that comes out of here," said Charles Mannon, chief 
executive of the Ukiah Bank.

Mike Johnson, an entrepreneur in the marijuana industry who requested 
that this article not identify the name of his business, felt the 
squeeze from the federal regulators when Wells Fargo and the Umpqua 
Bank closed his accounts last year. "They think we're all drug 
dealers," Johnson said.

Those in the trade familiar with the feds' regulation policy complain 
of how the government has forced banks and financial institutions to 
enlist as foot soldiers in the war on drugs. The new requirements 
force banks to expend unnecessary time and money probing clients' 
accounts for evidence of illegal activity associated with the 
marijuana business, they say.

To bypass the stringent rules, several banks closed the accounts of 
medical marijuana dispensaries. Bank officers said that since medical 
marijuana is a violation of federal law, they are required under the 
Bank Secrecy Act to report on businesses involved in the state 
authorized medical marijuana industry.

Last year, Exchange Bank issued a policy which prohibits medical 
marijuana businesses from opening up accounts because of the 
time-consuming scrutiny they would have to undergo and because of the 
expense of having to purchase pricey monitoring systems.

"State and federal law are in conflict with each other," said Bill 
Schrader, president of Exchange Bank. "If there are suspicious 
activities under federal law, we have to report it."

The extensive monitoring of bank accounts works this way: If a bank 
agent or its anti-laundering system detects suspicious activity, the 
feds have required banks and credit unions to file a report with the 
Financial Crimes Enforcement Network (FINCEN), which operate massive 
databases available to the FBI and DEA.

Currently there are 14 states including the District of Columbia 
allowed to sell medical marijuana legally under state law, but under 
the federal Controlled Substances Act of 1970, marijuana is 
classified as an illegal Schedule 1 drug.

The federal government cannot force states to comply with federal law 
or require states to enforce federal law, but the US Department of 
Justice has the authority to prosecute offenders and organizations in 
violation of federal law against sales or possession of marijuana. 
This law effectively blocks banks from dealing with those in the 
legal marijuana business who must operate business accounts to accept 
credit and debit cards for their services.

"Our organization is regularly contacted by cannabis businesses that 
can't make daily deposits or have credit card processing," Allen St. 
Pierre, executive director of NORML, told the Chronicle. "The 
inability of cannabusinesses to gain access to regular banking and 
financial services continues to hamper the expansion of medical 
cannabis dispensaries."

St. Pierre took a shot at the Department of Justice. "Despite the 
2009 'Ogden' memo from the Obama administration's attempt to allow 
greater autonomy for states to regulate medical cannabis, the memo 
didn't address the legal concerns expressed by banks and financial 
services who fear they are violating federal laws if they do business 
with cannabis businesses."

In May 2010, following several attempts to pass legislation to 
eliminate federal penalties for medical marijuana, 15 members of 
Congress, led by Rep. Barney Frank (D-MA) issued a letter written by 
Rep. Jared Polis (D-CO) to Treasury Secretary Timothy Geithner.

"Legitimate state-legal businesses are being denied access to banking 
services, which does not serve the public interest," the letter said. 
The letter also requested "formal written guidance" to assure banks 
would not be federally targeted for conducting business with medical 
marijuana dispensaries.

"They were trying to ensure that medical marijuana dispensaries could 
have banking services provided to them because there's so much 
capital involved," said Mike Meno, director of communications for the 
Marijuana Policy Project.

It's not just Northern California. Sue Harank is the co-owner of 
Alpine Herbal Wellness in Denver Colorado. This medical marijuana 
dispensary has been operating less than a year. Within this time, 
Harank has been forced to switch banks four times after the 
institutions closed her accounts without prior warning.

Harank called situation as "one heck of a nightmare." According to 
Banktime.com, Harank now does business with Colorado State Bank, the 
only bank in the state allowing people in the legal marijuana trade 
to hold business accounts.

Don Duncan feels the adverse treatment as well, when dealing with 
financial institutions. Duncan, the California director of the 
pro-medical marijuana advocacy group Americans for Safe Access, had 
his bank accounts shut down without notice. "Banks can't figure out 
if it's okay to do business with medical cannabis organizations," he said.

US Attorney General Eric Holder issued a memo in October, 2009, 
expressing administration policy of not utilizing federal resources 
to pursue "individuals whose actions are in clear and unambiguous 
compliance with existing state laws providing for the medical use of 
marijuana." Despite Holder's direct orders the federal troops still 
pursue those legally operating marijuana businesses.

"It doesn't make sense. It is an un-American thing for the feds to 
do," said Mike Johnson. "Every major bank in California has been told 
not to handle marijuana accounts."

Legal conflicts surrounding the bank's secrecy laws forcing banks to 
report customers making suspicious deposits has created a "boom" in 
business for lesser known financial services. According to 
Banktime.com, Marijuanapos.com is one of the few institutions to 
offer banking services, including credit and debit card processing, 
for legal marijuana businesses.

Jesse Cretaro, the marketing director of Marijuanapos.com, said they 
work with banks that deal with high-risk clients. Another financial 
service, Direct Bancard of Livonia, Michigan, offers medical 
marijuana providers a prime-time Cadillac service. Executive Vice 
President Martin Khemmoro explained that Direct Bancard often uses 
merchant services located overseas to bypass legal conflicts.

Guardian Data Systems offer similar services but deals only with 
medical marijuana dispensaries legal under California state law. 
Lance Ott, Guardian's chief executive officer said he's been trying 
for years "to offer honest and secure services to an emerging industry."

Meanwhile dedicated advocates for the medical marijuana industry 
insist that all they want is for those in the industry to have access 
to safe and transparent banking services, like other professional 
entrepreneurs.

"All medical marijuana merchants wants to do is obey the law and do 
what's normal," said Duncan.

But that's unlikely to happen as long as federal marijuana 
prohibition remains intact. While the federal raids on medical 
marijuana dispensaries have decreased -- if not ended completely -- 
the feds have demonstrated that they are determined to use all the 
weapons in their arsenal to continue to go after what they consider 
to be a criminal industry.
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