Pubdate: Sat, 15 Feb 2014
Source: Daily Local, The (PA)
Copyright: 2014 Associated Press
Contact:  http://www.dailylocal.com/
Details: http://www.mapinc.org/media/4704
Author: Pete Yost, Associated Press

POT BANKERS

White House Advises Financiers, Marijuana Sellers About Business

WASHINGTON (AP) - The Obama administration on Friday gave banks a 
road map for doing business with legal marijuana sellers without 
getting into trouble, a major step by the federal government toward 
enabling a legalized marijuana industry to operate in states that approve it.

The guidance issued by the Justice Department and Treasury Department 
was intended to make banks feel more comfortable working with legal 
marijuana businesses that are licensed and regulated, while 
preserving the government's enforcement power.

Others have a keen interest, too, in a regulated financial pipeline 
for an industry that is just emerging from the underground. Marijuana 
businesses that can't use banks may have too much cash they can't 
safely put away, leaving them vulnerable to criminals. And 
governments that allow marijuana sales want a channel to receive taxes.

A leading financial services trade group immediately expressed 
misgivings, however.

Washington and Colorado in 2012 became the first states to approve 
recreational use of marijuana. A group is hoping to make Alaska the 
third state in the nation to do so.

Currently, processing money from marijuana sales puts federally 
insured banks at risk of drug racketeering charges, so they've 
refused to open accounts for marijuana-related businesses.

Friday's move was designed to let financial institutions serve such 
businesses while ensuring that they know their customers' legitimacy 
and remain obligated to report possible criminal activity, said the 
Treasury Department's Financial Crimes Enforcement Network, or FinCEN.

But in response, the American Bankers Association said "guidance or 
regulation doesn't alter the underlying challenge for banks. As it 
stands, possession or distribution of marijuana violates federal law, 
and banks that provide support for those activities face the risk of 
prosecution and assorted sanctions."

The group says banks will only be comfortable serving marijuana 
businesses if federal prohibitions on the drug are changed in law.

State banking regulators in Colorado and Washington appear to believe 
that mainly small and medium-sized banks will be interested in 
handling financial transactions with legal marijuana stores, not the 
big ones, a FinCEN official said, speaking only on condition of 
anonymity to talk about internal deliberations.

"This is a decision that each financial institution needs to make on 
its own," the official said. "We feel quite comfortable that we have 
acted within the scope of our authority" and therefore don't expect 
legal challenges to the new procedures.

FinCEN writes the rules that U.S. financial institutions must follow 
to help protect the system from money laundering and the financing of 
terrorism. The office said it expects financial institutions to 
perform thorough customer due diligence on marijuana businesses and 
file reports that will be valuable to law enforcement.

Under the guidance, banks must review state license applications for 
marijuana customers, request information about the business, develop 
an understanding of the types of products to be sold and monitor 
publicly available sources for any negative information about the business.

Asked about the conflict in federal and state laws on marijuana use, 
the official said the agency sought to balance competing interests. 
One of them is the concern about having so much cash on the street 
without an ability to get those funds into the safety of a bank.

The guidance provided the banks with more than 20 "red flags" that 
may indicate a violation of state law. Among them: if a business 
receives substantially more revenue than its local competitors, 
deposits more cash than is in line with the amount of 
marijuana-related revenue it is reporting for federal and state tax 
purposes, or experiences a surge in activity by third parties 
offering goods or services such as equipment suppliers or shipping services.

If a marijuana-related business is seen engaging in international or 
interstate activity, such as the receipt of cash deposits from 
locations outside the state, that's a red flag, too.

It has been difficult for legal marijuana sellers to operate without 
banks in the mix.

"It's not just banks that are wary about handling our money, it's 
everybody - security businesses, lawyers, you name it, no one wants 
to take the risk of taking our money," said Caitlin McGuire, owner of 
Breckenridge Cannabis Club in Breckenridge, Colo.

McGuire's shop had an account with a local credit union for years, 
but the credit union cut them off last year.

"They basically told us they wanted to keep our accounts, but it was 
too big of a risk. They were questioned by their auditors, ' Why do 
you have this marijuana account?' It just ended up being too much for them."

The pot shop now pays its bills with money orders and cash. It's not 
easy, McGuire said.

"It's made it very difficult to pay our bills, to pay our employees, 
to pay our taxes, to do anything."
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MAP posted-by: Jay Bergstrom