Pubdate: Tue, 29 Dec 2015
Source: Los Angeles Times (CA)
Copyright: 2015 Los Angeles Times
Contact:  http://www.latimes.com/
Details: http://www.mapinc.org/media/248
Author: David Kelly, Kelly is a special correspondent.

MARIJUANA, BANKING AND FEDERAL LAW

Colorado Credit Union Seeks to Do Business With the Pot Industry.

DENVER - Calling itself the "littlest David" battling the "biggest 
Goliath," a fledgling Colorado credit union took the Federal Reserve 
to court Monday in a case that may determine whether the cannabis 
industry will bank openly or continue to operate almost entirely in cash.

Denver's Fourth Corner Credit Union is looking to be the first 
financial institution in the nation that caters openly to the 
cannabis industry. But the Federal Reserve Bank of Kansas City, which 
oversees the Denver district, has denied it a master account needed 
to do business.

"We are asking for a level playing field, but they own the team and 
they own the field," Mark Mason, an attorney for the credit union, 
told U.S. District Judge R. Brooke Jackson. "We are simply asking for 
the right to be born."

The request has pit state law against federal law. Marijuana is legal 
in Colorado but still considered a Schedule 1 controlled substance by 
the federal government. So any bank or credit union doing business 
with the pot industry potentially faces prosecution and closure.

As a result, Colorado's $700-million-a-year cannabis industry runs 
almost entirely on cash, with money stashed in safes, boxes and paper 
bags offering tempting targets for criminals. A number of remedies 
have been proposed, including bipartisan legislation in Congress that 
would allow banks to work with state-authorized weed dealers, but so 
far nothing has changed.

 From the bench, Jackson said that if he were in Congress, he'd vote 
for the legislation. He sympathized with the plight of Fourth Corner 
and recognized the real dangers posed by the all-cash economy. Still, 
he seemed reluctant to require the Fed to grant the credit union a 
master account.

"Would I be forcing them to give this to someone who will then engage 
in illegal activity?" he asked.

Mason pointed out that several large banks quietly served the 
industry and that they had master accounts. Jackson agreed that it 
seemed unfair, but said requiring the Federal Reserve to give Fourth 
Corner a master account would be forcing it to violate federal law.

"The sovereign state of Colorado determined that this was a qualified 
credit union and gave us a charter," Mason responded. "Who is the 
Federal Reserve Bank of Kansas City to second guess Colorado? Does 
the Federal Reserve set national drug policy now?"

After grilling Mason, Jackson turned his attention to the Fed and 
said he was unimpressed with the reasons it gave for denying the account.

Representing the Fed, Scott Barker said that Fourth Corner was 
rejected in part because it had little up-front capital and that it 
was practically unheard of for a new credit union to get a master account.

Yet when Jackson asked how many had been denied, Barker couldn't name 
any institutions. "It's not a risk the Federal Reserve wants to take," he said.

Returning to Mason, Jackson asked whether the Fed should be forced to 
give his credit union a master account if Colorado legalized trade 
with North Korea, or if it legalized heroin or methamphetamine.

"You just happen to think that marijuana is a better illegal thing to 
manufacture than methamphetamine," Jackson said.

The question was unfair, Mason replied. "I think the state of 
Colorado carried out the will of the people. You can't compare it to 
those other things."

Jackson, who urged the two sides to find a compromise that didn't 
break any laws, said he would issue a decision in the days ahead.

The case is being watched closely in the 23 states where some use of 
marijuana is legal.

"The current situation is untenable," said Aaron Smith, executive 
director of the National Cannabis Industry Assn. "It's a public 
health hazard. We have people taking duffel bags full of cash to pay 
the IRS. It's not just a Colorado problem. It's a huge problem in 
California, where the medical marijuana industry is bigger than 
Colorado's medical and retail business combined."

Colorado's banking community has opened some accounts with cannabis 
businesses but does so rarely because the penalties if caught are severe.

The Justice and Treasury departments have outlined ways for banks to 
deal with the industry, but the judge said they offered little guidance.

"It seems to me the Department of Justice is saying, 'Well, maybe if 
we put our head in the sand this will all go away,' " Jackson said.

After the hearing, Mark Goldfogel, executive vice president of Fourth 
Corner, said he knew exactly when the laws would change.

"In 2016, $1.2 billion in cash will be transacted by the cannabis 
industry in Colorado," he said. "That's all in $20 bills. At some 
point, someone is going to die. And then we will be allowed to bank."
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MAP posted-by: Jay Bergstrom