Pubdate: Wed, 06 Jan 2016
Source: Denver Post (CO)
Copyright: 2016 The Denver Post Corp
Contact:  http://www.denverpost.com/
Details: http://www.mapinc.org/media/122
Author: David Migoya

JUDGE BOUNCES BANKING LAWSUIT

Allowing Credit Union "Would Facilitate Criminal Activity."

A judge on Tuesday dismissed a lawsuit seeking federal approval for 
the first credit union for marijuana in Colorado, saying that 
allowing it "would facilitate criminal activity."

U.S. District Judge R. Brooke Jackson said in a nine-page opinion 
that he was compelled to reject The Fourth Corner Credit Union's suit 
because marijuana remains illegal under federal law.

The U.S. Department of Justice has issued guidelines on how banks can 
work with legal marijuana businesses, making it clear that 
prosecutors would not pursue investigations unless certain conditions 
were not met. But Jackson said he could not take that tack.

"These guidance documents simply suggest that prosecutors and bank 
regulators might 'look the other way' if financial institutions don't 
mind violating the law," Jackson wrote. "A federal court cannot look 
the other way."

Colorado chartered Denver-based Fourth Corner as a credit union in 
November, allowing it to acquire a bank routing number and to apply 
directly to the Federal Reserve Bank of Kansas City, the regional 
bank for the board of governors of the Federal Reserve System, for a 
master account. The account allows banks to transact business. The 
Federal Reserve turned down the application.

The federal justice guidelines were issued in February 2014 through 
the Financial Criminal Enforcement Network.

Fourth Corner's arguments that the guidelines were tacit approval of 
pot-industry banking "is something of a sleight of hand," Jackson noted.

The government remains committed to enforcement of federal drug laws, 
Jackson said. And prosecutors "apply certain priorities in making 
enforcement actions, but it does not change the law."

Credit union attorney Mark Mason, who helped in the founding of 
Fourth Corner, was not immediately available for comment on Jackson's 
ruling. The Federal Reserve would not comment.

The industry met the ruling with the same resolve it has had since 
legal recreational marijuana sales began two years ago.

"The marijuana industry will continue advocating for responsible 
banking solutions in order to promote accountability, transparency 
and public safety," said Michael Elliott, executive director of the 
Marijuana Industry Group.

A separate Fourth Corner lawsuit is pending in federal court in 
Denver against the National Credit Union Administration, which turned 
down the credit union's application for share deposit insurance, a 
requirement for a master account. NCUA said it turned down Fourth 
Corner on grounds including concerns over its ability to mitigate the 
risk of banking only marijuana businesses.

As the Federal Reserve did, NCUA has asked the court to dismiss the lawsuit.

Jackson noted how bankruptcy courts cannot offer the same protection 
against creditors for a marijuana business as for another type of 
business. In a local case involving a medical pot dispensary, "the 
debtors cannot obtain bankruptcy relief because their marijuana 
business activities are federal crimes," Jackson quoted a 10th 
Circuit Bankruptcy Appellate Court opinion.

Tuesday's decision is the latest setback in the effort of credit 
unions to become the first legal banking system for the marijuana industry.

Many, although not all, marijuana businesses have difficulty 
acquiring and holding bank accounts because the product is illegal 
under federal law, which also governs the nation's banking system.

As such, banks that do handle pot money, even though legal under 
state law, risk prosecution for money laundering. Also, federal 
banking regulators have said banks that do business with the pot 
industry could be held liable for their transgressions even if 
bankers are unaware of a business' conduct or associations outside of Colorado.

Fourth Corner is the closest anyone has come to solving a problem 
most say can be corrected only in Congress. Even Jackson agreed.

"I regard the situation as untenable and hope that it will soon be 
addressed and resolved by Congress," the judge wrote.
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MAP posted-by: Jay Bergstrom