By Blake Neff - 02/14/14 02:55 PM EST
The Treasury Department on Friday released new guidelines for banks that do business with companies that sell marijuana.
The guidelines, issued by the Financial Crimes Enforcement Network (FinCEN), allow financial institutions to serve marijuana-related businesses as long as they verify the businesses have proper state licenses. They are also to watch out for suspicious behavior.
Despite the ban, the Justice Department last August issued a memorandum, dubbed the Cole Memo, advising federal prosecutors to avoid prosecuting marijuana cases unless they fell under one of eight different “enforcement priorities,” such as preventing the sale of marijuana to minors or preventing sales that fund gangs or drug cartels.
This legal grey area has made financial institutions like banks very wary of serving marijuana-related businesses, because holding the revenues of an illegal business constitutes illegal money laundering. The new guidelines seek to assuage their fears of federal prosecution.
Under federal law, financial institutions are required to file Suspicious Activity Reports, or SARs, when they suspect a client is engaging in illegal behavior. With the new guidelines, companies will be able to file “Marijuana Limited” SARs for companies that are involved with marijuana but are otherwise following state law and the guidelines of the Cole Memo.
If a company appears to be violating state law or the Cole Memo, however, a financial institution must file a “Marijuana Priority” SAR instead to warn the government about the suspicious behavior.
The guidelines include more than 10 “red flags” for companies to watch for that would justify Priority SARs, such as a company conducting a significant amount of business with out-of-state entities.
Rep. Denny Heck (D-Wash.), who had been a major proponent of giving marijuana sellers bank access, praised the new guidelines.
“Today’s announcement makes it significantly safer to regulate and operate the voter-approved legitimate marijuana markets in Washington and Colorado," he said. "Legitimate marijuana businesses will no longer be forced to operate as cash-only businesses, a circumstance which has made them highly vulnerable to robbery and other criminal activities.”
Some financial services representatives, however, remain skeptical.
"After a series of red lights, we expected this guidance to be a yellow one. This isn't close to that," said Colorado Bankers Association president and CEO Don Childears in a statement. "This light is red."
Childears said the guidelines still expose banks to prosecution for money laundering and imposes an overly harsh burden for them to monitor the activities of customers.
"An act of Congress is the only way to solve this problem," Childears added.