By: Whitney Snyder

Various federal controlled substance and banking-related laws prohibit or severely disincentivize banks from providing financial services to state-legal marijuana businesses.  Consequently, despite the growing number of states legalizing medical and/or recreational marijuana and federal policy statements issued, banks continue to refuse marijuana business accounts.  However, the Secure and Fair Enforcement (SAFE) Banking Act, if enacted into law, would allow greater access for these businesses to banking services.

Current Federal Law and Policy

Marijuana, even where legal under state law, remains a controlled substance under the federal Controlled Substances Act.[1]  Under federal law, any transfer or deposit of monies generated from marijuana sales can be deemed a violation of federal banking law for both the seller and the bank. While the seller potentially commits “money ­laundering” in violation of 18 U.S.C. Section 1956, the Bank may be in violation of Section 531(g) of the Bank Secrecy Act[2] by accepting the deposit and failing to identify or report financial transaction involving proceeds of the violation of the Controlled Substances Act.

Given the steep criminal and civil penalties for such violations including prison time, huge fines, and loss of banking charter and deposit insurance, it is no surprise that, while various federal agencies have issued policy statements advising that enforcement efforts will not focus on state-legal sales of marijuana, most banks nonetheless will not provide financial services to these businesses.  Moreover, these policy statements do not have the force of law, are subject to change at the administration’s discretion, and can be vague and ambiguous.

For example, the Department of Justice through the August 2013 “Cole Memo” directed federal agencies to focus federal resources on the “most significant threats in the most ­effective, consistent, and rational way” listing eight enforcement priorities aimed at preventing:

(1) Distribution of marijuana to minors;

(2) Marijuana sale revenue going to criminal enterprises, gangs and ­cartels;

(3) Diversion of marijuana from states where it is legal under state law in some form to other states;

(4) State-authorized marijuana activity from being used as a cover or pretext for trafficking of other illegal drugs or other illegal activity;

(5) Violence and use of firearms in marijuana’s cultivation and ­distribution;

(6) Drugged driving and exacerbation of other adverse public health consequences ­associated with ­marijuana use;

(7) Growing of marijuana on public lands and attendant ­public safety and environmental dangers posed by marijuana ­production on public lands; and

(8) Marijuana possession or use on federal property.

Citing these eight “Cole Memo” priorities, in 2014, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued guidance “clarifying” that banks can provide financial services to marijuana businesses consistent with Bank Secrecy Act obligations under stringent, yet somewhat undefined standards, that in effect force a bank to serve as an investigative agency for these businesses.  For instance, “in assessing the risk of providing services to a marijuana-related business,” the 2014 FinCEN guidance encourages banks to conduct so called due diligence far beyond the due diligence performed for other business, including obtaining and reviewing information from licensing authorities including application, license and registration documentation; developing an understanding of business’ normal and expected activity including types of ­to-be-sold product and to-be-served ­customers (e.g., medical versus adult use); monitoring publicly available sources for adverse information about business and related parties; routinely updating customer due diligence information commensurate with risk; and monitoring for suspicious activity, including the guidance’s specified red flags.  The “red flags” identified by FinCEN include: appearing to use license as a pretext to launder “criminal activity derived funds”; inability to demonstrate a licensed business operating consistently under state law or legitimate source of significant outside investments; concealing or disguising cannabis involvement; are, or have been, subject to a marijuana-related law or regulation enforcement action (including owners and operators); engaging in international or interstate activity including making/receiving out-of-state cash deposits or interstate transfers; or purporting to be a “nonprofit” while engaged in commercial activity inconsistent with classification.

Complying with this guidance expensive and time-consuming for banks, especially as banks must file suspicious activity reports if it detects red flags or knows, suspects, or has reason to suspect that a conducted or attempted transaction: involves—or is an attempt to disguise—funds derived from illegal activity; is designed to evade Bank Secrecy Act regulations; or lacks a business or apparent lawful purpose.

Dangers and Effects for Marijuana Businesses

The lack of financial services available to marijuana businesses has created a dangerous, expensive, and inefficient financial atmosphere for the industry.  A business operating completely in cash is especially susceptible to theft, which sometimes turns violent.  For example, Travis Mason, a security guard at a marijuana dispensary was killed during an attempted robbery in Colorado.  These risks impose large costs on marijuana businesses, which must ensure adequate security systems and personnel to protect their business, employees, and customers.  Moreover, running a modern business on a cash only basis is superbly inefficient – these businesses largely do not have access to cornerstones of business financial services such as a deposit account and checks, the ability to accept credit cards or electronically transfer money to meet payroll, pay bills, or pay taxes.

A SAFE Solution

On April 27, 2017, U.S. Representatives Ed Perlmutter (D-Colorado), Denny Heck (D-Washington), and Don Young (R-Alaska) introduced H.R. 2215, the Secure and Fair Enforcement (SAFE) Banking Act, which seeks to provide a safe harbor for banks that serve businesses in the marijuana industry that are legal under state law.  The Act would, inter alia, prohibit federal banking regulators from penalizing such banks by terminating deposit insurance, and immunize banks and their officers, directors and employees from prosecution under federal law.  The Act also amends the Bank Secrecy Act, which currently imposes overbearing reporting requirements on banks that serve marijuana businesses.  These changes would remove the significant disincentives discussed above which have traditionally discouraged banks from providing service to the marijuana industry.  Previously introduced as the Marijuana Business Access to Banking Act in 2013 and 2015, the current version of the bill is currently before the House Financial Services Committee.  A companion bill is expected to be introduced in May in the Senate.

Eight states and Washington, D.C. now allow for adult-use recreational marijuana and 29 states have legalized medical marijuana.  Representative Perlmutter suitably reasoned that: “With the majority of states now allowing for some form of recreational or medical marijuana, we have reached a tipping point on this issue and it’s time for Congress to act.  Allowing tightly regulated marijuana businesses the ability to access the banking system will help reduce the threat of crime, robbery and assault in our communities and keep the cash out of cartels.”

To help support the SAFE Banking Act, visit to contact members of Congress:

Additional Sources:

[1] Comprehensive Drug Abuse Prevention and Control Act of 1970, 21 U.S.C. 801, et. seq. (1970).

[2] Financial Recordkeeping and Reporting of Currency and Foreign Transactions Act of 1970, 31 U.S.C. 5311 et seq. (1970).