Reports » US
US stock market daily report (February 17, 2014, Monday)
New law-enforcement guidelines were issued Friday by the Obama Administration, aimed at encouraging banks to start doing business with state-licensed marijuana suppliers, even though such enterprises remain illegal under federal law. The guidelines stopped short of promising immunity for banks. The policy shift is an effort by officials of the Obama Administration, to address problems faced by newly licensed recreational marijuana retailers in Colorado as well as medical cannabis dispensaries in other states, that must operate on a cash-only basis, without access to financial services or credit, from banks. Per the guidelines, criminal prosecution for money laundering and other crimes is unlikely if banks meet a series of conditions, such as avoiding business with marijuana operations that sell to minors or engage in illegal drug trafficking.
On January 23 at an appearance at the University of Virginia, U.S. Attorney General Eric Holder said, "There's a public safety component to this. Huge amounts of cash, substantial amounts of cash just kind of lying around with no place for it to be appropriately deposited, is something that would worry me just from a law enforcement perspective." Holder added that the Obama Administration was planning ways to accommodate marijuana businesses so they would not always have to deal in cash.
The U.S. Justice Department and U.S. Treasury Department outlined guidelines to federal prosecutors and financial institutions nationwide, which still keep banks on edge as to whether they are protected by the new policy. Officials are aiming to improve the issue of public safety for legitimate, state-licensed cannabis suppliers' lack of access to financial services from banks. Deputy Attorney General James Cole warned in a memorandum that, if a bank turns a blind eye to illegal activity by failing "to conduct appropriate due diligence of the customers' activities, such prosecution might be appropriate," for example.
In a system similar to what many states have long had in place for alcohol sales, in January 2014 Colorado became the first state to open retail outlets legally permitted to sell marijuana to adults for recreational purposes. Later in 2014, the state of Washington is expected to take the same stance on marijuana, as Colorado.
A common complaint, and rightly so, from proprietors of state-permitted marijuana distributors in Colorado as well as elsewhere is that cash is the only legal means for marijuana transactions, requiring elaborate and expensive security measures plus, puts the businesses at risk of robbery. Additionally, licensed distributors must pay for inventory and pay employees, in cash which also makes accounting for state sales tax collection and payment, more difficult.
In August 2013, the Obama Administration issued a memo for guidelines of marijuana which promised to enact leeway for states considering the legalization of marijuana, that enforcement would be focused against marijuana suppliers found to be operating outside of state regulation or illegal drug dealers dealing in outlawed narcotics trade.
The U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) spelled out due diligence that banks should carry out before and during doing business with a marijuana business, in a memorandum. The memo indicated that financial companies or banks should verify state licenses, understand the normal activity for the business and monitor for suspicious activity, the memo said.
FinCEN Director Jennifer Shasky Calvery said in a statement, "Now that some states have elected to legalize and regulate the marijuana trade, FinCEN seeks to move from the shadows the historically covert financial operations of marijuana businesses." A senior official from FinCEN indicated that the agency expects big banks to remain wary about holding the money of marijuana retailers with state licenses.
Federal authorities said they believe the new guidance will get more marijuana money into the banking system, after consulting with state banking regulators, particularly those in the state of Colorado and Washington.
A FinCEN official said that, "probably some of the smaller or medium banks rather than some of the largest ones in this country," would be those most likely to be first to open their doors to the marijuana business. Some banks already flag money from marijuana businesses in their filings with regulators. The official said, "The amount of money in this business is significant."
Michael Elliott, executive director of the Marijuana Industry Group which represents pot retailers in Colorado, said in a statement, "Congress must act quickly to solve the problem before we witness a tragedy." Advocates for the marijuana industry said they would continue to press Congress for changes in federal law that would offer more reassurance and survival beyond the Obama administration since President Barack Obama is scheduled to leave office in January 2017.
Experts in money-laundering said that the guidelines from the Obama Administration would not protect banks from state laws. If a wire transfer that moved money linked to marijuana money touched a state where the drug is under strict control, the bank that handled the transfer could be open to state prosecution.
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