Medical Marijuana and Money Laundering
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Medical Marijuana and Money Laundering

Twenty-nine states have now legalized marijuana for
medicinal use and additional states have legalized marijuana for recreational use. But, federally marijuana is illegal in all
circumstances in the United States. It’s a schedule one substance under the controlled
substances act. That clearly applies to people who are in
the marijuana industry but it also applies to those who just nibble around the edges
of the industry like banks. Understanding the total value of the marijuana
industry is a pretty complex question. Projections of the legal market right now
are somewhere in the 5 to 8 billion dollar range per year but as new states come online,
both for medical marijuana and for recreational marijuana, those numbers are expected to increase
significantly over the next few years. But the banking status, the ability of marijuana
businesses to access the banking industry to use standard deposit accounts, credit card
transactions and to get loans and all those sorts of things is in this very weird gray
area. I wrote my paper about banks, marijuana and
federalism because people were asking me why don’t banks open accounts for marijuana businesses
and then other people were asking me what can we do about this problem? We have business that is legal in some states
and they can’t get access to banks. Isn’t there something that either the businesses
themselves or the states or the federal government could do to make this happen? And so, I’ve been asked it so often that I
decided the answer ought to just be in a paper. Officially it’s still illegal. Current federal law says that banks, all banks
who are in any way regulated by the federal government, which at this point is essentially
all banks, all financial intermediaries cannot engage in activities involved in illegal activities. So, if marijuana is illegal in all circumstances
in the United States, access to a mainstream checkings or savings account makes that illegal
funding look legal. So, that is, in many ways, a very basic example
of money laundering. The crucial law that causes banks to avoid
working with marijuana businesses, even businesses, which are fully legal under state law, is
called the bank secrecy act and the bank secrecy act basically says banks should not be accepting
deposits, making loans, clearing credit card transactions, etc. with businesses that are
engaged in illegal activities. The bank secrecy act is the primary tool that
the federal government uses to combat money laundering. Now, there are a lot of different anti-money
laundering laws but the basic idea behind them all is that it’s illegal to take money
from an illegal source and put it into legal use. If a bank accepts money knowing that it came
from an illegal business like a, even a state legal marijuana business, that violates anti-money
laundering laws. The federal credit unit act and the federal
deposit insurance act are the laws that effectively allow mechanistically for the financial institutions
of the United States to work. With those laws, come the associated regulations
that banks and other financial entities must abide by. They forbid working with drug, uh drug cartels,
drug dealers and really any business related to an illicit drug. So, it creates a real federal apparatus that
will prevent financial institutions from doing this for fear of retri, retribution from the
federal government. The standard explanation for why governments
want to impose anti-money laundering laws, which is the general category under which
the banks secrecy act and the sequel lie fall is that it’s hard to clamp out on certain
illegal activities, like the illegal drug trade or prostitution rings or gambling that’s
uh underground. Partially because these things are consensual
activities. The two parties to a drug transaction, neither
one of those wants to go to the police and say, Hey, that person just broke the law by
selling me drugs. Because of course you’re admitting to a crime
yourself if you go to the police and complain about that. So, in earlier decades, in the 60’s and 70’s,
federal prosecutors and others, politicians decided well maybe we can make banks help
us enforce these laws against drugs and other illegal activities by telling them if they
accept those deposits, then they are in fact complicit in those activities and they will
be prosecuted as well. Banks work with marijuana businesses take
a lot of risks. One of the risks is that law enforcement will
decide that they’ve broken criminal laws, either the laws that say you can’t help people
manufacture, distribute, or sell marijuana or the anti-money laundering laws and as most
people know, the penalty for distributing marijuana is going to jail. So, one of the risks they run is that their
employees could be sent to jail or that the bank itself could be criminally charged. Banks face the uh, real prospect of fines
from the federal government, lawsuits or regulatory action from the federal government. They can be subject to all sorts of other
suspensions of their deposit insurance. Uh, the federal government can freeze assets
in institutions that are engaging in this conduct. And ultimately if their federal regulators
decide that the, uh bank has engaged in too much risky behavior, federal regulators can
just close the bank. And if you back up from the marijuana example
and you look at say, a bank that would be willing to engage with a Colombian cocaine
cartel. They would actually be engaging in similar
conduct in the eyes of the law as a marijuana entity and the idea of what the federal government
might do to a bank that engages with a cartel like that, can be very serious and so bankers,
who in this case are risk-averse are thinking in those terms. Not as what a regulated dispensary in Denver
or Seattle might look like, but what the federal government might think of in terms of the
broad range of uh, drug cartels or drug dealers or drug entities that can exist. Consequences for marijuana businesses of not
having access to standard banking are potentially quite significant. First, any business in the United States,
in order to operate safely and efficiently requires access to financial institutions
and that’s not simply checkings and savings accounts, but that’s access to lines of credit,
to business loans, the traditional types of ways in which businesses can grow. They can’t pay their employees with checks
or with direct deposit. They can’t easily accept credit card payments
from customers. They can’t easily obtain small business or
trade credit type of loans. It means they are likely to want to have extra
security because having a lot of cash on hand might make you a magnet for robbery, theft
and so on. Certainly any cash-only business faces the
risk of robbery in a way that a way business that relies less on cash would. Um, there have been examples in some legal
states of armed robberies of dispensaries, armed robberies of individuals who are either
coming into or leaving dispensaries. And so that public safety risk is not necessarily
due to the cannabis industry itself, but is actually due to the federal government’s unwillingness
to allow these institutions to engage in banking or have access to traditional financial products. Most states that have legalized recreational
marijuana, they want to move to a system where taxes from the industry itself funds their
regulatory efforts. So, they want the taxes from the businesses
to fund the licensing of the business and the background checks of the employees and
law enforcement to go out to make sure that they’re not selling to minors. That sort of thing but if all the business
operates in cash, it can be hard for the state government to properly collect taxes, which
can make it hard to use those taxes to properly regulate the industry and so, by not letting
the businesses into the banking system, we’re making it harder for states that have legalized
marijuana to properly regulate it. To keep it from being a problem. But it’s also a burden for the consumer to
have to use cash in all circumstances and not be able to use basic products like debit
cards and credit cards to pay for their cannabis. That’s true in medical markets and it’s true
in recreational markets as well. Because the limitations on banking marijuana
come at the federal level. I do not think there is anything that the
states can do to solve the problem. Colorado’s certainly tried. They’ve chartered a credit union that would
bank the marijuana industry but then that credit union couldn’t get deposit insurance
or access to the federal reserve system. So, it couldn’t really become a credit union. So, I think that the answer for marijuana
banking has to come at the federal level. The secure and fair enforcement act is a proposal
um, by representatives from states that have legalized marijuana. The safe act would essentially put into a
law that as long as you satisfy certain conditions and as long as your activities were legal
under your state laws, then you could, the banks in those states, could help marijuana
businesses, accept deposits from those businesses, and so on. It would leave marijuana illegal but it would
just allow the banking aspect of it to be um, not criminal anymore. So, it would take the current situation, which
is gray, and legally not really very comforting for banks and allow them to feel that they
had explicit legal protection against the general provisions of the bank secrecy act. One argument that advocates a current policy
might make is that marijuana, whether you like it or not, is still illegal under federal
law and the federal government has a responsibility to enforce the laws on the books even if that
government doesn’t like those laws or even if other people doesn’t like those laws. Regardless of what you think of marijuana
itself. If you’re going to have it, if you’re not
going to enforce criminal law against marijuana businesses, that you ought to let them have
access to the banking system because it allows law enforcement to work effectively to regulate
them. Most opponents should think about is what
makes this industry, that is a reality, even safer? And banking will make it more difficult for
cannabis-related businesses to engage in illegal activity and that’s something that opponents
should applaud.


  • ifyouknew thenyouknew

    Well these banks are going to have to change the feds mind for everyone else…… betting that some political pockets will be lined for this to happen!

  • Ross Busby

    During the Bush Administration, they created a banking model to insure that ILLEGALS can get loans and banking services and to aid them in sending money to Mexico. It is called "Direct to Mexico" or "Direct a Mexico". Isn't crossing our border illegally a Federal crime?

  • truthdemon

    Give.the proceeds to the debt reduction of the US treasury..
    U will turn the US into ur debtor..and u will have surety rights over the US ..
    They will agree to setoff all charges including court charges in ur life..
    U will have declared peace…with the world debt accountant of ur Name..
    Google : what is namium

  • Jaclyn Hammond

    I’m a fierce advocate against addictive mind altering drugs of all sorts. Drug addiction destroy lives, families, leading causes of homelessness, mental illness, crime, and danger to communities; thus increases extensive governmental spending in order to remedy this moral dilemma. What a tragic waste of financial resources that could have helped the disabled, seniors, and veterans etc..

    Doesn’t matter whether the banks can allow cannabis businesses to open accounts or not. Most of these businesses are just a front for the black market. Most of their customers are more likely to purchase in cash anyway, so that there’s no paper trail on their part, especially if those are employed with certain institutions or associations.

    Commercial property owners/landlords should not grant leases to cannabis business owners. To do so, would raise the risk of crime, as well as other liabilities. If landlords take bribes by accepting 2-3x’s the lease rate likely in cash, the crime factors increases, putting all tenants at risk.

    I say no banking, no renting, no leasing, or any other accommodation for anything affiliated with the cannabis industry.
    It’s a slippery downward slope. 🚫

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