AML/CFT Cannabis Banking

What the SAFE Banking Act Means for Financial Institutions

November 18, 2019

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Key Takeaways

Cannabis-related businesses operate in high cash volumes, creating a public safety concern.
The SAFE Banking Act looks to create a safe harbor for institutions looking to bank legitimate CRBs.
The SAFE Banking Act does not remove marijuana as a schedule 1 drug on the Controlled Substance Act.

Why is the SAFE Banking Act important?

As differences continue to exist in state and federal law around the cannabis industry, it creates a growing gray area for financial institutions around providing banking services to cannabis-related businesses (CRBs) or marijuana-related businesses (MRBs).

CRBs operate with high levels of cash, with many of them currently cash-only businesses. Traditional banking services, such as ACH and wires, are not readily available to CRBs because intrastate commerce has not been approved federally for marijuana-related businesses. The hemp industry is at the beginning phases of federal legalization, with the USDA releasing its interim final rule around it in October. Also, major credit card companies have declined to provide services to CRBs or customers doing business at CRBs due to the legal gray areas. This increase in cash escalates the threat of robberies, assault, and other aggressive crimes both at these businesses and in the surrounding communities. By providing banking services, financial institutions are increasing public safety by helping to alleviate the amount of cash at CRBs or MRBs. It also allows financial institutions to properly monitor for and report on suspicious activity, ensuring that the CRBs in their communities are legitimate.

What is the SAFE Banking Act?

Many bills have been introduced into the House and Senate around banking CRBs, but none have advanced until this year. The Secure and Fair Enforcement (SAFE) Banking Act of 2019, H.R. 1595, was introduced into the House of Representatives in March and passed by a vote of 321 – 103 in September to advance it to the Senate.

So, what does the SAFE Banking Act do for financial institutions regarding cannabis-related businesses? Under the Act as currently written:

It creates a safe harbor for financial institutions that decide to provide banking services to legitimate cannabis-related businesses. It states that a federal banking regulator cannot:
- terminate or limit the deposit insurance for a financial institution under the Federal Deposit Insurance Act or the Federal Credit Union Act because an institution banks CRBs or MRBs;
- prohibit, penalize, or discourage an institution from providing banking services to legitimate CRBs or MRBs;
- recommend, incentivize, or encourage an institution to stop providing services to accounts connected to CRBs or MRBs, including employees or owners, or downgrade such accounts;
- take any adverse action on a loan made to a CRB or MRB or employees, business owners, and others associated with those businesses.
It spares financial institutions, federal home loan banks, insurers, and their employees who provide banking services to state or tribe licensed CRBs or MRBs from prosecution under federal law or regulation.
It makes inclusion and diversity a priority. The Act requires an annual report by the federal banking regulators on the availability of banking services to female and minority-owned CRBs and MRBs.

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Does the SAFE Banking Act legalize marijuana?

What the SAFE Banking Act does not do is remove marijuana from the Controlled Substances Act, so this legislation may only be a bandage for a more significant national issue. It also does not require any financial institution to provide banking services to CRBs. It merely provides a safe harbor for those who wish to do so.

Several national banking associations have spoken out in support of the bill, including the American Bankers Association (ABA), Credit Union National Association (CUNA), and Independent Community Bankers of America (ICBA).

The bill was received in the Senate in September and has been referred to the Committee on Banking, Housing, and Urban Affairs. Lawmakers who oppose the bill want to see the government address the larger problem, namely marijuana being listed as a substance 1 drug, instead of providing a partial solution to the problem. The bill could continue to face roadblocks in the conservative-led Congress before it gets final approval.

Are you still confused on the rules and regulations around banking cannabis-related businesses? What about hemp? Have you put any thought into the updates you need to your policies and procedures to ensure you're actively monitoring for CRBs or MRBs? We can help.