Compliance and anti-money laundering (AML) is going green… or is it? One of the biggest questions concerning Wisconsin Bank Secrecy Act (BSA) and AML professionals is how to handle cannabis and marijuana-related businesses (CRB/MRB) in a constantly changing legal landscape. Marijuana, both for medical and recreational use, is illegal in the state of Wisconsin and at the federal level, but neighboring states, including Illinois and Michigan, have recently passed legislation to legalize it. So, that begs the question: are CRBs safe to bank, even if they're not operating in your state? If so, how do you bank them? How do you know there isn’t a CRB or MRB hidden in your current accounts?
The banking industry knows it has a growing problem on its hands when it comes to CRBs and MRBs. While they are working towards a resolution, it leaves bankers in a cloud of smoke. It would be impossible to talk about cannabis banking in 2020 without mentioning the Secure and Fair Enforcement Banking Act of 2019 (SAFE Act). Intended to “increase public safety by ensuring access to financial services to cannabis-related legitimate businesses and service providers and reducing the amount of cash at such businesses,” it was passed by the House of Representatives in September, including a "Yea" vote from 5 of Wisconsin's 7 representatives. While it seems highly unlikely that it will pass the Senate, it’s notable that 76% of the House voted in favor of the legislation, with the near-unanimous support of Democrats and a majority of Republicans. This sort of bipartisan support would have been unthinkable a few years ago when a politician’s safest bet was to either condemn marijuana or avoid the issue altogether for fear of invoking the ire of their constituents, and it demonstrates a profound shift in how lawmakers view cannabis.
Normalization of cannabis was a dominant theme in 2019, and this should encourage financial institutions that want to offer services to the cannabis industry. However, because of a long-standing fear that a government agency or regulatory body would take action against them solely because they offer services to cannabis-related businesses (CRBs), it’s no surprise that financial institutions say, “We’re very interested in banking cannabis, but we’ll wait for the SAFE Act to pass.” This stems in part from something I’ve heard banks and credit unions express: by engaging with the cannabis industry they expose themselves to an unacceptable risk to their reputation. They don’t want to be the “weed bank.” Because it is subjective, reputation risk is the hardest to quantify, and therefore the most challenging to mitigate.
In December, the United States Government Accountability Office released a report to Congress that addressed compliance challenges associated with money transmitter accounts. In many ways, one can look to money transmitter business as an analogue to cannabis-related businesses because they are both high-risk, cash-intensive businesses. What the GAO found is that one of the top five reasons financial institutions choose to avoid or close the accounts of money services business is reputation risk (“the potential that negative publicity regarding an institution’s business practices, whether true or not, will cause a decline in the customer base, costly litigation, or revenue reductions”). If financial institutions are wary of offering services to a category of businesses that are federally legal, one can infer that they are motivated by similar concerns about CRBs.
2019 saw a series of actions that could lead financial institutions to reconsider whether the risk inherent in banking CRBs should dissuade them from doing so. After all, the trend in government seems to indicate a steady change in attitude toward cannabis, paving the way for financial institutions to conduct business with CRBs with a greatly reduced risk.