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Cannabis Banking in Illinois: Mitigating Reputation Risk to Financial Institutions

Paul Dunford
December 24, 2019
Read Time: 0 min

Compliance and anti-money laundering (AML) is going green… or is it? One of the biggest questions concerning Illinois Bank Secrecy Act (BSA) and AML professionals is how to handle cannabis and marijuana-related businesses (CRB/MRB) in a constantly changing legal landscape. While marijuana is legal in the state of Illinois, it remains illegal at the federal level. So, that begs the question: are CRBs safe to bank? 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 16 of Illinois' 18 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.


The SAFE Act isn’t the only example we can point to as evidence that federal lawmakers are shifting their stance on cannabis. Senate Majority Leader Mitch McConnell was a major supporter of the Agriculture Improvement Act of 2018 that legalized the production of hemp, defined as cannabis with 0.3% or less tetrahydrocannabinol (THC). Previously the Controlled Substances Act had made no differentiation between marijuana, containing the psychoactive substance THC, and hemp. While an advocate for the descheduling of hemp, that same year he referred to marijuana as its “illicit cousin which I choose not to embrace,” yet in October he met with cannabis business owners and advocates during a trip to California.

Department of Treasury, FinCEN

FinCEN’s 2019 September Marijuana Banking Update suggests that at least 723 financial institutions in the United States are banking cannabis, an increase of nearly 50% over the previous year. This was determined based on the number of financial institutions that filed Marijuana SARs (Limited, Priority, and Termination) so that figure doesn’t include those banks and credit unions that are either unknowingly banking cannabis businesses or are doing so without following the guidelines FinCEN published in 2014. While we can’t necessarily take this number at face value, it does suggest that financial institutions are less cautious about revealing these activities to the federal government.

Department of Justice

Even though Jeff Sessions rescinded the Cole Memo in January of 2018, I have been unable to find any evidence that the Department of Justice and/or its associated law enforcement agencies have acted against any legal cannabis businesses since then. Additionally, in August of this year, DEA Administrator Dhillon announced that the Drug Enforcement Agency would take steps to increase the number of growers eligible to produce marijuana for federally-authorized research. He stated, “We support additional research into marijuana and its components, and we believe registering more growers will result in researchers having access to a wider variety for study.”


Get help clearing the air around banking or avoiding cannabis-related businesses.


Illinois State Banking Regulators

On January 1, 2020, the Treasurer’s Office contracted with three financial institutions to accept cash, checks, and electronic deposits from cannabis-related businesses on behalf of the state’s multiple agencies:  the Illinois Department of Revenue, the Illinois Department of Financial and Professional Regulation, the Illinois Department of Agriculture, and Illinois Department of Public Health. This resulted in the creation of Community Invest - Cannabis Banking Services, which aims to support financial institutions in providing basic banking services to CRBs in Illinois. Financial institutions can provide CRBs with (1) the ability to write checks, (2) make direct deposits for payroll, and (3) make electronic or check payments of required licenses, fees, and taxes. 

To provide more protection for financial institutions, the Treasurer’s Office introduced the Banking Options for Legal Cannabis-Related Businesses Act in February 2019. This act provides protection within the Illinois state banking laws for institutions that provide services to CRBs. As of July 2019, the Illinois Department of Financial and Professional Regulation (IDFPR) cannot penalize or discourage a state bank or credit union solely for providing financial services to CRBs.

Illinois is not the first state to enact these banking protections. Both California and New York have followed similar paths to offer protection for their financial industry. This suggests that states with legal cannabis programs are no longer willing to wait for the federal government to pass legislation like the SAFE Act to protect financial institutions that choose to work with CRBs. I believe we will see more state banking regulators join them in 2020.

National Credit Union Association

In August, Chairman Rodney Hood asserted in an interview with Credit Union Times that the National Credit Union Association will not sanction credit unions solely for their decision to offer services to cannabis-related businesses. While this was not ultimately released as formal guidance, it marked the first time a federal banking regulator made any kind of statement in support of cannabis banking.


To sum up, even though it’s unlikely that the SAFE Act will be signed into law, it’s a high-profile example of one of many events from 2019 that demonstrated the willingness of lawmakers and financial regulators to adjust their stance on the cannabis industry. What’s clear is we’re seeing continued progress towards more formal and mature regulatory expectations for FIs looking to partner with the cannabis industry in order to fuel business growth.

For these institutions, the key to mitigating reputation risk lies in their ability to maintain a robust controls environment that takes current (and future) regulatory requirements and business considerations into account. This starts with assessing the risk of introducing a new line of business, and extends into policy and procedure development, board and staff training, and of course using the proper systems to maintain effective oversight of the program. To learn more, view our latest webinar on cannabis banking and the changes 2020 will bring here.


About the Author

Paul Dunford

Green Check Verified Co-Founder, Director, Program Development Paul is a co-founder of Green Check Verified, where he is the Director of Program Development. Paul oversees the development and management of compliance programs for Green Check Verified’s clients, with a focus on state-level compliance as well as compliance around federal guidance.

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