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December 11, 2013 at 7:00 AM

Pot business loan issue is on agenda as banking group meets

For the nascent marijuana industry in Colorado and Washington there is a lot riding on a meeting Thursday in Washington, D.C., of an obscure financial-watchdog group.

It’s been three months since the federal Department of Justice (DOJ) announced it would let voter-approved legal pot laws in those two pioneering states proceed. And once that signal was given, all key parties acknowledged the next big challenge: getting banking services to pot merchants so they won’t have to conduct all their business in cash.

Sen. Patrick Leahy, D-Vt., chair of the Senate Judiciary Committee, implored the Treasury and Justice departments to work together to solve the problem. Now, because pot remains federally illegal, banks are loathe to provide checking accounts and loans to pot merchants for fear of being prosecuted for money laundering.

On Thursday, the federal Bank Secrecy Act Advisory Group (BSAAG) will hold its first meeting since the DOJ’s watershed announcement in late August. The meeting is a chance for industry, regulators and law enforcement to have a “frank discussion,” according to a Treasury Department spokesman.

The meeting itself will be closed to the press and not subject to the Freedom of Information Act, said the spokesman.

But marijuana will be on the agenda, said Jennifer Shasky Calvery, director of the federal Financial Crimes Enforcement Network,  in a speech last month to the American Bankers Association. Calvery said her regulators already had started conversations with the DOJ.

“Given the timing of the meeting it’s imperative we have a good outcome, said U.S. Rep. Denny Heck, D-WA, who has been pressuring the Treasury Department for a banking solution, along with Rep. Ed Perlmutter, D-CO.

The group only meets a few times a year, Heck said, and with Colorado and Washington on the brink of licensing pot businesses, public safety may be at stake. Having a cash-only pot industry is an “open invitation to organized crime and tax avoidance and all manner of things which are not good for society,” he said.

The federal Treasury Department periodically updates regulations for the Bank Secrecy Act, which requires banks to monitor money flowing through their institutions for violations of the Anti-Money Laundering law.  As part of the updating, Treasury’s Financial Crimes Enforcement Network (FinCEN) is required to convene at least twice at year a Bank Secrecy Act Advisory Group, which brings together high-level Treasury, Justice, federal and state regulators and industry participants to discuss the effectiveness of rules.

The deliberations of BSAAG are kept confidential under federal law.

The banking industry prefers that Congress change the Controlled Substances Act, which has classified marijuana as a dangerous drug, along with heroin. But Heck and others admit Congressional action is unlikely for a while, and not a priority as fewer than half the states allow even medical marijuana.

Absent a new federal law, the hope is that the group reassures bankers that they won’t be prosecuted for providing services to pot merchants. “It will be interesting to see how far down the road they get with establishing real guidelines,” said Jim Pishue, president and CEO of the Washington Bankers Association.

Pishue predicted that banks would remain cautious about marijuana without a change in federal law. “Right now it’s wait and see what they propose and go from there,” he said. “It’s going to be a bank-by-bank decision, whether it fits into their philosophy and market.”

Because it’s now a crime for U.S. banks to engage in transactions with pot businesses, the DOJ will first need to say it won’t prosecute bankers for money laundering, similar to when it told Colorado and Washington that it wouldn’t prosecute them for implementing their legal pot laws.

After that, according to Heck, feds will need to relax the requirement that banks file Suspicious Activity Reports (SARs) about any transactions that raise possible money-laundering suspicions.

It’s not enough to just eliminate the reporting requirement, Heck said. “That misses the point that banks are still legally liable if it’s discovered” they handled pot money.

“What they really need is safe harbor from liability” for money-laundering, said Heck, a member of the House Financial Services Committee.

Will policies and guidelines on that be enough to allay fears?

“That’s the $10,000 question,” Pishue said. “It really depends on how firm the guidelines are.”

Comments | More in Government, Politics | Topics: Congress, marijuana


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