FinCEN’s quarterly Marijuana Banking update: it is not what is being reported … it is what is NOT being reported!
I’ve hired, trained, coached, and mentored hundreds of AML analysts and investigators over the years. When it came to conducting AML investigations and scouring through thousands of transactions looking for patterns, trends, and anomalies, or reviewing publicly available information, I reminded them that they needed to look for:
- What is there that should be there
- What is there that should not be there
- What is not there that should not be there
- What is not there that should be there
Let’s apply that to FinCEN’s quarterly Marijuana Banking update – see FinCEN Marijuana Update 3Q 2019. Like the other quarterly updates, FinCEN gives us two charts showing the total number of banks and total number of credit unions that, according to FinCEN, are “actively banking” marijuana related businesses or MRBs in the United States. According to FinCEN, which looks at the number of Suspicious Activity Reports (SARs) filed by banks and credit unions that contain one or more of the required phrases – Marijuana Limited, Marijuana Priority, or Marijuana Termination – as of September 30, 2019 there were 563 banks and 160 credit unions actively banking marijuana businesses. Most observers have noticed that the total number of each type of depository institution seems to have flattened out: a quarter-by-quarter increase of only 10 banks to 563, and a decrease of 2 credit unions to 160.
FinCEN also provides the total number of “marijuana” SARs FinCEN has received. As of September 30, 2019 “FinCEN had received a total of 102,807 SARs using the key phrases associated with MRBs:
- FinCEN received 76,203 SARs from filers using the key phrase “Marijuana Limited.”
- FinCEN received 7,821 SARS from filers using the key phrase “Marijuana Priority.”
- FinCEN received 25,288 SARs from filers using the key phrase “Marijuana Termination.”
So from this we know that about 723 banks and credit unions have filed over 102,000 SARs since April 2014 that have included the marijuana-related key phrases. That is what is there that should be there. There appears to be nothing that is there that should not be there, and there certainly isn’t anything that is not there that should not be there (let’s leave that to the AML analyst looking at transactional data). But what is not there that should be there? There are at least four key pieces of information that would be helpful to banks and credit unions trying to decide whether to provide financial services to marijuana related businesses, as well as to policymakers and regulators …
1. What Percentage of Depository Institutions Are Actively Banking MRBs?
First, what is not there that should be there is the percentages of banks and credit unions that are actively banking MRBs. Looking at FDIC and NCUA quarterly data (the most recent data is for 2Q 2019), there are 5,303 banks and 5,308 credit unions in the United States, and the number of each has been steadily dropping over the last 3 years. So as the number of banks and credit unions serving the marijuana industry is slowly going up and the total number of banks and credit unions is slowly going down, the percentage of banks and credit unions serving the industry is actually going up faster than the numbers. As of 2Q 2019, approximately 10.4% of banks and 3.1% of credit unions were actively banking MRBs. This is useful context for policymakers.
2. What Types of Financial Services Are Available to MRBs?
Second, what is not there that should be there is the types of financial services that these banks and credit unions are providing MRBs, and which of those services result in Marijuana Priority and Termination SARs. Depository institutions offer a broad array of products and services, from investment advice to insurance to treasury management to loans to deposit accounts: which of those products and services are riskier than others? Knowing that insurance or treasury management products are not leading to Marijuana Priority or Termination SARs may encourage more banks and credit unions to engage with MRBs.
3. What Types of Banks and Credit Unions Are Actively Banking MRBs?
Third, what is not there that should be there is the types and sizes of banks and credit unions that are providing banking services to MRBs: FinCEN could identify the number of banks by primary regulator, by size (community, mid-size, and large are designations used by the bank regulatory agencies), and by location (which state).
4. How Many, What Types of, and in Which States do MRBs Have Access to Banking Services?
Fourth, what is not there that should be there is the number and types and locations of marijuana related businesses that are receiving banking services. There is a clue in the FinCEN data as to the number of MRBs being banked: a Marijuana Limited SAR is required to be filed every quarter for every MRB that is simply receiving banking services, with nothing unusual or suspicious about its activity, and a Marijuana Priority SAR is required to be filed when a depository institution is providing banking services to the MRB while further investigation is being conducted to determine if the MRB is violating any of the Cole Memo priorities. What we do not know, though, is how many MRBs are being reported in each SAR. But assuming that each SAR reports one MRB, we can look at the total number of Marijuana Limited and Priority SARs over time to get a rough estimate (guess?) that there are less than 9,000 MRBs being actively banked in the United States:
- Total Number of Marijuana Limited and Priority SARs 1Q 2019 – 61,036 + 6,067 = 67,103
- Total Number of Marijuana Limited and Priority SARs 2Q 2019 – 68,378 + 6,894 = 75,272 (an increase of 8,169)
- Total Number of Marijuana Limited and Priority SARs 3Q 2019 – 76,203 + 7,821 = 84,024 (an increase of 8,752)
If this “one SAR/one MRB” assumption is wrong – and it probably is wrong, then there may be many more MRBs with access to banking services. But without having the information, we simply don’t know.
For the background on these quarterly marijuana reports, see a number of articles I’ve written, most recently in a June 25, 2019 article titled “FinCEN Updates Its Marijuana SAR Data, But Actionable Information is Still Needed” FinCEN Marijuana Article 6-25-19.