Here is Cannabis, Where is Congress? Without Laws, Regulations, and Clear Guidance, the Financial Sector Is Rightfully Reluctant to Bank Cannabis Businesses

President Donald J. Trump – Will Congress ever present him with a cannabis bill or bills to sign?

On September 12, 2018 I posted an article titled “Cannabis, Congress, and Courage – Why Banks are not Banking Marijuana Related Businesses”. It is available at:

It’s been four months since I wrote that article, and not much has substantively changed. Yes, Jeff Sessions has gone, and William Barr looks like he will be confirmed as the new Attorney General. What differences could we see? Under AG Sessions, there was hard talk and no action. In a speech then AG Sessions gave in March 2017 ( ) he stated:

“ … we need to focus on the third way we can fight drug use:  preventing people from ever taking drugs in the first place. I realize this may be an unfashionable belief in a time of growing tolerance of drug use.  But too many lives are at stake to worry about being fashionable.  I reject the idea that America will be a better place if marijuana is sold in every corner store.  And I am astonished to hear people suggest that we can solve our heroin crisis by legalizing marijuana – so people can trade one life-wrecking dependency for another that’s only slightly less awful.  Our nation needs to say clearly once again that using drugs will destroy your life.”

Yet neither AG Sessions nor any of the 90+ US Attorneys have taken action against state marijuana regimes. What about a Department of Justice under AG Barr? In his January 15, 2019 Senate confirmation hearing, AG nominee Barr testified as follows:

“I’m not going to go after companies that have relied on Cole memorandum. However, we either should have a federal law that prohibits marijuana everywhere, which I would support myself because I think it’s a mistake to back off marijuana. However, if we want a federal approach – if we want states to have their own laws – then let’s get there and get there in the right way.”

So former AG Sessions has stated that he “rejects the idea that America will be a better place if marijuana is sold in every corner store” and the presumptive AG Barr has said “I think it’s a mistake to back off marijuana”. AG Sessions didn’t take any action, and presumptive AG Barr seems reluctant to do so.

So where does that leave the cannabis and financial services industries? I believe they are still in limbo, waiting for Congress to pass, and the President to enact, federal legislation that will pave the way for regulations and regulatory guidance that will truly open up banking services to cannabis related businesses. But it will take time, as there is always “regulatory lag” between new legislation being passed, regulations being written, and regulatory guidance being published. And then it takes even longer for financial institutions to implement those regulatory changes: to build programs, write policies, implement new technologies, etc. So even if Congress acted today, financial institutions won’t have a clear path forward for (at least) a couple of years. Until then, we will remain in limbo, not knowing whether, how, or when financial regulators or prosecutors could pounce on a bank or credit union.

Let’s take a look at how we got to the state of limbo. Let’s go back and take a look at the now-famous Cole Memo guidance and, more importantly, former AG Sessions’ apparent rescission of that guidance. It is those two things that are driving the discussion on whether and how financial institutions can provide banking services to marijuana related businesses.

In January 2018, Attorney General Sessions “revoked Obama-era guidance that had effectuated a hands-off approach to state-legalized cannabis businesses.” This quote from an online National Law Journal article (see and others like it, have been used by both (all?) sides of the marijuana argument currently embroiling America.

But what, exactly, did AG Sessions revoke? Was there a “hands-off approach” by the Feds to state-legalized cannabis businesses? And what does the Sessions memo do, if anything, for financial institutions looking to provide services to marijuana-related businesses?

If there are answers to those questions, we need to first go back almost 10 years to the first DOJ memo on marijuana. But an interim stop is warranted, to March 2017 with President Trump’s Executive Order 13777 calling for federal agencies to establish Regulatory Reform Task Forces to identify regulations for potential repeal, replacement, or modification. At that time the President, and (fairly) some others felt that American society was over-regulated. It was time to take a look at all the regulations, and repeal, replace, or modify those that were out-dated, redundant, inefficient, or simply bad. In response, the Department of Justice formed a task force and began its work identifying regulations, rules, and anything that looked like and acted like a regulation or rule.

On November 17, 2017 the DOJ task force’s early work was made public when the Attorney General issued a memo prohibiting the DOJ from issuing so-called guidance memos going forward and providing notice that a DOJ task force would be looking at existing memos to recommend candidates for repeal or modification. This memo-against-memos provided, in part:

“Today, in an action to further uphold the rule of law in the executive branch, Attorney General Jeff Sessions issued a memo prohibiting the Department of Justice from issuing guidance documents that have the effect of adopting new regulatory requirements or amending the law. The memo prevents the Department of Justice from evading required rulemaking processes by using guidance memos to create de facto regulations.

In the past, the Department of Justice and other agencies have blurred the distinction between regulations and guidance documents.  Under the Attorney General’s memo, the Department may no longer issue guidance documents that purport to create rights or obligations binding on persons or entities outside the Executive Branch.

The Attorney General’s Regulatory Reform Task Force, led by Associate Attorney General Brand, will conduct a review of existing Department documents and will recommend candidates for repeal or modification in the light of this memo’s principles.”

On December 21, 2017 the DOJ announced that “pursuant to Executive Order 13777 and [AG Sessions’] November memorandum prohibiting certain guidance documents, he is rescinding 25 such documents that were unnecessary, inconsistent with existing law, or otherwise improper.” None of the “marijuana memos” were on the list of twenty-five.

But on January 4, 2018, AG Sessions issued a memo, tersely titled “Marijuana Enforcement” which, among other things, rescinded five marijuana-related memos:

  1. Ogden Memo – October 19, 2009: David W. Ogden, Deputy Attorney General, “Memorandum for Selected United States Attorneys: Investigations and Prosecutions in States Authorizing the Medical Use of Marijuana”. This was issued at a time when only a handful of states were embarking on early medical marijuana programs.
  2. Cole I – June 29, 2011: James M. Cole, Deputy Attorney General, “Memorandum for United States Attorneys: Guidance Regarding the Ogden Memo in Jurisdictions Seeking to Authorize Marijuana for Medical Use”
  3. Cole II – August 29, 2013: “Memorandum for All United States Attorneys: Guidance Regarding Marijuana Enforcement”. Note that Cole II set out the eight enforcement priorities that were picked up in FinCEN’s February 14, 2014 Guidance (see below), but it said nothing about financial institutions, financial crimes, or the Bank Secrecy Act.
  4. Cole III – February 14, 2014: “Memorandum for All United States Attorneys: Guidance Regarding Marijuana Related Financial Crimes”. The title of this memo is important: unlike Cole I, Cole II brought in marijuana related financial crimes, the obligations of financial institutions, and the specter of those institutions violating federal law by knowingly providing services to marijuana-related businesses. In fact, Cole II noted that the Cole I guidance “did not specifically address what, if any, impact it would have on certain financial crimes for which marijuana-related conduct is a predicate.” Cole II addressed those impacts.
  5. Wilkinson Memo – October 28, 2014: Monty Wilkinson, Director of the Executive Office for U.S. Attorneys, “Policy Statement Regarding Marijuana Issues in Indian Country”.

Cole III needs to be read with the FinCEN Guidance issued the same (Valentine’s) day. I won’t repeat the FinCEN Guidance here (you can find it here but its authors intended that it “clarifies how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations.” The FinCEN Guidance heavily relied on and quoted the Cole II eight priorities, and set out requirements for risk assessments, customer due diligence (seven distinct requirements), a requirement that “financial institutions should consider whether a marijuana-related business implicates a Cole priority or violates state law, twenty-five “red flags” for monitoring and surveillance of marijuana-related businesses, and how to (and shall) file Suspicious Activity Reports on every marijuana-related business customer, regardless of whether their activity is suspicious or not. It is important to note that, almost five years after that guidance was published, 95%+ of financial institutions have interpreted that to mean they cannot knowingly, actively provide services to marijuana-related businesses and meet their BSA obligations.[1]

But back to Attorney General Sessions and his “rescission of the Cole memo”. The terse title of his memo sends a clear message: “Marijuana Enforcement”. It was not titled “Managing Competing State and Federal Obligations In A Way That Advances The Positives Aspects of Marijuana Reform While Addressing Possible Negative Societal and Economic Harm”. Attorney General Sessions’ intent was clear from the outset: it was about enforcement.

Who was AG Sessions thinking about when he wrote his “Marijuana Enforcement” memo? He directed that enforcement at banks, credit unions, and money remitters, among others. His memo began with a statement about the “significant penalties” for the “serious crimes” of cultivating, distributing, and possessing the “dangerous drug” marijuana in violation of the Controlled Substances Act. He then stated that these activities “also may serve as the basis for the prosecution of other crimes”, and he listed three such crimes: (1) those prohibited by the money laundering statutes under Title 18, sections 1956 and 1957; (2) the unlicensed money transmitter statute under Title 18, section 1960; and (3) the Bank Secrecy Act under Title 31, section 5318.

For banks, section 5318 of Title 31 is the “program” requirement: section 5318(h) provides that “in order to guard against money laundering through financial institutions, each financial institution shall establish anti-money laundering programs …”. Failure to have an effective program or being found to have a program that doesn’t contain all the necessary “pillars” or attributes required, can result in billion-dollar fines and penalties. Knowingly providing banking services to marijuana-related businesses can expose banks to program violations.

The result? As written above, five years after the FinCEN guidance, and without having received any written guidance from their regulators, 95%+ of financial institutions have interpreted the FinCEN guidance and Sessions’ rescission of the Cole Memo to mean they cannot knowingly, actively provide services to marijuana-related businesses and meet their BSA obligations.

What must be done? Until there is legislative changes, the federal banking regulators need to provide more current, clearer guidance for banks and credit unions.  Only the National Credit Union Association has responded to FinCEN’s February 2014 Guidance (by way of a July 18, 2014 letter from the NCUA’s Director of Examinations that his office had provided the FinCEN Guidance to NCUA field examiners “who are responsible for determining the compliance of financial institutions that provide services to marijuana-related businesses”). This need for updated guidance was recognized by the Treasury Department’s Office of Inspector General in an October 16, 2017 memo he wrote to Treasury Secretary Mnuchin. In one of the four challenges facing the Treasury Department – anti-money laundering, terrorist financing, and Bank Secrecy Act enforcement – the Inspector General wrote that “FinCEN is also challenged with providing clarifying guidance to financial institutions that are reluctant to do business with State-legalized marijuana dispensaries.”

It has been almost five years since FinCEN issued its guidance, and none of the banking and credit union regulators have formally opined on it or provided written guidance. There have been some informal comments and other statements, but nothing rising to the level of written guidance that can be relied upon. Some examples include the following:

I’m aware of one federal court judge who has commented on the FinCEN guidance. In a December 28, 2015 hearing in the Fourth Corner Credit Union v Federal Reserve Bank of Kansas City case (District Court of Colorado, 15CV01633), Judge Brooke Jackson responded to a statement by the credit union’s lawyer that the FinCEN guidance “authorized financial institutions to serve marijuana related businesses” by saying

“No, it didn’t do that, did it? … It seems to me that the DOJ and guideline people are just saying, well, maybe we can put our head in the sand and this will go away.” (Transcript of hearing, page 3). And later in the same hearing, Judge Jackson stated: “But in [the credit union’s] brief, in black and white, you say the FinCEN guidance authorizes banks to serve marijuana related businesses. I don’t agree with you. I don’t think it does.” (Transcript, page 63).

In a June 17, 2018 press conference, Federal Reserve Chairman Jerome Powell is reported (by MarketWatch) to have said:

“This is a very difficult area, because many state laws permit the use of marijuana and federal law still doesn’t. So it puts federally-chartered banks in a very difficult situation … it puts the supervisor in a very, very difficult position. Of course, our mandate has nothing to do with marijuana … We just would love to see it clarified, I think.”

On January 11, 2019, West Virginia’s Attorney General issued an opinion on whether the state could safeguard financial institutions that provide access to businesses operating under West Virginia’s marijuana laws from potential liability under federal law. He concluded that financial institutions providing services to those entities “may be at risk of federal civil or criminal liability. He described the FinCEN guidance as “unofficial” and “informal” and concluded:

“ … providing banking services to cannabis businesses carries some inherent risk of federal civil or criminal action even in states where medical marijuana is legal. The current state of federal law and agency guidance creates a safe harbor for financial institutions to provide these services, but the potentially temporal nature of these protections must be factored into any assessment of enforcement risk.”

And as recently as January 17, 2019, OCC Comptroller Joseph Otting told reporters that Congress has “to act at the national level to legalize marijuana if they want those entities involved in that business to utilize the US banking system” and that he “hopes for resolution to marijuana banking issues in 2020” (quoting a PoliticoPro tweet).

The Treasury Inspector General’s challenge to FinCEN to provide clarity to financial institutions must be taken up by FinCEN and the banking regulators. Unless and until the financial services industry gets clear, unequivocal, consistent, written laws, regulations, and guidance from Congress, Treasury, and Justice to provide banking services to marijuana-related businesses, it will and should do what it is currently doing – balancing the undue risks against the insufficient rewards – and continue to stand on the sidelines while our communities, veterans, patients, doctors, caregivers, and others suffer. Congressional and Executive Branch compassion without the necessary collaboration and courage to act will not resolve this crisis.

[1] FinCEN’s SAR data suggests that ~485 of the ~12,000, or about 4% of, US credit unions and banks are providing financial services to marijuana-related businesses. The number of credit unions has been steady over the last three years at about 110; the number of banks has slowly risen to about 385. IT remains unknown how many of those 485 are actively banking MRBs, where they have assessed the risks, accepted the risks, and built a program to manage the risks.