FinCEN Guidance to Financial Institutions on Marijuana Businesses

Breaking news! FinCEN and the Department of Justice have issued guidance — BSA Expectations Regarding Marijuana-Related Businesses (FIN-2014-G001). The news release issued with the guidance states that financial institutions may provide banking services to (legally approved) marijuana-related businesses, provided that the financial institution complies with the existing BSA/AML obligations, as detailed in the guidance.

The FinCEN guidance provides that such financial institutions should file specific types of SARs and CTRs related to a customer that conducts a marijuana-related business. Under the guidance, it may be possible to file ongoing SARs and CTRs while doing business with a state-licensed marijuana-related business. However, financial institutions must monitor for red flags, particularly those identified in a DOJ guidance, known as the “Cole Memo,” which delineates several “important priorities” related to marijuana enforcement.

Based on the Cole Memo priorities, the FinCEN guidance divides related to marijuana activities SARs into two broad categories: “Marijuana Limited” and “Marijuana Priority” SARs. The Guidance specifies the types of information to be included in each SAR. The type of SAR filed will depend on the type of marijuana activities and other risk indicators observed by the financial institution. The guidance includes a lengthy, but non-exhaustive, list of red flags that will help financial institutions to decide between filing a “Marijuana Priority” SAR or the “Marijuana Limited” SAR.

“Marijuana Limited” SARs: If a financial institution reasonably believes that a marijuana-related business does not implicate one of the Cole Memo priorities and does not violate state law, it can file a “Marijuana Limited” SAR. The content of these types of SARs will be limited, and institutions can file continuing SARs to cover marijuana activities over a period of time, based on FinCEN’s continuing activity guidance.

“Marijuana Priority” SARs: If, on the other hand, a financial institution believes that a marijuana-related business implicates one of the Cole Memo priorities or violates a state law, it should file a more detailed “Marijuana Priority” SAR.

The guidance also provides how financial institutions should file SARs in other situations related to marijuana-related businesses:

“Marijuana Termination” SARs: If a financial institution decides to terminate its relationship with a customer based on the customer’s marijuana activities, it will need to file a “Marijuana Termination” SAR. FinCEN also encourages such financial institutions to share information with other financial institutions about this business under the Section 314(b) guidelines for voluntary information sharing.

Ordinary SARs: In a footnote, the FinCEN Guidance clarifies that some businesses provide indirect services to marijuana-related businesses. In those cases, it may be impossible for a financial institution to determine which type of marijuana SAR to file. In such cases, FinCEN provides that a financial institution can file a SAR without distinguishing it as a “Marijuana Limited” or “Marijuana Priority” report.

The guidance also describes the customer due diligence required to assess the risk of providing services to a marijuana-related business. Some of the due diligence efforts should include: (1) verifying that the business is duly licensed and registered with the state, (2) reviewing the business’s license application, (3) requesting information about the business from state licensing and enforcement authorities, (4) developing an understanding of the normal and expected activity for the business, (5) monitoring publicly available sources of information for adverse information about the business, (6) ongoing monitoring for suspicious activities, and (7) refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk.