We initiated a wire transfer under $5,000 on behalf of a customer (an individual) to an out-of-state business account that was returned. The receiving financial institution informed us that the account number cannot receive wire transfers, but declined to provide any additional information. We researched the business and discovered that it is a marijuana-related business operating in a state where cannabis is legal. Is a suspicious activity report (SAR) warranted?

Based on the facts provided, we believe that filing a voluntary SAR would be prudent. We note, though, that filing a marijuana-specific SAR is not required in this case.

A financial institution is required to file a SAR on activity involving a marijuana-related business — including one appropriately licensed under state law — in accordance with FinCEN’s suspicious activity reporting requirements and related thresholds. Under FinCEN’s thresholds, filing a SAR is required when a transaction aggregates at least $5,000 and the bank knows, suspects or has reason to suspect that the transaction involves funds derived from illegal activities (among other reasons). A bank also may, but is not required to, file a SAR with respect to any suspicious transaction, irrespective of the dollar amount involved, when the bank reasonably believes the transaction may be relevant to the possible violation of any law or regulation.

In this case, the transaction did not reach the $5,000 threshold, so filing a SAR is not mandatory. However, your bank knows that your customer attempted a wire transfer to a marijuana-related business. According to guidance from FinCEN, because federal law prohibits the growing, distribution and sale of marijuana, financial transactions involving a marijuana-related business generally are considered to involve funds connected to an illegal activity. In our view, your bank could file a voluntary SAR based on its reasonable belief that the transaction could be relevant to the possible violation of federal law.

If your bank chooses to file a voluntary SAR, we believe that it should be a traditional SAR, not a marijuana-specific SAR. FinCEN’s guidance describes three types of marijuana-specific SARs: (1) marijuana limited SARs, (2) marijuana priority SARs, and (3) marijuana termination SARs. FinCEN’s guidance explains when to file each of these marijuana-specific SARs based on how a transaction aligns with the law enforcement priorities of the U.S. Department of Justice, as outlined in a guidance known as the Cole Memo. For each type of marijuana-specific SAR, the guidance addresses transactions involving customers. In this case, the marijuana-related business is not your customer. Consequently, we do not believe the FinCEN guidance requires the filing of a marijuana-specific SAR. However, as mentioned above, we think that filing a traditional, voluntary SAR still would be prudent.

For resources related to our guidance, please see:

FinCEN Guidance, FIN-2014-G001 BSA Expectations Regarding Marijuana-Related Businesses (February 14, 2014) (“Because federal law prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity. Therefore, a financial institution is required to file a SAR on activity involving a marijuana-related business (including those duly licensed under state law), in accordance with this guidance and FinCEN’s suspicious activity reporting requirements and related thresholds.”)

FinCEN SAR Rules, 31 CFR 1020.320(a)(2) (“A transaction requires reporting under the terms of this section if it is conducted or attempted by, at, or through the bank, it involves or aggregates at least $5,000 in funds or other assets, and the bank knows, suspects, or has reason to suspect that (i) The transaction involves funds derived from illegal activities or is intended or conducted in order to hide or disguise funds or assets derived from illegal activities . . . ; (ii) The transaction is designed to evade any requirements of this chapter or of any other regulations promulgated under the Bank Secrecy Act; or (iii) The transaction has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the bank knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction.”)
FinCEN Guidance, FIN-2014-G001 BSA Expectations Regarding Marijuana-Related Businesses (February 14, 2014) (“A financial institution providing financial services to a marijuana-related business that it reasonably believes, based on its customer due diligence, does not implicate one of the Cole Memo priorities or violate state law should file a ‘Marijuana Limited’ SAR.”)

FinCEN Guidance, FIN-2014-G001 BSA Expectations Regarding Marijuana-Related Businesses (February 14, 2014) (“A financial institution filing a SAR on a marijuana-related business that it reasonably believes, based on its customer due diligence, implicates one of the Cole Memo priorities or violates state law should file a ‘Marijuana Priority’ SAR. The content of this SAR should include comprehensive detail in accordance with existing regulations and guidance.”)

FinCEN Guidance, FIN-2014-G001 BSA Expectations Regarding Marijuana-Related Businesses (February 14, 2014) (“If a financial institution deems it necessary to terminate a relationship with a marijuana-related business in order to maintain an effective anti-money laundering compliance program, it should file a SAR and note in the narrative the basis for the termination.”)