A customer with a business deposit account manufactures herbicides for farmers, some of whom grow medical marijuana. Occasionally, our customer deposits checks from the medical marijuana farmers. Is our customer considered a marijuana-related business? Do we have to close his account?

Your customer would be considered an “indirect” marijuana-related business (MRB) because he is providing goods or services to an MRB. Your bank does not have to close this account, but you should review the customer’s deposits from the medical marijuana farmers in order to determine your Suspicious Activity Report (SAR) filing obligations, as discussed below.

FinCEN’s guidance outlines a bank’s obligations with respect to providing financial services directly to an MRB, including a requirement to file one of three types of marijuana-specific SARs for those customers’ transactions. While the guidance does not specifically define MRBs, it indicates that such businesses generally are directly involved in growing, distributing or dispensing marijuana. In addition, the FinCEN guidance recognizes that many banks provide financial services to third party vendors who provide goods or services to MRBs — for example, “a commercial landlord that leases property to a marijuana-related business.” According to FinCEN’s guidance, whether a bank wishes to accept deposits from such indirect MRBs is a risk-based decision, and if a bank knowingly accepts such deposits, it should look to the rules for filing standard (non-MRB) SARS.

In other words, for third-party MRB service providers such as your customer, the FinCEN guidance states that a bank should file SARs based on existing thresholds and reporting requirements, without regard to the MRB-specific SAR requirements. Under FinCEN’s general thresholds, a SAR is required when related transactions in the aggregate amount to at least $5,000 and the bank knows, suspects or has reason to suspect that the transactions involve funds derived from illegal activities (among other reasons). A bank also may, but is not required to, file a SAR when the bank reasonably believes that a transaction may be relevant to the possible violation of any law or regulation, irrespective of the dollar amount involved. Because federal law prohibits the growing, distribution and sale of marijuana, financial transactions involving marijuana-related activities generally are considered to involve funds connected to illegal activities. Thus, in our view, your bank should consider filing a voluntary, standard SAR for your customer’s deposits originating from the medical marijuana farmers — regardless of the transaction amounts — based on your reasonable belief that the transactions technically are derivative of activities that are violations of federal law.

We should note that U.S. Attorney General Sessions recently rescinded the Department of Justice’s “Cole Memorandum,” which had outlined federal law enforcement priorities with respect to prosecuting (and not prosecuting) marijuana-related activities. While the rescinded Cole Memorandum formed the basis of the FinCEN guidance, the FinCEN guidance remains in effect at this time. Going forward, however, it would be prudent to monitor developments at the federal level for any changes to the FinCEN guidance or other aspects of this issue. We also recommend that your bank assign one or more employees to read and thoroughly understand the FinCEN guidance and to monitor the customer’s account and document all decisions made regarding the account on an ongoing basis.

For resources related to our guidance, please see:

FinCEN Guidance, FIN-2014-G001 BSA Expectations Regarding Marijuana-Related Businesses (February 14, 2014) (Outlining three marijuana-specific SARs for marijuana-related business customers and when to file them)

FinCEN Guidance, FIN-2014-G001 BSA Expectations Regarding Marijuana-Related Businesses (February 14, 2014) (“Similarly, a financial institution could be providing services to a non-financial customer that provides goods or services to a marijuana-related business (e.g., a commercial landlord that leases property to a marijuana-related business). In such circumstances where services are being provided indirectly, the financial institution may file SARs based on existing regulations and guidance without distinguishing between ‘Marijuana Limited’ and ‘Marijuana Priority.’ Whether the financial institution decides to provide indirect services to a marijuana-related business is a risk-based decision that depends on a number of factors specific to that institution and the relevant circumstances. In making this decision, the institution should consider the Cole Memo priorities, to the extent applicable.

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) (“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.”)

Sessions Memorandum — Rescinding Previous Nationwide Guidance Specific to Marijuana Enforcement (January 4, 2018) (“Given the Department's well-established general principles, previous nationwide guidance specific to marijuana enforcement is unnecessary and is rescinded, effective immediately.”)