One of your bank’s obligations with respect to a marijuana-related business (MRB) would be to file a suspicious activity report (SAR) for the business’s transactions that are conducted by, at, or through your bank. In this case, whether your bank files a SAR for the trust’s transactions with the insurance company will be a risk-based business decision. If your bank’s sole transaction with the insurance company will be the upcoming share sale, your bank may wish to simply file a SAR after the sale closes as a precautionary measure for the one-time transaction. However, we recommend considering the discussion below and establishing a policy that can be applied to other interactions your bank inevitably will have with indirect MRBs like this insurance company.

While state-licensed medical and recreational marijuana dispensaries and producers now are (or very shortly will be) legal businesses under state law in over two-thirds of the country, including Illinois, it remains illegal under the federal Controlled Substances Act to manufacture, distribute or dispense marijuana. The federal law also provides that anyone who “aids, abets, counsels, commands, induces or procures its commission” is punishable as if they were a principal to the crime. Nonetheless, these activities already are taking place across the country, and Illinois financial institutions increasingly will need to address their policies and procedures in relation to MRBs.

FinCEN’s 2014 Guidance on banking MRBs references two types of MRBs: direct MRBs and indirect MRBs. The guidance does not expressly define “direct MRBs” but indicates that such businesses generally are directly involved in growing, distributing or dispensing marijuana. Likewise, the guidance does not expressly define “indirect MRBs” but recognizes that many banks provide financial services to customers who themselves provide goods or services to direct MRBs, such as “a commercial landlord that leases property to a marijuana-related business.” Similarly, we would consider this insurance company to be an indirect MRB, which provides surety bonds and products liability insurance to direct MRBs.

According to the FinCEN Guidance, whether a bank wishes to provide financial services to indirect MRBs is a risk-based business decision. The risks involved in banking these various parties will vary widely, and it would be untenable from both a business and an operational standpoint to refuse to provide banking services to any indirect MRBs or to file SARs on all of their banking transactions. Consequently, your bank may wish to consider adopting a policy that differentiates between circumstances under which it will or will not provide services to or file SARs on indirect MRBs. For example, your bank may choose to establish a threshold percentage of gross revenues that are derived from sales of goods or services to marijuana businesses, above which your bank will file SARs or refuse to provide services for indirect MRBs. If your bank knowingly does bank an indirect MRB, we recommend filing standard SARs, as opposed to the three types of marijuana-specific SARs required by the FinCEN Guidance for direct MRBs.

To determine whether to file a SAR for transactions with the insurance company, your bank likely will need to ask the insurance company to provide more information about the percentage of its revenues derived from its services to direct MRBs. Additionally, your bank may wish to conduct a limited due diligence to verify that the insurance company’s customers are duly licensed under state law in California and Nevada, if possible (California provides a cannabis license search at https://cannabis.ca.gov/check_a_license/, and Nevada provides lists of licensed dispensaries and delivery companies at https://tax.nv.gov/MME/Marijuana_Establishments_-_Home/). However, as noted above, your bank may wish to file a SAR for the one-time share sale transaction as a precautionary measure, provided that the share sale is your bank’s only transaction with the insurance company. 

Additionally, we note that while your bank’s relationship with the insurance company came about solely as a result of your position as trustee, we believe that the principles discussed above for banking MRBs also would apply when providing trust services to a trust holding an interest in an MRB. For purposes of FinCEN’s BSA/AML rules, a trust relationship is considered an “account” to which its requirements apply, and SAR filing responsibilities apply to any transaction “conducted or attempted by, at, or through” your bank — which would include your transactions with the insurance company that your bank undertakes as trustee for the trust.

For resources related to our guidance, please see:

• FinCEN Rules, 31 CFR 1020.320(a)(2) (“Reports by banks of suspicious transactions. . . . 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 (including, without limitation, the ownership, nature, source, location, or control of such funds or assets) as part of a plan to violate or evade any Federal law or regulation or to avoid any transaction reporting requirement under Federal law or regulation.”)

• Compassionate Use of Medical Cannabis Pilot Program Act, 410 ILCS 130/1 (Illinois law that permits the medical use of marijuana for certain patients and the operation a limited number of dispensing organizations for medical marijuana, scheduled to be repealed July 1, 2020.)

• Cannabis Regulation and Tax Act, Public Act 101-0027 (Illinois law that permits the personal use of marijuana for persons 21 years of age and older and the operation of a limited number of dispensing organizations for medical and personal use marijuana, beginning January 1, 2020.)

• Controlled Substances Act, 21 USC 841(a)(1) (“Unlawful acts. Except as authorized by this subchapter, it shall be unlawful for any person knowingly or intentionally — (1) to manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance; . . . .”); 21 USC 802(6) (A controlled substance is “a drug or other substance, or immediate precursor, included in schedule I, II, . . .”); 21 USC 812(c)(c)(10) (Schedule I drugs include marijuana.); 18 USC 2(a) (“Whoever commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal.”)

• 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) (“FinCEN recognizes that a financial institution filing a SAR on a marijuana-related business may not always be well-positioned to determine whether the business implicates one of the Cole Memo priorities or violates state law, and thus which terms would be most appropriate to include (i.e., ‘Marijuana Limited’ or ‘Marijuana Priority’). For example, a financial institution could be providing services to another domestic financial institution that, in turn, provides financial services to a marijuana-related business. 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 Guidance, FIN-2014-G001, BSA Expectations Regarding Marijuana-Related Businesses (February 14, 2014) (“In assessing the risk of providing services to a marijuana-related business, a financial institution should conduct customer due diligence that includes: (i) verifying with the appropriate state authorities whether the business is duly licensed and registered; (ii) reviewing the license application (and related documentation) submitted by the business for obtaining a state license to operate its marijuana-related business; (iii) requesting from state licensing and enforcement authorities available information about the business and related parties; (iv) developing an understanding of the normal and expected activity for the business, including the types of products to be sold and the type of customers to be served (e.g., medical versus recreational customers); (v) ongoing monitoring of publicly available sources for adverse information about the business and related parties; (vi) ongoing monitoring for suspicious activity, including for any of the red flags described in this guidance; and (vii) refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk.”)
   
• FinCEN Rules, 31 CFR 1020.100(a)(1) (“Account means a formal banking relationship established to provide or engage in services, dealings, or other financial transactions including a deposit account, a transaction or asset account, a credit account, or other extension of credit. Account also includes a relationship established to provide a safety deposit box or other safekeeping services, or cash management, custodian, and trust services.”)