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We received a loan request from a medical marijuana start-up (which is not located in Illinois but in another state where medical marijuana has been legalized). Since this is still illegal at the federal level, do you see any issues with making this loan? – IBA Compliance Connection

IBA Compliance Connection

Your go to source for compliance!

We received a loan request from a medical marijuana start-up (which is not located in Illinois but in another state where medical marijuana has been legalized). Since this is still illegal at the federal level, do you see any issues with making this loan?

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We spoke to an attorney with the Federal Reserve Board who told us that the FRB saw high legal and reputational risks in making loans to marijuana dispensaries. He also noted that the FRB is holding off on issuing formal guidance about this issue until the Department of Justice states whether it will be enforcing federal drug laws in states with legalized marijuana dispensaries. He advised that any institution doing business with a marijuana dispensary would have to document the high risks involved and the reasons for its willingness to take on these risks.

One of the risks involved would be an ongoing duty to file suspicious activity reports (SARs) relating to a marijuana dispensary customer. The Bank Secrecy Act/ Anti-Money Laundering (BSA/AML) requires the disclosure of any suspected criminal activity in a Suspicious Activity Report (SAR). 31 USC 5318(g). The federal regulations implementing this requirement require financial institutions to file a SAR under the following circumstances (12 CFR 208.62):

-The institution suspects a federal criminal violation involving $5,000 or more where the bank can identify possible suspects

-The institution suspects a federal criminal violation involving $25,000 regardless of a potential suspect, or

-Transactions involving $5,000 or more involving potential money laundering violations or violations of the Bank Secrecy Act