We have a customer who did some construction work for a marijuana dispensary and was paid in cash. The customer deposited the cash in $9,900 increments, so we are filing a suspicious activity report (SAR) due to structuring. Should we file a marijuana-specific SAR? Should we mention that the customer is doing business with a marijuana-related business (MRB), even though that is not the reason for the SAR? Does our customer qualify as an MRB if they do work for an MRB?

Under the FinCEN Guidance, your customer would be considered an “indirect” MRB because it provides services to a marijuana dispensary. Therefore, we do not believe you are required to file an MRB-specific SAR. However, we do recommend noting in your SAR that the cash payments you believe your customer is structuring were from an MRB.

The FinCEN 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 the FinCEN 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.

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). 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’s SAR should include the information – that your customer’s deposits were received from an MRB – as the transactions are derivative of illegal activities under federal law.

We note that in January of 2018, former U.S. Attorney General Sessions rescinded the Department of Justice’s “Cole Memorandum,” which had outlined federal law enforcement priorities with respect to prosecuting (and not prosecuting)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, it would be prudent to monitor developments at the federal level for any changes to the FinCEN Guidance. We also recommend that your bank assign one or more employees to read and thoroughly understand the FinCEN Guidance and monitor the customer’s account, while documenting all decisions made regarding the account on an ongoing basis.

For resources related to our guidance, please see:

FinCEN Ruling 2005-6, Suspicious Activity Reporting (Structuring) (July 15, 2005) (“Structuring is the breaking up of transactions for the purpose of evading the Bank Secrecy Act reporting and recordkeeping requirements and, if appropriate thresholds are met, should be reported as a suspicious transaction under 31 C.F.R. § 103.18. Structuring can take two basic forms. First, a customer might deposit currency on multiple days in amounts under $10,000 (e.g., $9,900.00) for the intended purpose of circumventing a financial institution’s obligation to report any cash deposit over $10,000 on a currency transaction report as described in 31 C.F.R. § 103.22. Although such deposits do not require aggregation for currency transaction reporting, since they occur on different business days, they nonetheless meet the definition of structuring under the Bank Secrecy Act, implementing regulations, and relevant case law.”)

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.”)