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One of our commercial customers is considering buying a retail building, the majority of which would be rented to a marijuana dispensary. We have a policy of not banking any tier of marijuana related business (MRB). If the customer obtains financing elsewhere (and deposits the proceeds from the MRB’s rent at another institution), would we have heightened monitoring and reporting responsibilities for this customer’s accounts with our bank? This customer owns a student housing building, and a lot of cash from rents and security deposits flows through their deposit account at our bank. Is additional monitoring required to ensure we catch any potential money laundering, and if so, would this be the case for any other existing commercial customer that we discover is involved with an MRB?

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Yes, we believe that additional monitoring is required for any MRB, whether an indirect or direct MRB, under FinCEN’s guidance for banking MRBs.

FinCEN’s guidance outlines a bank’s obligations with respect to providing financial services directly to an MRB. While the guidance does not expressly define “indirect MRBs,” it 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.” According to FinCEN’s guidance, whether a bank wishes to accept deposits from and provide other financial services to an indirect MRB is a risk-based business decision, and if a bank knowingly does so, it should look to the rules for filing standard (non-MRB) SARs.

If your commercial customer rents a property to a marijuana dispensary — regardless of where it deposits the dispensary’s rents or obtains financing to purchase the property — we believe it would be considered an “indirect” MRB under FinCEN’s guidance. Consequently, you may wish to review your internal policy to determine whether it permits you to continue providing financial services to an indirect MRB — or to an entity that has common ownership with an indirect MRB, in the event your customer forms a separate entity to hold title to the retail building. If your internal policy permits you to continue banking this customer, we recommend assessing the risks associated with banking an indirect MRB and adjusting your monitoring of this customer as appropriate.

FinCEN’s guidance also states that in assessing the risk of providing services to an MRB (including an indirect MRB), a bank should conduct customer due diligence that includes, among other tasks, “ongoing monitoring of publicly available sources for adverse information about the business and related parties.” As such, you may wish to verify that the dispensary tenant is licensed under Illinois law. Links to the IDFPR’s current lists of licensed adult use cannabis dispensaries and licensed medical cannabis dispensaries are included in the resources below. 

We believe this analysis generally would apply to any other existing commercial customer you discover is providing services to a direct MRB.

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) (“The Controlled Substances Act (‘CSA’) makes it illegal under federal law to manufacture, distribute, or dispense marijuana. . . . Notwithstanding the federal ban, as of the date of this guidance, 20 states and the District of Columbia have legalized certain marijuana-related activity.”)
  • 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 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.”)