This FinCEN guidance clarifies how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations, and aligns the information provided by financial institutions in BSA reports with federal and state law enforcement priorities. The guidance corresponds to the enforcement priorities set forth in the August 29, 2013 Cole Memo. The Cole Memo was rescinded by U.S. Attorney General Jefferson B. Sessions’ memo on Marijuana Enforcement. However, a January 31, 2018 letter from Drew Maloney, Asst. Secretary for Legislative Affairs, U.S. Treasury, to Congressman Denny Heck gave assurances that “…the SAR reporting structure set forth in FinCEN’s February 2014 guidance remains in place.” Maloney’s letter is available here.
In assessing the risk of providing services to a marijuana-related business, FinCEN calls on financial institutions to conduct customer due diligence that includes:
- verifying with the appropriate state authorities whether the business is duly licensed and registered;
- reviewing the license application (and related documentation) submitted by the business for obtaining a state license to operate its marijuana-related business;
- requesting from state licensing and enforcement authorities available information about the business and related parties;
- 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);
- ongoing monitoring of publicly available sources for adverse information about the business and related parties;
- ongoing monitoring for suspicious activity, including for any of the red flags described in this guidance; and
- refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk.
As part of its customer due diligence, a financial institution should consider whether a marijuana-related business implicates one of the eight Cole Memo priorities or violates state law. This is a particularly important factor for a financial institution to consider when assessing the risk of providing financial services to a marijuana-related business. Considering this factor also enables the financial institution to provide information in BSA reports pertinent to law enforcement’s priorities. A financial institution that decides to provide financial services to a marijuana-related business would be required to file suspicious activity reports (“SARs”) as described in some detail within the guidance letter.
The obligation to file a SAR is unaffected by any state law that legalizes marijuana-related activity. A financial institution is required to file a SAR if, consistent with FinCEN regulations, the financial institution knows, suspects, or has reason to suspect that a transaction conducted or attempted by, at, or through the financial institution:
- involves funds derived from illegal activity or is an attempt to disguise funds derived from illegal activity;
- is designed to evade regulations promulgated under the BSA, or
- lacks a business or apparent lawful purpose.
The letter addresses “Filing Suspicious Activity Reports on Marijuana-Related Businesses”, including:
- “Marijuana Limited” SAR Filings, for suspicious activity that DOES NOT implicate one of the eight Cole Memo priorities or violate state law.
- “Marijuana Priority” SAR Filings, for suspicious activity that DOES implicate one of the Cole Memo priorities or violate state law.
- “Marijuana Termination” SAR Filings, when a financial institution deems it necessary to terminate a relationship with a marijuana-related business in order to maintain an effective anti-money laundering compliance program.
- Red Flags to Distinguish Priority SARs, provides examples of evidence that indicate that a marijuana-related business may be engaged in activity that implicates one of the Cole Memo priorities or violates state law.
- Currency Transaction Reports and Form 8300s.