Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses
Statement of
David H. Carpenter
Legislative Attorney
Before
Committee on Financial Services
Subcommittee on Consumer Protection and Financial Institutions
U.S. House of Representatives
Hearing on
“Challenges and Solutions: Access to Banking
Services for Cannabis-Related Businesses”
February 13, 2019
Congressional Research Service
https://crsreports.congress.gov
TE10031
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Introduction
Chairman Meeks, Ranking Member Luetkemeyer, and Members of the Subcommittee, my name is David
Carpenter, and I am a legislative attorney at the Congressional Research Service (CRS). Thank you for
inviting me to testify on behalf of CRS on access to banking services for marijuana-related businesses.
My testimony provides a brief overview of how marijuana is currently regulated under the federal
Controlled Substances Act. It then discusses the legal obligations of financial institutions under the Bank
Secrecy Act and federal anti-money laundering laws, and the potential legal risks associated with
providing financial services to entities that manufacture, produce, cultivate, sell, transport, or purchase
marijuana (“marijuana-related businesses”). It then provides an overview of the discussion draft of the
Secure And Fair Enforcement Banking Act of 2019 (SAFE Banking Act), dated February 6, 2019 (10:58
a.m.) and notes some potential uncertainties regarding how the SAFE Banking Act might apply to
financial institutions with regard to serving marijuana businesses operating in compliance with state
marijuana laws.
In serving the U.S. Congress on a non-partisan and objective basis, CRS takes no position on the efficacy
of the SAFE Banking Act.
Brief Summary of the Regulation of Marijuana Under
the Controlled Substances Act1
The federal Controlled Substances Act (CSA)2 establishes the legal regime through which the federal
government: (1) regulates and facilitates the lawful production, possession, and distribution of controlled
substances; (2) prevents diversion3 of these substances from legitimate purposes; and (3) penalizes
unauthorized activities involving controlled substances.4 The CSA places various plants, drugs, and
chemicals into one of five schedules based on the substance’s medical use, potential for abuse, and safety
or dependence liability.5 The five schedules are progressively ordered with the substances generally
considered the most dangerous and addictive classified as Schedule I substances and those generally
regarded as the least dangerous and addictive classified as Schedule V substances.6 By law, Schedule I
substances have “a high potential for abuse” with “no currently accepted medical use in treatment in the
1 See CRS Report R44782, The Marijuana Policy Gap and the Path Forward, coordinated by Lisa N. Sacco (providing a detailed
discussion and analysis of federal marijuana law and policy).
2 Comprehensive Drug Abuse Prevention and Control Act of 1970, Pub. L. No. 91-513, Title II, 84 Stat. 1236, 1242 (codified as
amended at 21 U.S.C. §§ 801–904) (enacting the CSA).
3 The Drug Enforcement Administration (DEA) of the Department of Justice (DOJ) has explained that the term “diversion,” used
in the context of the CSA, refers to “the redirection of controlled substances which may have lawful uses into illicit channels.”
Controlled Substances Quotas, 83 Fed. Reg. 32,784, 32,784 (July 16, 2018) (codified at 21 C.F.R. pt. 1303).
4 See CRS Report RL30722, Drug Offenses: Maximum Fines and Terms of Imprisonment for Violation of the Federal Controlled
Substances Act and Related Laws, by Brian T. Yeh (listing CSA’s criminal provisions regarding unauthorized trafficking,
possession, or other prohibited activities involving controlled substances).
5 21 U.S.C. § 812(b).
6 When Congress enacted the CSA in 1970, it established “initial schedules” of controlled substances, id. § 812(c), but specified
that the schedules “shall be updated” periodically, id. § 812(a). The current list of controlled substances within their designated
schedules may be found in 21 C.F.R. §§ 1308.11–15.
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United States” and cannot safely be dispensed under a prescription.7 Schedule I substances may be
lawfully used only for bona fide, federal government-approved research studies.8
Marijuana is currently classified as a Schedule I controlled substance and is, therefore, subject to the most
severe restrictions and penalties under the CSA.9 As a result, it is a federal crime to grow, sell, or merely
possess the drug.10 In addition to facing the prospect of federal criminal prosecution, imprisonment, and
criminal fines, those who violate the CSA may suffer a number of additional adverse consequences under
federal law.11 For example, federal authorities may confiscate, through civil or criminal forfeiture
proceedings, any property used to grow marijuana or facilitate its sale or use, as well as all proceeds
derived from the sale of marijuana.12
In spite of these federal prohibitions, a number of states and localities have established laws and policies
that permit certain marijuana-related activities.13 While the Department of Justice (DOJ) and the Treasury
Department’s Financial Crimes Enforcement Network (FinCEN) have previously issued guidance on the
interplay of federal marijuana laws and conflicting state legalization efforts,14 Congress has not passed
comprehensive legislation to address state and local marijuana legalization laws. Thus, regardless of state
and local laws purporting to authorize marijuana use, federal law prohibits cultivation, distribution, and
possession of marijuana, except by those who engage in federally approved research.15
Financial Services for Marijuana Businesses
Bank Secrecy Act16 and Federal Anti-Money Laundering Laws
When financial institutions provide financial services to business customers, they generally are not
directly involved in the sale, possession, or distribution of their customers’ products. However, financial
7 21 U.S.C. § 812(b).
8 Id. § 823(f).
9 Id. § 812(c)(a)(c)(10); 21 C.F.R. § 1308.11(d)(23).
10 21 U.S.C. §§ 841–90.
11 Id. See also CRS Report RL30722, Drug Offenses: Maximum Fines and Terms of Imprisonment for Violation of the Federal
Controlled Substances Act and Related Laws, by Brian T. Yeh (providing a detailed description of the CSA’s civil and criminal
provisions).
12 18 U.S.C. §§ 981(a)(1)(A), 982(a)(1). See also CRS Report 97-139, Crime and Forfeiture, by Charles Doyle (describing the
procedural requirements and potential defenses associated with asset forfeiture).
13 Map of Marijuana Legality by State, DISA GLOBAL SOLS., https://disa.com/map-of-marijuana-legality-by-state (last visited
Feb. 12, 2019).
14 For example, in 2013, former Deputy Attorney General James Cole issued a subsequently rescinded memorandum to U.S.
attorneys that reiterated the fact that marijuana cultivation, sale, distribution, and possession remain unlawful under federal law
and outlined eight federal enforcement priorities. Memorandum from James M. Cole, Deputy Attorney Gen. to All United States
Attorneys Regarding Guidance Regarding the Ogden Memo in Jurisdictions Seeking to Authorize Marijuana for Medical Use
(June 29, 2011) [hereinafter 2013 Cole Memorandum], https://www.justice.gov/sites/default/files/oip/legacy/2014/07/23/dag-
guidance-2011-for-medical-marijuana-use.pdf. The 2013 Cole Memorandum and other DOJ marijuana-related guidance was
rescinded on January 4, 2018. Memorandum from Jefferson B. Sessions, Attorney Gen. to All United States Attorneys Regarding
Marijuana Enforcement (Jan. 4, 2018), https://www.justice.gov/opa/press-release/file/1022196/download. FinCEN also “issu[ed]
guidance to clarify Bank Secrecy Act (‘BSA’) expectations for financial institutions seeking to provide services to marijuana-
related businesses,” which as of the date of this testimony remained in effect. U.S. DEP’T OF THE TREASURY, FIN. CRIMES ENF’T
NETWORK, BSA EXPECTATIONS REGARDING MARIJUANA-RELATED BUSINESS, FIN-2014-G001 (Feb. 14, 2014) [hereinafter
FinCEN Marijuana Guidance 2014], https://www.fincen.gov/sites/default/files/shared/FIN-2014-G001.pdf; see infra “FinCEN
Guidance to Financial Institutions” section of this testimony.
15 21 U.S.C. § 812(c); 21 C.F.R. § 1308.11(d)(23).
16 The “Bank Secrecy Act” is commonly used to refer to Titles I and II of Pub. L. No. 91-508, including its major component, the
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institutions commonly acquire the financial proceeds generated from the sale of customer products. To the
extent that a bank acquires the proceeds derived from sales of marijuana in violation of federal law,
federal authorities could potentially confiscate such funds through civil or criminal asset forfeiture
proceedings,17 even if the marijuana sales are permissible under state law.18 For example, if a bank lends
to a state-authorized medical marijuana dispensary, federal authorities might be able to require the bank to
forfeit any proceeds that the bank generated from the loan on the grounds that such proceeds resulted
from sales of marijuana in violation of federal law.19
In addition to the risk of asset forfeiture, federal anti-money laundering laws (i.e., Sections 1956 and 1957
of the criminal code) criminalize certain transactions involving property that is known to be derived from
certain unlawful activities,20 including the sale and distribution of marijuana.21 Violators of these anti-
money laundering laws may be subject to fines and imprisonment,22 and any real or personal property
involved in or traceable to prohibited transactions is potentially subject to criminal or civil forfeiture.23
For example, a bank employee could be subject to a twenty-year prison sentence and criminal money
penalties under Section 1956 for knowingly engaging in a financial transaction involving marijuana-
related proceeds that is conducted with the intent to promote a further offense, such as withdrawing
marijuana-generated funds from a business checking account in order to pay the salaries of medical
marijuana dispensary employees.24 Similarly, a bank officer could face a ten-year prison term and
criminal money penalties under Section 1957 for knowingly receiving deposits or allowing withdrawals
of $10,000 or more in cash that is derived from distributing and selling marijuana.25
Currency and Foreign Transactions Reporting Act, Pub. L. No. 91-508, Title II, 84 Stat. 1114, 1118–24 (1970) (as amended and
codified at 12 U.S.C. §§ 1829b, 1951–59; 31 U.S.C. §§ 5311–32). The Bank Secrecy Act requires reports and records of
transactions involving cash, negotiable instruments, or foreign currency and authorizes the Secretary of the Treasury to prescribe
regulations to insure that adequate records are maintained of transactions that have a “high degree of usefulness in criminal, tax,
or regulatory investigations or proceedings.” Title II, 84 Stat. at 1118.
17 18 U.S.C. § 981(a)(1) (“The following property is subject to forfeiture to the United States . . . (C) Any property, real or
personal, which constitutes or is derived from proceeds traceable to . . . any offense constituting ‘specified unlawful activity’ (as
defined in section 1956(c)(7) of this title) [i.e., the list of predicate offenses for money laundering (18 U.S.C. § 1956)], or a
conspiracy to commit such offense.”).
18 United States v. McIntosh, 833 F.3d 1163, 1179, n.5 (9th Cir. 2016).
19 18 U.S.C. § 981(a).
20 18 U.S.C. §§ 1956(c)(7), 1957(f)(3). See “Specified Unlawful Activities” in CRS Report RL33315, Money Laundering: An
Overview of 18 U.S.C. § 1956 and Related Federal Criminal Law, by Charles Doyle (providing a full list of predicate offenses).
21 18 U.S.C. §§ 1956, 1957. See CRS Report RL33315, Money Laundering: An Overview of 18 U.S.C. § 1956 and Related
Federal Criminal Law, by Charles Doyle (providing a detailed analysis of federal anti-money laundering laws).
22 Section 1956 violations are punishable by imprisonment for not more than twenty years and fines of up to $500,000 or twice
the value of the property involved, whichever is greater. 18 U.S.C. § 1956(a)(1). Section 1957 violations are punishable by
imprisonment for not more than ten years and fines of up $250,000 (or $500,000 for organizations) or twice the value of the
property involved in the transaction, whichever is greater. Id. §§ 1957(b), 3571, 3559. Conspiracy to violate either section carries
the same maximum penalties, as does aiding and abetting the commission of either offense. Id. §§ 2, 1956(h). See, e.g., United
States v. Lyons, 740 F.3d 702, 715 (1st Cir. 2014). See CRS Report RL30722, Drug Offenses: Maximum Fines and Terms of
Imprisonment for Violation of the Federal Controlled Substances Act and Related Laws, by Brian T. Yeh (providing a detailed
description of the penalties for violating these laws).
23 18 U.S.C. §§ 981(a)(1)(A), 982(a)(1).
24 Id. § 1956(a)(1)(A)(i).
25 Id. § 1957(a), (d).
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Under federal law, financial institutions26 must aid law enforcement in investigating and prosecuting those
who violate federal laws, including the CSA.27 For example, the Secretary of the Treasury has exercised
authority to require financial institutions to file suspicious activity reports (SARs)28 with FinCEN
regarding financial transactions29 suspected to be derived from illegal activities,30 including sales of
marijuana.31 Depository institutions32 also must establish and maintain anti-money laundering programs
designed to prevent institutions from facilitating money laundering and financing terrorist activity, as well
as to ensure that the institutions’ officers and employees have sufficient knowledge of their customers and
their customers’ businesses to identify when filing SARs is appropriate.33
Additionally, financial institutions, their employees, and certain other affiliated parties34 could be subject
to administrative enforcement actions by federal regulators for violating the Bank Secrecy Act or anti-
26 For the purposes of the Bank Secrecy Act and anti-money laundering laws, the term “financial institution” is defined broadly to
include banks, savings associations, credit unions, broker dealers, insurance companies, pawnbrokers, automobile dealers,
casinos, cash checkers, travel agencies, and precious metal dealers, among others. 31 U.S.C. § 5312(a)(2).
27 12 U.S.C. §§ 1951–59; 31 U.S.C. §§ 5311–32.
28 31 U.S.C. § 5318(g). Filing suspicious activity reports (SARs) are mandatory under certain circumstances, but financial
institutions may file SARs even when not mandated by law. See, e.g., 12 C.F.R. §§ 1020.320(a) (banks); 31 CFR § 1022.320(a)
(money services businesses).
29 “Transaction” is defined as:
means a purchase, sale, loan, pledge, gift, transfer, delivery, or other disposition, and with respect to a financial
institution includes a deposit, withdrawal, transfer between accounts, exchange of currency, loan, extension of
credit, purchase or sale of any stock, bond, certificate of deposit, or other monetary instrument, security,
contract of sale of a commodity for future delivery, option on any contract of sale of a commodity for future
delivery, option on a commodity, purchase or redemption of any money order, payment or order for any money
remittance or transfer, purchase or redemption of casino chips or tokens, or other gaming instruments or any
other payment, transfer, or delivery by, through, or to a financial institution, by whatever means effected.
Id. § 1010.100(bbb).
30 18 U.S.C. §§ 1956(c)(7), 1957(f)(3). See “Specified Unlawful Activities” in CRS Report RL33315, Money Laundering: An
Overview of 18 U.S.C. § 1956 and Related Federal Criminal Law, by Charles Doyle (providing a full list of predicate offenses).
31 21 U.S.C. §§ 841–90; 31 U.S.C. § 5318(g); 31 C.F.R. § 1020.320.
32 There are several different types of depository institutions, including state- and federally-chartered banks, savings associations,
and credit unions.
33 See generally id. §§ 5318(h)(1), 1020.200–20. See also 12 U.S.C. § 1786(q)(1) (credit unions); id. § 1818(s) (banks and
savings associations). Even in the absence of suspicion, financial institutions must file currency transaction reports (CTRs) with
FinCEN relating to transactions involving $10,000 or more in cash or other “currency.” 31 U.S.C. § 5313; 31 C.F.R. §§
1020.300–20, 1010.300–70. “Currency” is defined as:
The coin and paper money of the United States or of any other country that is designated as legal tender and
that circulates and is customarily used and accepted as a medium of exchange in the country of issuance.
Currency includes U.S. silver certificates, U.S. notes and Federal Reserve notes. Currency also includes official
foreign bank notes that are customarily used and accepted as a medium of exchange in a foreign country.
Id. at § 1010.100(m).
The willful failure to file SARs and CTRs is punishable by imprisonment for not more than five years or not more than ten years
in cases of a substantial pattern of violations or transactions involving other illegal activity. 31 U.S.C. § 5322. Structuring a
transaction to avoid the reporting requirement exposes the offender to the same maximum terms of imprisonment. Id. § 5324(d).
See CRS Report RL33315, Money Laundering: An Overview of 18 U.S.C. § 1956 and Related Federal Criminal Law, by Charles
Doyle, (providing a detailed description of penalties for violations of Bank Secrecy Act reporting and monitoring requirements).
34 See, e.g., 12 U.S.C. §§ 1813(u) (defining “institution-affiliated party” to include, among others, “any director, officer,
employee, or controlling stockholder . . . of, or agent for an insured depository institution,” as well as any independent contractor
. . . who knowingly or recklessly participates in any violation of any law or regulation; any breach of fiduciary duty; or any
unsafe or unsound practice which caused or is likely to cause more than a minimal financial loss to, or a significant adverse effect
on, the insured depository institution.”).
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money laundering laws.35 For example, federal banking regulators36 implement comprehensive
supervisory regimes that are designed to ensure that depository institutions are managed and operated in a
safe and sound fashion to maintain profitability and in compliance with applicable state and federal law.
To further this mandate, banking regulators may exercise strong, flexible administrative enforcement
powers against depository institutions and their directors, officers, controlling shareholders, employees,
agents, and affiliates that act unlawfully, including by engaging in marijuana-related activities that violate
the CSA or the anti-money laundering laws.37 Banking regulators have legal authority, for instance, to
issue cease and desist orders, impose civil money penalties, and issue removal and prohibition orders that
temporarily or permanently ban individuals from working for any depository institution.38 Banking
regulators also have authority, under certain circumstances, to revoke an institution’s federal deposit
insurance coverage and to take control of and liquidate a depository institution.39 A criminal conviction
for violating the Bank Secrecy Act or anti-money laundering laws is an explicit ground for appointing the
Federal Deposit Insurance Corporation “as receiver [to] place the insured depository institution in
liquidation.”40
Because of these potential legal risks, many financial institutions have reportedly been unwilling to
provide financial services to the marijuana industry.41 This has often left marijuana businesses without the
ability to accept debit or credit card payments, to use electronic payroll services, to maintain checking
accounts, or to avail themselves of other common banking services. Consequently, many marijuana
businesses are reportedly operating exclusively in cash,42 raising concerns about tax collection and public
safety, among other things.43
35 See, e.g., 12 U.S.C. §§ 1786, 1818, 1831o.
36 For these purposes, the federal banking regulators are: the Office of the Comptroller of the Currency (OCC) for national banks
and federal savings associations; the Board of Governors of the Federal Reserve System for domestic operations of foreign banks
and state-chartered banks that are members of the Federal Reserve System; the Federal Deposit Insurance Corporation (FDIC) for
state savings associations and state-chartered banks that are not members of the Federal Reserve System; and the National Credit
Union Administration (NCUA) for federally insured credit unions. Id. §§ 1766, 1813(q). The Bureau of Consumer Financial
Protection (CFPB) also has certain consumer compliance regulatory authority over depository institutions. Id. §§ 5481–5603.
37 See, e.g., id. § 1786 (credit unions); id. §§ 1818, 1831o (banks and savings associations). See also Press Release, Off. of the
Comptroller of the Currency, OCC Assesses $2.5 Million Civil Money Penalty Against Gibraltar Private Bank and Trust
Company for Bank Secrecy Act Violations (Feb. 25, 2016), https://www.occ.gov/news-issuances/news-releases/2016/nr-occ-
2016-20.html (ordering the payment of a civil money penalty and remedial actions for allegedly “fail[ing] to maintain an
effective Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program.”).
38 See, e.g., 12 U.S.C. § 1786 (credit unions); id. §§ 1818, 1831o (banks and savings associations).
39 See, e.g., id. §§ 1786–87 (credit unions); id. §§ 1818, 1821, 1831o (banks and savings associations).
40 Id. § 1821(c)(5)(M), (d)(2)(E).
41 See, e.g., Guidance on Provision of Financial Services to Medical Marijuana & Industrial Hemp-Related Businesses in New
York State, N.Y. DEP’T OF FIN. SERVS., 2 (Jul. 3, 2018), https://www.dfs.ny.gov/legal/industry/il180703.pdf (“Because marijuana
currently is still listed on Schedule I under the Federal Controlled Substances Act, medical marijuana . . . businesses operating in
accordance with New York State laws and regulations continue to have difficulty establishing banking relationships at regulated
financial institutions. The ability to establish a banking relationship is an urgent issue today for the legal cannabis industry. So
long as it remains difficult to open and maintain bank accounts, the industry will largely rely on cash to conduct business and
operate.”)
42 Id.
43 See Tom Angell, Trump Treasury Secretary Wants Marijuana Money in Banks, FORBES (Feb. 6, 2018),
https://www.forbes.com/sites/tomangell/2018/02/06/trump-treasury-secretary-wants-marijuana-money-in-banks/#3c9bc4ed3a53.
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FinCEN Guidance to Financial Institutions
In response to state and local marijuana legalization efforts, FinCEN issued guidance with respect to
marijuana-related financial crimes on February 14, 2014.44 This guidance appears to provide a roadmap
for financial institutions to comply with suspicious activity reporting requirements when providing
financial services to marijuana businesses operating in compliance with state or local laws, while also
alerting FinCEN to transactions that might trigger federal enforcement priorities.45
The guidance notes that:
[b]ecause 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 regulations].46
FinCEN advised financial institutions that, in providing services to a marijuana business, they must file
one of three types of special SARs:
1. A marijuana limited SAR should be filed when a financial institution determines, after the
exercise of due diligence, that a marijuana business is not engaged in any activities that
violate state law or implicate the investigation and prosecution priorities outlined in the
guidance, including distribution to minors and supporting drug cartels or similar criminal
enterprises;47
2. A marijuana priority SAR must be filed when a financial institution believes a marijuana
business is engaged in activities that implicate prosecution priorities;48 and
3. A marijuana termination SAR should be filed when a financial institution finds it
necessary to sever its relationship with a marijuana business to maintain an effective anti-
money laundering program.49
The FinCEN guidance also lists examples of “red flags” that may indicate that a marijuana priority SAR
is appropriate.50
As of April 30, 2018, FinCEN has reported that it has received more than 50,000 marijuana-related SARs
and that over 400 depository institutions reported providing some form of financial services to marijuana-
related businesses.51 However, it is not clear precisely what level of financial services these depository
44 FinCEN Marijuana Guidance 2014, supra note 14. Although DOJ rescinded several marijuana-related guidance documents,
FinCEN’s guidance remains in effect. The Administration could reverse or otherwise make significant changes to its enforcement
priorities and policies. See generally CRS Report R43708, The Take Care Clause and Executive Discretion in the Enforcement of
Law, by Todd Garvey.
45 FinCEN Marijuana Guidance 2014, supra note 14.
46 Id. at 3.
47 Id. at 3–4.
48 Id. at 4. These enforcement priorities were originally outlined in the 2013 Cole Memorandum. 2013 Cole Memorandum, supra
note 14.
49 FinCEN Marijuana Guidance 2014, supra note 14, at 4–5.
50 Id. at 5–7. Some examples of “red flags” noted in the guidance are: “[t]he business is unable to produce satisfactory
documentation or evidence to demonstrate that it is duly licensed and operating consistently with state law”; and “[a] customer
seeks to conceal or disguise involvement in marijuana-related business activity.” Id. at 6.
51 Marijuana Banking Update, DEP’T OF TREASURY, FINCEN,
https://www.fincen.gov/sites/default/files/shared/277157%20EA%202nd%20Q%20MJ%20Stats_Public.pdf (last visited Feb. 12,
2019).
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institutions are providing marijuana businesses.52 Moreover, it remains uncertain whether these depository
institutions are directly serving businesses that are actually involved in cultivating and selling marijuana,
or are only serving entities that are indirectly involved in the marijuana business, such as landlords
renting office space to marijuana businesses.53
Overview of the SAFE Banking Act
The discussion draft of the SAFE Banking Act54 would not remove marijuana from the CSA schedules or
move marijuana from Schedule I to a different schedule. As a result, even if the SAFE Banking Act
became law, it would continue to be a federal crime to grow, sell, or merely possess the drug.55 Instead,
the legislation would appear to attempt:
to constrain federal banking regulator56 authority to penalize depository institutions57 for
providing financial services to marijuana businesses operating in compliance with state or
local laws;58 and
to protect depository institutions and their personnel from some legal liability under the
CSA, anti-money laundering laws, and other federal laws when providing financial
services to, or investing proceeds derived from serving, marijuana businesses operating in
compliance with state or local laws.
More specifically, Section 2 of the draft bill would, among other things, prohibit federal banking
regulators from “terminat[ing] or limit[ing] the deposit insurance or share insurance . . . solely because
the depository institution provides or has provided financial services to a cannabis-related legitimate
business” or “prohibit[ing], penalize[ing], or otherwise discourage[ing] a depository institution from
providing financial services to a cannabis-related legitimate business.”59 The draft bill would define
“cannabis-related legitimate business” generally to mean entities engaged in marijuana-related business
activities “pursuant to” state and local laws.60
52 Robert Rowe, Compliance and the Cannabis Cunundrum, ABA BANKING J. (Sept. 11, 2018),
https://bankingjournal.aba.com/2018/09/compliance-and-the-cannabis-conundrum/ (“According to FinCEN, by the end of the
third quarter 2017, it had received nearly 40,000 SARs reporting activity associated with a marijuana-related business. The great
majority of those were marijuana limited SARs, indicating that the industry continues to offer some level of services to the
cannabis industry. No one knows, though, how extensive those offerings are or what kinds of banking relationships do exist.
Anecdotal reporting suggests it is very limited.”).
53 Id.
54 Discussion Draft of the Secure And Fair Enforcement Banking Act of 2019, dated February 6, 2019, 10:58 a.m. [hereinafter
SAFE Banking Act].
55 See 21 U.S.C. §§ 841–90.
56 The bill would define “Federal banking regulator” to be the Federal Reserve Board, OCC, FDIC, CFPB, “or any other Federal
agency or department that regulates banking or financial services, as determined by the Secretary of the Treasury.” SAFE
Banking Act § 8(5).
57 The draft bill would define “depository institution” to mean state and federal credit unions and banks, savings associations, and
any other “depository institution” as defined by 12 U.S.C. § 1813(c). SAFE Banking Act § 8(4). Although non-depository
institutions also offer financial services, my testimony, like the SAFE Banking Act, focuses on depository institutions.
58 The draft bill would also apply to marijuana laws and regulations of Indian tribes. For simplicity, references to the term “state”
in relation to the SAFE Banking Act in this testimony encompasses an “Indian Tribe” within “Indian Country” as those terms are
defined in Section 6 of the SAFE Banking Act.
59 SAFE Banking Act § 2.
60 Id. § 8(3).
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Section 3 of the draft bill appears designed to reduce legal liability under federal anti-money laundering
laws for financial institutions serving the marijuana industry.61 Section 3 would clarify that “the proceeds
from a transaction conducted by a cannabis-related legitimate business shall not be considered as
proceeds from an unlawful activity solely because the transaction was conducted by a cannabis-related
legitimate business” for the purposes of federal anti-money laundering laws “and all other provisions of
Federal law.”62
Section 4(a) appears designed to protect depository institutions and their “officers, directors, and
employees” from liability under federal law or regulation based solely on their providing “financial
services to cannabis-related legitimate businesses” “[i]n a State, political subdivision of a State, or Indian
country” that “allows the cultivation, production, manufacture, sale, transportation, display, dispensing,
distribution, or purchase of cannabis pursuant to the law or regulation of” that jurisdiction.63
Similarly, Section 4(b) of the draft bill appears designed to encourage depository institutions to provide
loans to marijuana businesses by providing some protection from asset forfeiture laws.64 Specifically,
Section 4(b) would generally protect depository institutions from “criminal, civil, or administrative
forfeiture of” “a legal interest in the collateral for a loan or another financial service provided to an owner
or operator of a cannabis-related legitimate business” or to entities that rent or sell property to a cannabis-
related legitimate business.65
The draft bill would not expressly eliminate a financial institution’s responsibility to file SARs associated
with marijuana-related transactions. Instead, Section 6 of the draft bill would require FinCEN to issue
guidance on marijuana-related suspicious activity reporting requirements that “is consistent with the
purpose and intent of the SAFE Banking Act.”66 The draft bill would also require banking regulators to
“develop uniform guidance and examination procedures for depository institutions that provide financial
services to cannabis-related legitimate businesses.”67
Impact the SAFE Banking Act Might Have on
Depository Institutions Serving Marijuana Businesses
It is unclear how enactment of the SAFE Banking Act would affect the financial services industry. The
discussion draft of the SAFE Banking Act, if enacted, might reduce some legal and financial risks that
financial institutions face when serving the marijuana industry, but significant risks likely would remain.
The remaining risk of providing financial services to marijuana businesses will likely depend on factors
that are unknowable at this time.
For example, federal banking regulators have strong and flexible enforcement powers that they may
exercise to ensure depository institutions comply with state and federal laws,68 and some discretion in
61 Id. § 3.
62 Id. The draft bill’s liability provisions in Section 3 would appear to extend to marijuana-related transactions generally,
regardless of whether a depository institution is involved.
63 See SAFE Banking Act § 4(a).
64 Id. § 4(b).
65 Id.
66 Id. § 6 (amending 31 U.S.C. § 5318(g)).
67 Id. § 7. Section 5 of the bill would expressly provide that depository institutions would not be required to provide services to
marijuana businesses. Id. § 5.
68 See supra notes 34–40 and surrounding text.
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how they interpret and enforce the laws within their jurisdictions.69 The draft bill also contains a number
of potentially ambiguous provisions that might be subject to multiple reasonable interpretations.
Consequently, a depository institution’s decision on whether to serve the marijuana industry likely will
depend on the supervisory and enforcement guidance banking regulators provide for the SAFE Banking
Act.70 Moreover, there is always the possibility that the SAFE Banking Act could spark litigation between
financial institutions that serve marijuana businesses and their regulators, meaning that the Act’s effect
may ultimately depend on how courts interpret its language.
For instance, Section 2 of the draft bill would generally prohibit banking regulators from “penaliz[ing], or
otherwise discourag[ing] a depository institution from providing financial services to a cannabis-related
legitimate business.”71 However, the draft bill does not appear to absolve depository institutions entirely
from their responsibilities to implement customer due diligence and certain other anti-money laundering
program compliance standards when serving marijuana-related businesses. Questions remain regarding
how banking regulators would resolve the tension between ensuring that depository institutions are
effectively evaluating money laundering and other compliance risks while also abiding by the bill’s
proscription on penalizing and discouraging institutions from serving the marijuana industry.
It is also unclear how FinCEN would interpret Section 6 in conjunction with Section 3 for the purpose of
suspicious activity reporting. As explained above, financial institutions generally must file a SAR
regarding financial transactions72 suspected to be derived from “illegal activities.”73 The SAFE Banking
Act does not expressly eliminate a financial institution’s suspicious activity reporting requirements
associated with marijuana-related transactions. Instead, Section 6 of the draft bill appears to envision that
financial institutions would continue to be required to file SARs on marijuana businesses in accordance
with “appropriate guidance issued by FinCEN,” which must be “consistent with the purpose and intent of
the SAFE Banking Act of 2019.”74 Additionally, Section 3 of the draft bill provides that the proceeds from
transactions with “cannabis-related legitimate business” no longer constitute proceeds of “unlawful
activity” for purposes of “all . . . provisions of Federal law.”75 If the proceeds of such covered transactions
are no longer unlawful under the SAFE Banking Act, could FinCEN determine that financial institutions
would no longer have to file SARs associated with marijuana-related transactions?
It is also unclear how banking regulators would respond to issues that are not explicitly addressed by the
draft bill. For instance, in order to process customer debit or credit card payments and to transfer funds
electronically, depository institutions generally need access to the Federal Reserve’s payment system
69 See generally CRS Report R43708, The Take Care Clause and Executive Discretion in the Enforcement of Law, by Todd
Garvey, and CRS Report R43710, A Primer on the Reviewability of Agency Delay and Enforcement Discretion, by Todd Garvey.
70 Financial institutions might also desire guidance from DOJ, FinCEN, and state criminal law enforcement agencies.
71 SAFE Banking Act § 2.
72 “Transaction” is defined as:
means a purchase, sale, loan, pledge, gift, transfer, delivery, or other disposition, and with respect to a financial
institution includes a deposit, withdrawal, transfer between accounts, exchange of currency, loan, extension of
credit, purchase or sale of any stock, bond, certificate of deposit, or other monetary instrument, security,
contract of sale of a commodity for future delivery, option on any contract of sale of a commodity for future
delivery, option on a commodity, purchase or redemption of any money order, payment or order for any money
remittance or transfer, purchase or redemption of casino chips or tokens, or other gaming instruments or any
other payment, transfer, or delivery by, through, or to a financial institution, by whatever means effected.
31 C.F.R. § 1010.100(bbb).
73 See, e.g., 31 CF.R. § 1020.30 (banks).
74 SAFE Banking Act § 6.
75 Id. § 3.
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through a master account at a regional Federal Reserve Bank.76 In the past, at least one Federal Reserve
Bank had refused to approve an application for a master account for a credit union that openly proposed
to serve marijuana businesses in violation of federal law.77 The draft bill does not explicitly address access
to the Federal Reserve’s payment system. Refusing to approve master account applications because a
depository institution intends to serve marijuana businesses could arguably qualify as an action
“discourag[ing]” depository institutions from providing financial services to marijuana businesses within
the meaning of Section 2 of the SAFE Banking Act. However, the precise scope of that provision would
be left to the Federal Reserve and the courts to determine.
Even if the SAFE Banking Act became law, financial institutions that provide services to the marijuana
industry would likely continue to have a legal obligation to ensure that the businesses they serve comply
with a complex and not fully consistent web of relevant state and local marijuana laws.78 Furthermore,
because the draft bill would not decriminalize marijuana under the CSA, marijuana businesses and their
officers, directors, and employees could still face federal criminal prosecution, criminal fines, and asset
forfeiture.79 Thus, financial institutions would likely continue to face significant financial risks when
providing services to marijuana businesses because of the potential legal exposure of such businesses. For
example, a marijuana business owner might have trouble repaying a bank loan if he is subject to criminal
prosecution, criminal fines, and asset forfeiture proceedings for violating the CSA. Although Section 4(b)
of the draft bill might protect against the forfeiture of a depository institution’s legal interest in assets
securing financial transactions, those protections would not necessarily guarantee that a depository would
not, for example, suffer losses on a defaulted secured loan. As a result, compliance costs associated with
serving the marijuana industry might be significantly higher than costs associated with more typical
business industries.80 In light of these legal and financial risks, banking regulators might consider
imposing heightened or particularized examination procedures, anti-money laundering due diligence
standards, or other regulatory measures on depository institutions serving marijuana businesses. However,
76 See generally Fed. Fin. Inst. Examination Council, Retail Payment System IT Examination Handbook: Payment Instruments,
Clearing, and Settlement, IT HANDBOOK, https://ithandbook.ffiec.gov/it-booklets/retail-payment-systems/payment-instruments,-
clearing,-and-settlement.aspx (last visited Feb. 11, 2019); Level 4 Ventures, Inc., JADE Compliance Sols., & RLR Mgmt.
Consulting Inc., California State Backed Bank Feasibility Study Report, CA. TREASURER, 17 (Dec. 24, 2018),
https://www.treasurer.ca.gov/comm-external-urls/cannabis-feasibility-full-report.pdf (“To be clear, without a master account
issued by the Federal Reserve the bank cannot function. It would have no ability to accept and clear customer checks drawn on
other banks; no ability to issue checks or otherwise make payments other than in cash; and no ability to transfer funds to other
banks.”); Fourth Corner Credit Union v. Fed. Reserve Bank of Kan. City, 154 F. Supp. 3d 1185, 1187 (D. Col. 2016) (“The
newly minted credit union promptly applied to open a “master account” at the Federal Reserve Bank of Kansas City. Despite its
name, the Bank is not a federal agency. Rather, it is a private corporation created by an Act of Congress and run by its own board
of directors. Depository institutions can only access the Federal Reserve payments system through a master account or through a
correspondent bank that has a master account. This access is necessary for the electronic transfer of funds. Simply put, without
this access The Fourth Corner Credit Union is out of business.”), vacated and remanded on other grounds, Fourth Corner Credit
Union v. Fed. Reserve Bd., 861 F.3d 1052 (10th Cir. 2017).
77 Fourth Corner Credit Union v. Fed. Reserve Bd., 861 F.3d 1052 (10th Cir. 2017).
78 See supra “FinCEN Guidance to Financial Institutions” section of this testimony. See also COMMONWEALTH OF MASS. SPECIAL
COMM. ON MARIJUANA, REPORT OF THE SPECIAL SENATE COMMITTEE ON MARIJUANA 75 (Mar. 8, 2016) (“In February, 2014, the
Department of the Treasury’s Financial Crimes Enforcement Network issued guidance concerning how financial institutions can
service marijuana businesses without violating the federal Bank Secrecy Act. Banks must undertake rigorous due diligence and
compliance efforts to ensure a marijuana business is in compliance with all state laws, and to identify any suspicious or criminal
activity. Notwithstanding this guidance, the large national banks have not participated in the industry to this point, perhaps
because dealing with a marijuana business requires a higher level of compliance and effort or because they fear future federal
policy changes could leave them and their customers exposed to risk.”).
79 See SAFE Banking Act § 4(b).
80 REPORT OF THE SPECIAL SENATE COMMITTEE ON MARIJUANA 75 (“Banks must undertake rigorous due diligence and compliance
efforts to ensure a marijuana business is in compliance with all state laws, and to identify any suspicious or criminal activity. . . .
The banks must comply with daunting requirements for due diligence and compliance reporting, which can be time consuming
and expensive.”).
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it is unclear to what extent such additional measures would comply with the proscription on “penaliz[ing],
or otherwise discourag[ing] a depository institution from providing financial services to a cannabis-
related legitimate business” under Section 2 of the draft bill.
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Figure 1. Photo and Biography
David H. Carpenter, Legislative Attorney, Congressional Research Service
Biography
B.A., University of North Carolina at Chapel Hill; J.D., University of North Carolina School of Law.
Member of the North Carolina Bar.
Disclaimer
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