Federal government issues roadmap to banks on legal marijuana business (updated)

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The federal government is giving banks a roadmap for doing business with marijuana sellers.

It's another step toward enabling a legalized marijuana industry to operate in the United States.

The Justice and Treasury departments issued new guidance on Friday. It's intended to increase availability of financial services for legal marijuana businesses. But it still preserves the government's power to enforce criminal laws.

The guidance comes after Washington and Colorado became the first states in the nation to approve recreational use of marijuana. A citizens' group is hoping to make Alaska the third state to do so.

In January, U.S. Attorney General Eric Holder discussed some of the issues regarding legalized marijuana businesses that are generating large amounts of cash that want to use the banking system. His comments were made at the University of Virginia Miller Center Forum in a Q&A.

"Huge amounts of cash, substantial amounts of the cash, just kind of lying around with no place for it to (be) appropriately deposited is something that would worry me from just a law enforcement perspective," Holder said.

Banks are skeptical

Frank Keating, president and CEO of trade group American Bankers Association said the guidance “doesn’t alter the underlying challenge for banks.”

“As it stands, possession or distribution of marijuana violates federal law, and banks that provide support for those activities face the risk of prosecution and assorted sanctions,” Keating said in a statement to KPCC.

Prasad Krishnamurthy, assistant professor of law at the UC Berkeley School of Law, said he doesn’t think large national bank chains will enroll legalized marijuana businesses as clients for now because of the risk involved. Banks could face fines if they are in violation of the Bank Secrecy Act (BSA), Krishnamurthy said. The BSA requires banks to help the federal government detect and prevent money laundering.

“The risk is not worth the money yet,” Krishnamurthy said.

In the guidance, the federal government says banks can be consistent with their BSA obligations by performing their due diligence. That includes verifying whether the legalized marijuana business is licensed and registered with state authorities, developing an understanding of the normal and expected activity of the business and "ongoing monitoring of publicly available sources for adverse information about the business and related parties," among other requirements.

Banks would have to consider whether they want to allocate the resources to track that.

But there could be an opening for new banking efforts for marijuana businesses, Krishnamurthy said, noting that possibilities include banks that are non-FDIC insured that focus on legal marijuana businesses.

Read the full guidance document, "BSA Expectations Regarding Marijuana-Related Businesses":

This story has been updated.

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