Banking Marijuana Policy - Sterling Compliance LLC



3705225-200025centercenterBanking Marijuana PolicySAMPLEDeveloped: March 2018Last Revised: January 20198820090900Banking Marijuana PolicySAMPLEDeveloped: March 2018Last Revised: January 2019Contents TOC \o "1-3" \h \z \u Background and Policy Statement PAGEREF _Toc536644976 \h 2Touch Tiers | Defining MRBs PAGEREF _Toc536644977 \h 3Customer Due Diligence PAGEREF _Toc536644978 \h 3Providing Financial Services to Marijuana-Related Businesses PAGEREF _Toc536644979 \h 4Cole Memo Priorities PAGEREF _Toc536644980 \h 4SARs for Marijuana-Related Businesses PAGEREF _Toc536644981 \h 5Red Flags to Distinguish Priority SARs PAGEREF _Toc536644982 \h 6Currency Transaction Reports and Form 8300 PAGEREF _Toc536644983 \h 8Staff Awareness & Training PAGEREF _Toc536644984 \h 8Board Reporting PAGEREF _Toc536644985 \h 8Risk-Assessment PAGEREF _Toc536644986 \h 8Employee Acknowledgement PAGEREF _Toc536644987 \h 9Background and Policy StatementThe Controlled Substances Act (CSA) makes it illegal under federal law to manufacture, distribute or dispense marijuana. Many states impose and enforce similar prohibition. Notwithstanding the federal ban, 29 states and the District of Columbus have legalized the use of medical marijuana, while 6 states have also legalized the use of recreational marijuana. Because of the disconnect between federal and state laws concerning marijuana manufacture, distribution, dispensary and use, former United States Deputy Attorney General James M. Cole issued a memorandum (Cole Memo) to all U.S. Attorneys providing guidance to federal prosecutors concerning marijuana enforcement under the CSA. The Cole Memo guidance applied to all Department of Justice enforcement activity, including civil enforcement and criminal investigations and prosecutions, concerning marijuana in all states. However, in January 2018, U.S. Attorney General Jeff Sessions announced his decision to rescind this policy, allowing federal prosecutors to bring forth criminal cases against marijuana manufacturers and distributors. The decision to reverse policy, given the growth of the cannabis industry caused confusion among financial institutions about how to do business with marijuana manufacturers, distributors and dispensaries without running afoul of federal money laundering laws. The passage of an $867 billion Farm Bill in December 2018 further complicated the question of cannabis. While the bill primarily reauthorized many of the expenditures in the prior Farm Bill designed to continue current farm and nutrition policy, the bill removed industrial hemp from the Federal government’s list of controlled substances, making it a lawful agricultural commodity. Industrial hemp contains low levels of THC and is used to make apparel, foods, pharmaceuticals, personal care products and building materials. However, prior to the Farm Bill, hemp was considered to be a cousin of marijuana. Given the legalization of industrial hemp, we must address the differences between marijuana-related businesses and industrial hemp. [You will want to make a statement here of your overall policy position regarding MRBs and industrial hemp. This statement should be supported by a comprehensive risk assessment of your existing customer base (i.e. to determine whether you are currently banking any MRBs or customers that are involved in industrial hemp cultivation, processing, or distribution); your risk appetite for banking employees of MRBs or customers that invest in the industry (e.g. maintaining or transferring funds to/from your institution to invest in MRBs); and, the resources you have in place, or need to implement, to appropriately manage the risk of banking MRBs. In making your policy statement, you should also comment on specific products and services. For example, will you offer checking accounts, but no payment services or loans to MRBs, or decline any products/services for MRBs? Further, if you are going to bank MRBs at any tier, it is critical that you include within this policy deposit and lending considerations (i.e. any limits you will impose on cash deposits, types of acceptable collateral, exit strategies for lending relationships should laws change or the MRB become involved in prohibited activities, etc.]Touch Tiers | Defining MRBsIn making the determination of whether, and to what extent, a business’s activity constitutes marijuana-related business, we will consider the following tiers:Tier I: Business activity meets regulatory definition of an MRB (e.g. manufacturer, processor, wholesaler, dispensary, etc.) i.e. business “touches” marijuana at any point from seed to sale. Such a business or farm would also be considered a Tier I MRB if the business or farm manufactures, processes, or distributes illegal hemp (i.e. hemp that contains more than 0.3% THC).Tier II: Business does not generally “touch” marijuana but focuses on providing products and services to Tier I MRBs and the marijuana industry as a whole (e.g. suppliers, security firms, licensing consultants, etc.). Tier III: Business provides products and services to Tier I MRBs incidentally but Tier I MRBs are not the focus (e.g. professional services, landlords, financial services, etc.). Illegal Hemp: Business/farm invests in, cultivates, processes or distributes hemp products that contain more than 0.3% THC or do not otherwise comply with State or Federal legal hemp program guidelines. A business or farm investing in, cultivating, processing or distributing hemp products that contain less than 0.3% THC would be considered engaging in legal hemp activities, assuming that all other criteria established by the State’s legal hemp program are met, and would not be considered a marijuana-related business. Customer Due DiligenceTo determine whether a new or existing customer is engaged in an MRB, we must employ specific customer due diligence. At Account OpeningAt the time of account opening or loan application, we will ascertain whether a prospective customer is engaged in a marijuana-related business, either directly or indirectly, through our Customer Due Diligence Questionnaire. If it appears that a prospective customer engages, directly or indirectly, in an MRB, the BSA Officer is to be contacted. The BSA Officer will follow procedures to further investigate the activity and determine whether the activity meets the definition of an MRB. If the prospective customer’s activity meets the definition of an MRB…[enter your bank’s specific position on whether the account will be opened. You should also discuss any additional documents you may use in conducting this due diligence. An example would be the MRB-specific questionnaire sample provided with this sample policy.]Ongoing MonitoringIf, during our ongoing monitoring as described in the BSA/AML Program, we determine that an existing customer is engaging, directly or indirectly, in an MRB or is engaged in hemp-related business, the BSA Officer shall conduct an investigation to determine the type and extent of MRB or hemp activity. If the activity is determined to meet the definition of an MRB and such activity is in violation of our MRB policy, necessary steps will be taken to exit the relationship. [You will need to adjust the above statement if you may not exit the relationship.]Providing Financial Services to Marijuana-Related BusinessesFinCEN issued guidance (FIN-2014-G001) to clarify how financial institutions can provide services to MRBs consistent with their BSA obligations. In general, the decision to open, close or refuse any particular account or relationship should be made by each financial institution based on a number of factors specific to that institution. These factors may include our particular business objectives, an evaluation of the risks associated with offering a particular product or service, and our capacity to manage those risks effectively. Thorough customer due diligence is a critical aspect of making this assessment.Assessing the Risk of Doing Business with MRBsIn assessing the risk of providing services to MRBs, we must:Verify with the appropriate state authorities whether the business is duly licensed and registered.Review the license application (and related documentation) submitted by the customer for obtaining a state license to operate the MRB.Request from state licensing and enforcement authorities available information about the customer and related parties.Develop an understanding of the normal and expected activity for the customer, including the types of products to be sold and the type of customers to be serviced (e.g. medical versus recreational customers).Determine whether an MRB implicates one of the Cole Memo priorities or violates state law. Monitor publicly available sources for adverse information about the customer and related parties. Refresh information obtained initially, on a periodic basis and commensurate with risk. Cole Memo PrioritiesThe Cole Memo reiterated Congress’s determination that marijuana is a dangerous drug and that the illegal distribution and sale of marijuana is a serious crime that provides a significant source of revenue to large-scale criminal enterprises, gangs and cartels. The Cole Memo stated that the DOJ is committed to enforcement of the CSA consistent with those determinations. It also noted that the DOJ is committed to using its investigative and prosecutorial resources to address the most significant threats in the most effective, consistent and rational way. In furtherance of those objectives, the Cole Memo provided guidance to DOJ attorneys and law enforcement to focus their resources on persons or organizations whose conduct interferes with one or more of the following priorities:Preventing the distribution of marijuana to minors.Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs and cartels.Preventing the diversion of marijuana from states where it is legal under state law in some form to other states.Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity.Preventing violence and the use of firearms in the cultivation and distribution of marijuana.Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use.Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands.Preventing marijuana possession or use on federal property.SARs for Marijuana-Related BusinessesConsistent with FinCEN regulation, if we know, suspect or have reason to suspect that a transaction conducted or attempted by, at, or through our bank involves funds derived from illegal activity or is an attempt to disguise the funds derived from illegal activity, is designed to evade regulations promulgated under the BSA; or, lacks a business of apparent law purpose, a SAR is required.Because federal law prohibits the distribution and sale of marijuana, we would be required to file a SAR on activity involving an MRB, including those licensed under state law, in accordance with FIN-2014-G001 and FinCEN’s suspicious activity reporting requirements and related thresholds.Marijuana-Limited SARsIf we would provide financial services to an MRB that we reasonably believe, based on our customer due diligence, does not implicate one of the Cole Memo priorities or violate state law, we must file a Marijuana-Limited SAR. The content of this SAR should be limited to:Identifying information of the subject and related parties.Addresses of the subject and related parties.The fact that the SAR is being filed solely because the subject is engaged in an MRB.The fact that no additional suspicious activity has been identified.The term “MARIJUANA LIMITED” should be used in the narrative.[You should make a statement about whether SARs will be filed for each tier, or whether you make a distinction of SAR filing between the tiers and those working for businesses or farms in each tier. For example, will you file a marijuana-limited SAR on an employee of a dispensary? Will you file a marijuana-limited SAR on a Tier III MRB or on a physician who is on the approved physician list for your state? It is important for you to define the circumstances under which you will or will not file a SAR. It is our position, that until otherwise clarified by FinCEN or regulatory guidance, that marijuana-limited SARs be filed for each tier, including Tier III, if you believe the funds coming into your bank or flowing out of your bank are derived from MRB activity.]Marijuana-Priority SARsIf we believe that, based on our customer due diligence, an MRB implicates one of the Cole Memo priorities or violates state law, we must file a Marijuana-Priority SAR. The content of this SAR should include:Identifying information of the subject and related parties.Addresses of the subject and related parties.Details regarding the enforcement priorities we believe have been implicated.Dates, amounts and other relevant details of financial transactions involved in the suspicious activity.The term “MARIJUANA PRIORITY” should be used in the narrative.Marijuana-Termination SARsIf we deem it necessary to terminate a relationship with an MRB in order to maintain an effective anti-money laundering compliance program, we must file a SAR and note in the narrative the basis for the termination. We should use “MARIJUANA TERMINATION” in the narrative. To the extent that we become aware that the MRB seeks to move to a second financial institution, we should use Section 314(b) voluntary information sharing to alert the second financial institution of potential illegal activity. [Note: You can only share information under Section 314(b) if you and the other financial institution are appropriately registered to share information]. Red Flags to Distinguish Priority SARsThe following red flags indicate that an MRB may be engaged in activity that implicates one of the Cole Memo priorities or violates the law. These red flags indicate only possible signs of such activity, and do not constitute an exhaustive list.A customer appears to be using a state-licensed MRB as a front or pretext to launder money derived from other criminal activity or derived from activity from marijuana-related activity not permitted under state law. Indicators may include:The business receives substantially more revenue than may be reasonably expected given the relevant limitations imposed by the state in which it operates.The business receives substantially more revenue than its local competitors or than might be expected given the population demographics.The business is depositing more cash than is commensurate with the amount of marijuana-related revenue it is reporting for federal and state tax purposes.The business is unable to demonstrate that its revenue is derived exclusively from the sale of marijuana in compliance with state law, as opposed to revenue derived from the sale of other illicit drugs, the sale of marijuana not in compliance with state law, or other illegal activity.The business makes cash deposits or withdrawals over a period of time that are excessive relative to local competitors or the expected activity of the business.Deposits apparently structured to avoid currency transaction reporting requirements.Rapid movement of funds, such as cash deposits followed by immediate cash withdrawals.Deposits by third parties with no apparent connection to the accountholder.Excessive commingling of funds with the personal account of the business owner(s) or manager(s) or with accounts of a seemingly unrelated business.Individuals conducting transactions for the business appear to be acting on behalf of other undisclosed parties of interest.Financial statements provided by the business are inconsistent with actual account activity.A surge in activity by third parties offering goods or services to MRBs, such as equipment suppliers or shipping services.The business is unable to product satisfactory documentation or evidence to demonstrate that it is duly licensed and operating consistently with the law.The business is unable to demonstrate the legitimate source of significant outside investments.A customer seeks to conceal or disguise involvement in MRB activity (i.e. customer maybe using a business with a non-descript name unrelated to marijuana, but deposits cash that smells like marijuana).Review of publicly available sources and databases about the business, its owner(s), manager(s), or other related parties, reveal negative information, such as a criminal record, involvement in the illegal purchase or sale of drugs, violence or other potential connections to illicit activity.The business, its owner(s), manager(s) or other related parties are, or have been, subject to an enforcement action by the state or local authorities responsible for administering or enforcing marijuana-related laws or regulations.An MRB engages in international or interstate activity, including by receiving cash deposits from locations outside the state in which the business operates, making or receiving frequent or large interstate transfers, or otherwise transacting with persons or entities located in different states or countries.The owner(s) or manager(s) of an MRB reside outside the state in which the business is located.An MRB is located on federal property or the marijuana sold by the business was grown on federal property.An MRB’s proximity to a school is not compliant with state law.An MRB purporting to be a non-profit is engaged in commercial activity inconsistent with that classification or is making excessive payments to its manager(s) or employee(s).Currency Transaction Reports and Form 8300We must report currency transactions in connection with MRBs in the same manner we would in any other context. An MRB may not be treated as a non-listed business under 31 CFR §1020.315(e)(8) and therefore, is not eligible for consideration for CTR exemption.Similarly, any person or entity engaged in a non-financial trade or business would need to report transactions in which they receive more than $10,000 in cash and other monetary instruments for the purchase of goods or services on FinCEN Form 8300 (Report of Cash Payments Over $10,000 Received in a Trade or Business). [If you are doing business with an MRB, you will want to ensure that you have their AML program and discuss whether they are set up to file Form 8300s if presented with more than $10,000 in cash. However, you may find that they have established limits (either internally or set by the State) that do not allow for such sizable cash transactions to be conducted.]Staff Awareness & TrainingAt least annually, all staff must review and acknowledge receipt of this policy. Any newly hired staff must review and acknowledge receipt of this policy prior to engaging in account opening or loan application activities.Board ReportingThe BSA Officer shall provide a report to the Board, no less frequently than annually, discussing the institution’s program for identifying, managing and monitoring the risk associated with MRBs. [Adjust the statement above if you are banking MRBs as Board reporting should be performed more frequently to keep the Board apprised of your activities to monitor MRBs and manage the associated risk.]Risk-AssessmentAt least annually, the BSA Officer and/or his/her designee will perform an assessment of the bank’s exposure to risk related to MRBs. This assessment shall be incorporated into the bank’s BSA/AML Risk Assessment, this is reviewed and approved by the Board of Directors. [Adjust this statement if your MRB Risk Assessment is maintained separately from the BSA/AML Risk Assessment.]Employee AcknowledgementBy signing below, you acknowledge receipt of, and commit to compliance with, this policy.Employee SignatureDate ................
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