The strained relationship between federal banking regulators and Colorado banks wanting to work with legal-marijuana businesses is easing, the first tangible signal of what many industry watchers hope is a wholesale reversal of a hard-nosed stance against the banking relationship.
Inspectors from federal oversight agencies have quietly told bankers during recent regulatory examinations that they could continue working with pot-related clients as long as the banks closely monitor that relationship, according to interviews with bank attorneys and other industry insiders.
Banks that closely follow federal law enforcement guidelines issued in February on maintaining marijuana business accounts are now seeing examiners “passively approve” of them.
That’s a dramatic shift from past reviews in which bankers have said ended with them being discreetly told to ditch the drug-monied accounts or face unmentioned sanctions.
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“It is our understanding that bank regulators are permitting financial institutions to service the marijuana industry if the financial institution is in compliance with the (February) FinCEN guidance,” said Jenifer Waller, vice president of the Colorado Bankers Association, referring to the Federal Financial Crime Enforcement Network, an arm of the U.S. Department of Justice.
Two attorneys who represent Colorado banks that do business with the marijuana industry confirmed for The Denver Post that some of their clients recently underwent “safety and soundness” examinations that pore through a bank’s policies, practices and accounts.
The result, they said, was the banks received “tacit” and “passive” approval from regulators to continue the banking relationship with marijuana businesses.
Spokesmen at each of the banking regulatory agencies — the Office of the Comptroller of the Currency, the Federal Reserve Bank, the National Credit Union Administration, and the Federal Deposit Insurance Corporation — refused to comment.
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Gov. John Hickenlooper’s office described the development as “hopeful.”
“We’re beginning to see some banks going through the FinCEN guildelines with some fair results, but the industry remains underbanked,” said Andrew Freeman, the governor’s director of marijuana coordination. “Some are actually being able to bank legitimately, but we remain at a point just before cautiously optimistic; we’re hopeful.”
Hickelooper and Washington Gov. Jay Inslee in May jointly urged federal regulators to act, gently reminding them of a promise to offer guidance on banking the marijuana industry once law enforcement gave theirs.
Bank examinations are not public and bank executives are reluctant to speak openly about their relationship with the marijuana industry or banking regulators.
While the softened approach isn’t a wholesale solution to the banking problem — marijuana remains illegal under federal law and banks are prohibited from working with illegal businesses — banks that once were reluctant to take on the accounts are reconsidering, insiders say.
“Once you know the rules, you can play within them,” said Larry Martin, chairman of Bank Strategies in Golden, a bank management consultant. “Regulators allowing for the relationship is a strong step toward that.”
Bankers have said they feared regulators more than prosecutors and have shied from openly allowing marijuana businesses to hold accounts.
“Regulators are in there with more frequency and can issue orders and actions that severely hamper a bank’s ability to do business,” said Martin, the bank consultant. “Regulators carry a big stick and until you understand their expectations it’s very difficult to make a move.”
Examiners in the past figuratively wagged a finger at bankers who accepted marijuana business, urging them to close accounts — warnings that were understood, but never put into writing.
As a result, countless marijuana business owners have seen one account after another closed once a bank learned of the company’s true business purpose, leaving owners to come up with creative names such as “Granny’s Cookies” in order to avoid detection.
“We’ve had so many banks, so many accounts,” said Andy Williams, president and CEO of Medicine Man in Denver. “We keep two bank accounts just because we kept getting kicked out all the time.”
“All we want is a legitimate account that we don’t have a fear of losing,” he said.
Though examiners are letting the accounts slide by, nothing is in writing.
“Examiners appear to be taking a much more practical approach, but it’s still only a passive thumbs up,” said one attorney who sat in with examiners during the periodic reviews and refused to be identified because of confidentiality rules. “They’re not putting it in writing, probably because they’re not sure if (the Justice Department) or others will pull the rugs out from them.”
Federal regulations cover all banking transactions and banking a marijuana business is tantamount to money laundering. That’s put a strain between state and federal laws, making it difficult to manage.
“Any institution serving the industry would be doing so at their own risk,” Waller explained. “Even if bank regulators are permitting the activity, the federal law has not changed and could be enforced, meaning prosecuted, at any time.”
FinCEN in February issued guidelines, not rules, for how banks could work with legal marijuana shops and businesses affiliated with them, such as suppliers and landlords.
The guidelines merely beefed up the paperwork that’s always been required of banks that suspected deposits were tied to illegal drugs or criminal activity. Known as SARs, or suspicious activity reports, banks must file them anytime there’s a question or concern about the origin of a deposit.
Now, banks must file additional SARs that identify a legal marijuana business, its ownership and the relationship between individuals and other businesses. More daunting is that a bank must keep track and monitor their clients to ensure there is nothing nefarious about their business.
Bankers complained that the FinCEN guidelines did not offer immunity from prosecution or more liberal asset seizure laws should a client turn out to be part of a criminal enterprise.
Another of the attorneys who spoke with The Post said he’ll continue to recommend that clients refrain from banking marijuana businesses regardless of what examiners say.
“The risk is something they need to appreciate,” the attorney said. “A wink-wink saying it’s OK, and Department of Justice saying its OK, but that’s just this administration. It remains illegal and until the federal laws are changed, the whole ballgame can switch with a new face in the White House.”
