Founders of the world’s first credit union for the marijuana industry say federal banking officials had no authority to deny their application to access the nation’s money system, according to a lawsuit.
The Federal Reserve Bank of Kansas City lacks any discretion to deny an application for a federal master account — a simple procedure that normally takes a week, but in the case of Denver-based Fourth Corner Credit Union took nine months and resulted in denial, the lawsuit claims.
The credit union applied for the account late last year, after receiving a state charter, which typically opens the door to automatic approval. The credit union simultaneously applied for deposit insurance with the National Credit Union Administration, which also denied its application.
Credit union coverage
In a separate lawsuit against NCUA, the credit union says the agency conspired with the Federal Reserve Bank to deny its applications by sharing information on its confidential applications and rendering the decisions two weeks apart.
Both lawsuits were filed in U.S. District Court in Denver.
The Fed’s denial relied in large part on NCUA’s action.
“The NCUA and FRB-KC acted in concert to unlawfully block (Fourth Corner) from gaining access to the Federal Reserve payments system,” the lawsuit alleges.
An NCUA spokesman said the agency was reviewing the lawsuit. The Federal Reserve Bank refused comment.
Though NCUA has a review process to determine whether to offer insurance coverage to applicants, the Fed does not and approval of a master account is merely procedural, according to the lawsuit.
In its claim, Fourth Corner notes that eligibility to apply for NCUA insurance — not actual insurance — is all that is required for a master account. Besides, state officials have the discretion to let credit unions seek private insurance, though that hasn’t happened in Colorado for decades.
The lawsuits are the latest in the credit union’s efforts at becoming the first sanctioned financial institution in the world to cater specifically to the marijuana industry.
Marijuana banking issues
Fourth Corner argues the Fed is discriminating by allowing other banks to have master accounts and work with marijuana businesses so long as they comply with federal guidelines that were issued in February 2014. Similarly, NCUA allows other credit unions it insures to work with the marijuana industry, subject to the rules, the lawsuit says.
Those federal guidelines require banks to file detailed paperwork on customers whose deposits derive from the legal marijuana trade.
Marijuana is illegal under federal law and banks that work with the industry are technically laundering money. But the Financial Crimes Enforcement Network branch of the U.S. Department of Justice laid out a system in which banks can take on pot businesses so long as they keep detailed records of those transactions.
Still, many banks refuse cannabis clients because there are no guarantees against federal prosecution if they unwittingly work with a business that has criminal ties.
Fourth Corner hired anti-money-laundering experts and devised detailed business plans for how it would bank Colorado marijuana businesses, as well as those who supported it or had any tangential dealings with them — the definition of a credit union.
The lengthy lawsuits — one is 46 pages and the other 78 — lay out months of frustration in dealing with the Fed and NCUA, including a number of e-mails that required Fourth Corner to provide information not required by law from other similarly situated applicants.
NCUA told the credit union on July 2 that it was denying its application because “fundamental concerns about the inherent risks of (the credit union’s) business model remain unresolved.”
Risks to the more than 6,000 credit unions NCUA insures through a shared fund were simply too big, the agency said, according to the lawsuit.
David Migoya: 303-954-1506, firstname.lastname@example.org or twitter.com/davidmigoya