By Bob Young
The Seattle Times
In what some hailed as a historic step for legal marijuana, the federal government announced Friday new rules aimed at encouraging banking services for pot businesses in Washington and Colorado.
But because marijuana remains a dangerous illegal drug under federal law, some banks — particularly large ones — may still opt not to provide checking accounts, credit cards and other services to legal pot merchants.
“My general reaction is this is an important step, albeit a first step,” said Denny Eliason, lobbyist for the Washington Bankers Association.
Marijuana advocates, who want to move the legal industry out of its risky, cash-only operations, were more enthused.
Taylor West, deputy director of the National Cannabis Industry Association, called the news “a sweet valentine” for the industry.
While the so-called federal guidance provides a pathway for banks to serve legal pot merchants without being prosecuted, there was agreement among regulators, bankers, lawmakers and pot entrepreneurs that some banks would remain uncomfortable with the federal prohibition of marijuana, or with marijuana itself.
“Those that operate in all 50 states have to deal with different laws and views, so they may have other stakeholder issues,” said Scott Jarvis, director of the state’s Department of Financial Institutions, which oversees the banking industry.
National banks could lose customers in more conservative states by taking on marijuana business. Smaller banks chartered in Washington and Colorado only have to worry about their reputations in those states, Jarvis said.
But even small, local banks could be cowed by the federal guidance handed down by the Justice and Treasury departments.
Federal authorities were clear that banks could be prosecuted if they do business with pot merchants who don’t adhere to eight federal priorities laid out in August by the Department of Justice (DOJ).
“I don’t see banks leaping into the market, given what the memos actually say,” said John Davis, a Seattle pot entrepreneur and director of a local industry group, the Coalition for Cannabis Standards and Ethics.
U.S. Rep. Denny Heck, D-Olympia, said he expects banks and credit unions to walk very slowly into pot commerce.
But Heck, who pushed for the guidance, said the issue isn’t if some banks will opt out, but rather if a few will opt in.
“We don’t need all of them do it. We only need some. I’m confident the growers, processors and retailers will have access to banking,” Heck said.
Banks’ watchdog role
The long-awaited guidance on banking revolves around rules for Suspicious Activity Reports banks are required to file when they suspect money-laundering or other illicit activities.
Under the guidance, banks and credit unions would file one kind of report if they believe pot merchants were engaged in illegitimate activities, and another if they believe the marijuana-related accounts are legal.
It’s too soon to know which banks might be willing to serve the marijuana industry, said Mark MacDonald, president and executive director of the Community Bankers of Washington.
“I can tell you there are banks that have indicated that, given the appropriate assurance, they’re in — they’ll bank this industry,” MacDonald said Friday. “But I can also guarantee that none will go on record this afternoon, until they really understand whether this is assurance or guidelines.”
Banking is about risk management, MacDonald said. And it’s going to be up to bank managers and board members to determine if their risk is acceptable, he said.
The main rub, according to the American Banking Association (ABA), is that guidance can be changed more easily than law, particularly if federal policy toward marijuana changes under a new presidential administration.
ABA officials said they’d be comfortable only if Congress changes federal law to provide them legal protection when dealing with legitimate pot businesses.
A top Treasury Department official tried to allay those concerns.
“The guidance is clear. We’re not looking to have a gotcha enforcement regime,” said Jennifer Shasky Calvery, director of Treasury’s Financial Crimes Enforcement Network. “We’re going to focus on institutions that willfully act in contravention of guidance, not some technical mishap.”
Complicated issues
But pot commerce presents practical challenges for banks, short of being prosecuted. Severing a relationship with a customer suspected of illicit activities is not as easy as just closing an account. “You don’t just close a loan,” said MacDonald of the local bankers group. What if real estate is involved? That would complicate matters, he said.
A spokeswoman for the 106 credit unions in Washington noted that decisions are not made by trade groups and associations.
Ultimately, it’s up to individual banks and credit unions to determine what’s in their best interest, said Lynn Heider, of the Northwest Credit Union Association.
John Zmolek, CEO of Verity Credit Union in Seattle, said his members might be interested in pot commerce, but it’s not an easy call.
Verity jumped into the medical-marijuana business, Zmolek said, and had about 15 accounts. But last year state regulators reminded Verity it faced risks with those accounts because of federal law.
Verity decided it couldn’t continue serving the accounts, he said.
Zmolek said the credit union will analyze the federal guidance closely before trying again to serve pot entrepreneurs. “Having jumped in once and having to pull out, we don’t want to do that again,” he said.
The new rules would apply to licensed recreational-pot businesses in Washington. They appear to exclude medical marijuana, which does not fall under a state licensing system.
Heck agreed the best way to resolve the concerns of financial institutions is for Congress to change federal law. He and Colorado Congressman Ed Perlmutter have sponsored a bill to do so, but it has not received a committee hearing.
It’s going to take a while, he said, as only 20 states have medical marijuana and just two allow recreational weed.
“It will depend on how many states adopt recreational or medical marijuana, which depends on how effective we are in establishing a well-regulated market,” Heck said. “Today’s announcement is one giant step forward in enabling us to do it right.”
