Source: https://www.keytlaw.com/arizonamedicalmarijuanalaw/category/banking-issues/
Timestamp: 2019-04-23 11:57:37+00:00

Document:
Under the August 29 guidance, whether marijuana-related conduct implicates one or more of these enforcement priorities should be the primary question in considering prosecution under the CSA. Although the August 29 guidance was issued in response to recent marijuana legalization initiatives in certain states, it applies to all Department marijuana enforcement nationwide. The guidance, however, did not specifically address what, if any, impact it would have on certain financial crimes for which marijuana-related conduct is a predicate.
The provisions of the money laundering statutes, the unlicensed money remitter statute, and the Bank Secrecy Act (BSA) remain in effect with respect to marijuana-related conduct. Financial transactions involving proceeds generated by marijuana-related conduct can form the basis for prosecution under the money laundering statutes (18 U.S.C. §§ 1956 and 1957), the unlicensed money transmitter statute (18 U.S.C. § 1960), and the BSA. Sections 1956 and 1957 of Title 18 make it a criminal offense to engage in certain financial and monetary transactions with the proceeds of a “specified unlawful activity,” including proceeds from marijuana-related violations of the CSA. Transactions by or through a money transmitting business involving funds “derived from” marijuana-related conduct can also serve as a predicate for prosecution under 18 U.S.C. § 1960. Additionally, financial institutions that conduct transactions with money generated by marijuana-related conduct could face criminal liability under the BSA for, among other things, failing to identify or report financial transactions that involved the proceeds of marijuana-related violations of the CSA. See, e.g., 31 U.S.C. § 5318(g). Notably for these purposes, prosecution under these offenses based on transactions involving marijuana proceeds does not require an underlying marijuana-related conviction under federal or state law.
As noted in the August 29 guidance, the Department is committed to using its limited investigative and prosecutorial resources to address the most significant marijuana-related cases in an effective and consistent way. Investigations and prosecutions of the offenses enumerated above based upon marijuana-related activity should be subject to the same consideration and prioritization. Therefore, in determining whether to charge individuals or institutions with any of these offenses based on marijuana-related violations of the CSA, prosecutors should apply the eight enforcement priorities described in the August 29 guidance and reiterated above. Footnote 1. For example, if a financial institution or individual provides banking services to a marijuana-related business knowing that the business is diverting marijuana from a state where marijuana sales are regulated to ones where such sales are illegal under state law, or is being used by a criminal organization to conduct financial transactions for its criminal goals, such as the concealment of funds derived from other illegal activity or the use of marijuana proceeds to support other illegal activity, prosecution for violations of 18 U.S.C. §§ 1956, 1957, 1960 or the BSA might be appropriate. Similarly, if the financial institution or individual is willfully blind to such activity by, for example, failing to conduct appropriate due diligence of the customers’ activities, such prosecution might be appropriate. Conversely, if a financial institution or individual offers services to a marijuana-related business whose activities do not implicate any of the eight priority factors, prosecution for these offenses may not be appropriate.
The August 29 guidance rested on the expectation that states that have enacted laws authorizing marijuana-related conduct will implement clear, strong and effective regulatory and enforcement systems in order to minimize the threat posed to federal enforcement priorities. Consequently, financial institutions and individuals choosing to service marijuana-related businesses that are not compliant with such state regulatory and enforcement systems, or that operate in states lacking a clear and robust regulatory scheme, are more likely to risk entanglement with conduct that implicates the eight federal enforcement priorities. Footnote 2. In addition, because financial institutions are in a position to facilitate transactions by marijuana-related businesses that could implicate one or more of the priority factors, financial institutions must continue to apply appropriate risk-based anti-money laundering policies, procedures, and controls sufficient to address the risks posed by these customers, including by conducting customer due diligence designed to identify conduct that relates to any of the eight priority factors. Moreover, as the Department’s and FinCEN’s guidance are designed to complement each other, it is essential that financial institutions adhere to FinCEN’s guidance. Footnote 3. Prosecutors should continue to review marijuana-related prosecutions on a case-by-case basis and weigh all available information and evidence in determining whether particular conduct falls within the identified priorities.
As with the Department’s previous statements on this subject, this memorandum is intended solely as a guide to the exercise of investigative and prosecutorial discretion. This memorandum does not alter in any way the Department’s authority to enforce federal law, including federal laws relating to marijuana, regardless of state law. Neither the guidance herein nor any state or local law provides a legal defense to a violation of federal law, including any civil or criminal violation of the CSA, the money laundering and unlicensed money transmitter statutes, or the BSA, including the obligation of financial institutions to conduct customer due diligence. Even in jurisdictions with strong and effective regulatory systems, evidence that particular conduct of a person or entity threatens federal priorities will subject that person or entity to federal enforcement action, based on the circumstances. This memorandum is not intended, does not, and may not be relied upon to create any rights, substantive or procedural, enforceable at law by any party in any matter civil or criminal. It applies prospectively to the exercise of prosecutorial discretion in future cases and does not provide defendants or subjects of enforcement action with a basis for reconsideration of any pending civil action or criminal prosecution. Finally, nothing herein precludes investigation or prosecution, even in the absence of any one of the factors listed above, in particular circumstances where investigation and prosecution otherwise serves an important federal interest.
1. The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) is issuing concurrent guidance to clarify BSA expectations for financial institutions seeking to provide services to marijuana-related businesses. The FinCEN guidance addresses the filing of Suspicious Activity Reports (SAR) with respect to marijuana-related businesses, and in particular the importance of considering the eight federal enforcement priorities mentioned above, as well as state law. As discussed in FinCEN’s guidance, a financial institution providing financial services to a marijuana-related business that it reasonably believes, based on its customer due diligence, does not implicate one of the federal enforcement priorities or violate state law, would file a “Marijuana Limited” SAR, which would include streamlined information. Conversely, a financial institution filing a SAR on a marijuana-related business it reasonably believes, based on its customer due diligence, implicates one of the federal priorities or violates state law, would be label the SAR “Marijuana Priority,” and the content of the SAR would include comprehensive details in accordance with existing regulations and guidance.
2. For example, financial institutions should recognize that a marijuana-related business operating in a state that has not legalized marijuana would likely result in the proceeds going to a criminal organization.
3. Under FinCEN’s guidance, for instance, a marijuana-related business that is not appropriately licensed or is operating in violation of state law presents red flags that would justify the filing of a Marijuana Priority SAR.
Wall St. Journal: “Buying marijuana for recreational use now is legal in Colorado—and paying for it with plastic is getting easier. The official rules of Visa Inc.and MasterCard Inc. prohibit the use of their debit and credit cards for marijuana purchases, but some Colorado merchants are allowing customers to use them anyway. That is because the card giants, owners of the processing networks that handle electronic payments, have quietly decided not to enforce their rules, according to people familiar with their strategies.
Let the litigation begin. The Arizona Department of Health Services had 120 days to create the rules to implement Arizona’s medical marijuana law. During that time DHS produced FOUR versions of its rules, but it saved its three improvised explosive devices until the 120th day. When the smoke clears from the DHS final rule bombs and allows would-be dispensaries to check their damage, many will find that they are too crippled to continue the race to the dispensary license finish line.
The legal significance of this new rule is that the decision on which entity will get a dispensary license will be determined at the city or local zoning level. The rule does not give any guidance on what it means to be “in compliance with any local zoning restrictions.” Each local zoning authority will decide the conditions on which it will give its zoning comfort letter. The zoning authorities are able to give one comfort letter per CHAA if they so desire. Any would-be dispensary that fails to get a zoning comfort letter by June 30, 2011, is precluded from filing an application to get a dispensary license. Each local zoning authority is now free to determine who will get its zoning comfort letter. This new rule is an abrogation of DHS’ duty to select the qualified dispensaries and a shameful dereliction of its duty.
For a an actual example of how the cities are now able to select who will own a medical marijuana dispensary within their jurisdictions, see “Fountain Hills Faces Medical-marijuana Challenge.” Fountain Hills has only accepted one zoning application so no other would-be dispensaries will be able to operate in Fountain Hills. Result: Fountain Hills will determine who owns the dispensary in Fountain Hills, not DHS.
Once again would be dispensaries will be engaged in a mad scramble to get a comfort letter from a landlord. Many will not be successful or will be successful only at great expense in time and money. Most landlords will demand real money to get a letter. Few will give away comfort letters. A commercial real estate broker who has been successful in getting leases for would-be dispensaries told me today that some landlords are demanding $5,000 to give a tenant a comfort letter for the purpose of getting local zoning approval. He also said that he has seen rents for dispensaries as high as $27 a foot, which is more than the going rate for class A office space in the Camelback corridor.
I predict that no prudent landlord will simply issue a comfort letter that satisfies the vague language in the new rule. I am a real estate lawyer and if I were advising a landlord and asked to draft a comfort letter that said the landlord will give the dispensary permission to lease the premises for a medical marijuana dispensary, I would put in language the makes it clear that the letter does not create a legal obligation on the part of the landlord to lease the premises to the dispensary. Without actually having a signed lease with the dispensary, every landlord should be concerned that a comfort letter does not obligate the landlord to lease the premises. I would also advise my landlord client to charge a substantial fee to get a comfort letter.
Query: If the landlords issue comfort letters that clearly state they are not binding on the landlord, then what is the purpose of requiring the prospective dispensaries to get the comfort letter? Maybe I’ve missed something, but the only reason I can see for this new requirement is to reduce the number of applicants for dispensary licenses and increase the applicants’ costs of doing business. Landlords once again have the upper hand which means the dispensaries will pay higher rents and the patients will pay more for their medicine.
In-state financial institution” means the same as in A.R.S. § 6-101. Out-of-state financial institution” means the same as in A.R.S. § 6-101.
A client asked me the if Charles Schwab or Merrill Lynch are “out-of-state financial institutions? A.R.S. § 6-101 states that “Out-of-state financial institution means a state or federal bank, savings bank, savings and loan association or holding company with its home office in a state other than this state.” I don’t believe these types of institutions are banks or S & Ls, but could they be “holding companies?” I have no clue what the term “holding company” means. It appears, however, that a person who has sufficient assets in Merrill Lynch or a similar financial institution could not use that type of entity as an out of state financial institution for the purposes of this new rule.
This rule is outrageous, unreasonable, unfair and just plain wrong. Whether or not the reasoning behind the rule is good is something we could debate, but that is not my problem with the rule. I despise this rule because it is much too late in the process to issue the rule and simply not enough time for many prospective dispensaries to be able to comply with this new rule issued on the last day of the 120 days DHS had to finalize its rules.
The last day applicants may submit applications for dispensary registration certificates is June 30, 2011.
Note carefully requirement number 3. It could be a nuclear bomb! Either the entity applicant or A PRINCIPAL OFFICER OF THE ENTITY (whichever one actually has the funds) must show that it/he/she has had control of the $150,000 for at least 30 days before the dispensary application is submitted to DHS.
Bottom line: DHS may have just opened the litigation flood gates and may have cost the State of Arizona mega-millions in damages for promulgating unreasonable rules that have no basis in Proposition 203.
What do you think? What am I missing? Am I wrong. Add your comments below.
Medical pot banned in parts of S.J.
Will Some Banks Refuse to Give My Dispensary a Bank Account?
Question: I’ve formed my nonprofit entity and want to open a bank account in the name of the entity. Will my bank refuse to open an account because the business is growing and selling medical marijuana?
Answer: Maybe. If your entity has the word “marijuana” in its name, you may be dead in the water with many banks. Unfortunately, many banks and credit unions refuse to do business with a medical marijuana business. You may have to search to find a bank that is willing to open an account for your medical marijuana business.
“dispensary operators are finding it increasingly difficult to maintain accounts with financial institutions, due to what a spokesman for Chase bank called, ‘financial operational and compliance risk.’ Thus, it seems clear that legitimate state-legal businesses are being denied access to banking services, which does not serve the public interest. Among other concerns, the effects of this denial of service include: (1) an increased risk to public safety with potential theft or robbery that any cash-only or cash-reliant business faces; (2) a decreased likelihood that medical marijuana vendors will have the ability to accurately account for tax liability; and (3) an affront to fundamental fairness. since forcing businesses to operate with cash exposes the owners to greater legal risk under the Bank Secrecy Act.
By Richard Keyt|2015-04-06T18:49:24+00:00December 28th, 2010|Banking Issues, Questions People Ask|Comments Off on Will Some Banks Refuse to Give My Dispensary a Bank Account?

References: § 1960
 § 1960
 § 5318
 § 6
 § 6
 § 6