FinCEN drops new marijuana-related enterprise banking information
The Monetary Crimes Enforcement Community (FinCEN) is a bureau within the U.S. Division of Treasury. Final week, it printed updated Marijuana Related Business (MRB) Metrics. The metrics are present by December 2024. The replace was just a little shocking, within the sense that FinCEN appeared to desert its common reporting of quarterly statistics again in 2022. It could possibly be much less shocking in the event you think about that these publications have at all times been FOIA-driven. Seemingly, FinCEN is simply catching up on some compliance obligations.
The reporting obligations re: hashish transactions appear pointless
The FinCEN metrics mixture information within the type of “suspicious exercise experiences” from banks and credit score unions, with respect to MRBs. As I’ve explained elsewhere:
The time period “MRB” is used pervasively in hashish banking, but this time period just isn’t outlined within the moldering 2014 Financial Crimes Enforcement Network “FinCEN” Guidance. It’s additionally not outlined within the 2020 National Credit Union Administration Guidance on banking hemp-related enterprise (which my legislation agency helped create) or the 2020 FinCEN Guidance on that associated subject.
That snippet is 2 years previous; nevertheless, the FinCEN Steerage continues to be moldering right now. Take into account that when it was printed, solely 4 U.S. states had voted to legalize leisure marijuana, and few, if any, monetary establishments (“FIs”) had been overtly banking the trade. I do know this as a result of we arrange the primary credit score union MRB program in Washington State, again in 2015. So perhaps “moldering” is a euphemistic time period for the FinCEN steering…. Actually, it’s previous as grime.
Anyway, the FinCEN Steerage provides directives to monetary establishments that want to financial institution MRBs, in step with the Division of Justice’s 2014 Guidance Regarding Marijuana Related Federal Crimes. Particularly, FinCEN directed these monetary establishments to detect, monitor and report particular transactions.
The federal authorities has put FIs in a really awkward place on MRBs. Financial institution Secrecy Act / Anti-Cash Laundering (“BSA/AML”) compliance is a major endeavor for FIs even exterior the hashish area. Nevertheless, the FinCEN Steerage bumps issues up a degree by basically deputizing FIs as federal legislation enforcement auditors. FinCEN requires FIs to observe their MRB clients and members, together with what they promote and to whom, and to observe for indicia of adversarial data.
These FI obligations begin instantly and ensue perpetually. Particularly, the FI is required to file an preliminary [Suspicious Activity Report] inside 30 days of onboarding an MRB. The FI should additionally file persevering with SARs each 90 days after that, along with “marijuana restricted”, “marijuana precedence” and “marijuana termination” SAR filings, as wanted, primarily based on any variety of occasions – or suspected occasions – set forth within the 2014 FinCEN Steerage. To say nothing of all of the foreign money transaction experiences (“CTRs”).
These submitting obligations, and all the software program and coaching that goes with them, are incessantly cited by FIs as a main justification for the elevated charges paid by MRBs. Regulation enforcement may hardly be acting on them, however FIs must comply regardless.
I need to emphasize that final sentence right now, as a result of it turns into extra related with every passing yr. Regulation enforcement doesn’t seem to behave on any of this MRB information, now or traditionally. That begs two, associated questions for me: 1) Why are FIs nonetheless required to do that reporting, 11 years on?, and a pair of) Why hasn’t the FinCEN Steerage been up to date, or rescinded?
These questions are rhetorical, after all, except you might be Treasury official, during which case I really want to know! I’m guessing financial institution shareholders and credit score union members would additionally prefer to know, as a result of all of this paper pushing probably has no impact past downward strain on margins. Hashish companies would positively prefer to know, as a result of it’s a giant expense driver for them.
What the current FinCEN information really says
Whereas we wait to listen to again from somebody on the Treasury, I must also take this chance to clarify what FinCEN’s newest dump reveals. These experiences have at all times been considerably useful as a snapshot of the MRB banking market, though that was not their supposed objective.
Listed here are three key takeaways, for me:
- Roughly 80% of SARs are “marijuana restricted” SARs, the place the FI just isn’t reporting suspicious actions. The FI is simply saying “hey, FinCEN, here’s a marijuana transaction!” And FinCEN is doing jack-all about it.
- Roughly 13% of SARs are “marijuana termination” SARs. This can be a submitting that signifies an FI has de-banked somebody. The FI is meant to point in a story portion of the SAR precisely why the consumer or member has been de-banked (which they typically do, in order that FinCEN can do jack-all about it). Additional, if the FI turns into conscious that the MRB is attempting to maneuver to a different FI, it’s supposed to think about alerting that second establishment beneath the Patriot Act’s 314(b) voluntary information sharing. I’m undecided if anybody is doing that.
- Total, the variety of SARs filed by FIs continues to rise, basically doubling from 2015 to 2024. The variety of FIs within the hashish area has additionally risen, however far much less dramatically. Nonetheless, we’re at 182 credit score unions submitting SARs in 2024, and 816 banks going into 2025. This lends credence to my long-standing argument that (fundamental) banking providers can be found to just about everybody within the state-level marijuana area who really needs them, and the larger drawback is fee processing.
In the event you’d like additional perception into this current FinCEN drop, however don’t have the endurance to wade by years of opaque information, I’d suggest this blog post by AML guru Jim Richards. Jim has been monitoring these items diligently for years. Within the meantime, for some associated posts, take a look at the next:
