Do the proceeds of legal pot sales in Colorado constitute money laundering of federally-defined illegal drugs when deposited into commercial bank accounts? That is still a big question for Colorado a year after sales of recreational marijuana were made legal.
A feature story in the New York Times details the dilemma in facing the cash-rich but banking-poor businesses dedicated to the sale of recreational marijuana. The Four Corner Credit Union, which not only has a webpage but also a Facebook page, is in the process of starting up with the express purpose of serving businesses in the marijuana field. And while it has gotten a license from the state of Colorado, it is struggling to secure a master-account agreement with the Federal Reserve bank in Denver.
The problem, of course, lies in the current conflict between state law and federal law. On a federal level, marijuana remains classified as a Schedule 1 drug, like LSD, heroin, or methamphetamine. The question of whether state or federal law prevails is complicated by the fact that it is the type of commerce that can impact neighboring states, and so federal law tends to apply. And even though the federal government has remained quiet on the easing of marijuana laws by states, it hasn’t changed the Schedule 1 classification at the federal level.
The situation gained additional nuance by the Treasury and Justice Department’s 2014 guidelines (“BSA Expectations Regarding Marijuana-Related Businesses) suggesting that federal prosecutors would focus on marijuana-related financial crimes with a harder edge and more dire consequences such as crimes involving minors, gun violence, illegal cross-border operations, use of public lands, and so on.
And while that was an intimation that Colorado-legal pot growers and distributors would not be a federal priority, it certainly was not a guarantee to banks that they would not be held accountable or liable for entering client relationships related to proceeds from marijuana businesses. There also remained the question about whether and how these types of relationships would affect the filings of SARs and so on.
A Federal Reserve master account for the Four Corner Credit Union would no doubt help legitimize such banking relationships for legal businesses in Colorado, but whether that will be granted remains to be seen.