Federal Reports Target Colorado Marijuana Money

COLORADO: The federal government is stockpiling hundreds of “suspicious activity reports” that could provide federal agents with sufficient evidence to shut down any state-legalized marijuana business.

While it may appear that federal authorities have taken a wait-and-see approach to marijuana legalization in the 23 states that now allow medical or recreational use, these reports are poised like a blade over the budding industry should federal laws be enforced.

This risk of federal prosecution has led some cannabis companies to literally launder their money.

“You used to be able to just smell it,” said Jennifer Waller, vice president of the Colorado Bankers Association, speaking of the cash from marijuana shops. “But now they are using Febreze a lot, putting the money in dryers, a lot of different things to try to disguise the scent because marijuana has such a distinct odor.”

That distinct odor is considered a red flag by federal authorities who require banks to file a suspicious activity report for every transaction that might be associated with illegal activity, including selling marijuana, even for state licensed businesses.

More Than 100 Banks, Credit Unions Serving Pot Businesses: Feds

DISTRICT OF COLUMBIA: There are 105 U.S. financial institutions providing banking services to marijuana dispensaries and other pot businesses, a top federal official is expected to reveal in a speech Tuesday.

The speech provides the most detailed look yet at the impact of marijuana guidance the Financial Crimes Enforcement Network issued to banks and credit unions in February, though it’s unlikely to resolve the lingering doubts that many banks still have.

Marijuana shops, which generate large amounts of cash and can be targets of thieves, have been lobbying for more access to the mainstream financial system. The guidelines were meant to encourage financial institutions to do business with the industry provided they met certain criteria, and Fincen Director Jennifer Shasky Calvery is expected to declare that the agency’s goal has been achieved.

“From our perspective the guidance is having the intended effect,” Shasky will say, according to a copy of her prepared remarks that Fincen provided to American Banker. “It is facilitating access to financial services, while ensuring that this activity is transparent and the funds are going into regulated financial institutions.”

However, the speech does not say whether the guidance has made banks and credit unions any less wary of the risks involved in working with an industry that, while legal in around 20 states, is still banned under federal law. Banks and credit unions may be especially wary of the pot business at a time when many in the financial industry believe that regulators have heightened expectations with regard to their compliance with the Bank Secrecy Act.

When Fincen released its guidance, it sought to walk a fine line between encouraging banks to take the plunge and warning of the consequences if they failed to comply with a detailed series of guidelines.

Shasky is expected to say Tuesday that the 105 banks and credit unions with connections to the pot business are located in states representing more than a third of the country. That compares with 87 financial institutions in Colorado alone that had relationships with marijuana dispensary businesses between June 2011 and September 2012, according to a Fincen report from last year.

The 105 institutions that are currently working with marijuana firms represent less than 1% of all banks and credit unions nationwide.