First Cannabis-related Business SARs Penalty Against a Depository Institution
By: Daniel Cohen, Judie Rinearson, Jeremy McLaughlin
On 21 February 2021, the National Credit Union Administration (NCUA) became the first prudential regulator to issue an administrative order against a depository institution primarily on the basis of noncompliance with the Financial Crimes Enforcement Network’s (FinCEN) “BSA Expectations Regarding Marijuana-related Businesses” (FIN-2014-GOO1) (MRB Guidance). NCUA and Live Life Federal Credit Union entered into a stipulation and a consent to a cease and desist order in which the credit union, without admitting any wrongdoing, agreed to “implement an automated system to effectively monitor and identify all transaction for suspicious activity…includ[ing] functions to support [its] compliance with FinCEN requirements for Marijuana-Related Businesses (“MRB”).”
Additionally, the credit union agreed that its automated monitoring system would include:
- “Reconciliation of MRB Point of Sale…data relative to member deposits;
- Ongoing monitoring of adverse public information affecting MRBs;
- Timely verification of changes in licensure status, including notification of a lapse in an MRB’s state licensure;
- Systematic monitoring of unusual ACH or wire activity for MRB accounts; and
- Monitoring of FinCEN “Red Flags” outlined in” the MRB Guidance.”
The credit union also agreed to immediately file Suspicious Activity Reports (“SARs”), including continuous and initial MRB SARs, and to cease opening new MRB accounts.
Since 2014, federally regulated depository institutions that serve MRB customers have been required to comply with the detailed requirements of the FinCEN MRB Guidance issued in coordination with the Department of Justice’s (DOJ) supplemental MRB guidance (often referred to as the two “Cole Memoranda”). The MRB Guidance addresses, among other things, how to report offenses predicated on marijuana-related violations of the Controlled Substances Act. The DOJ’s guidance has been rescinded but the FinCEN guidance remains in place. New Attorney General Merrick Garland has pledged not to focus on enforcement against state-lawful cannabis companies but has not publicly pledged to reinstate both Cole Memoranda.
Last week, Representatives Ed Perlmutter, Nydia Velazquez, Steve Stivers, and Warren Davidson reintroduced the “Secure and Fair Enforcement (SAFE) Banking Act of 2021.” The bill, a revised version of legislation that passed the House of Representatives last session by a vote of 301-103, would grant depository institutions that provide certain financial services to state-lawful cannabis businesses a safe harbor from sanctions by their federal regulators and protection from liability under federal law. Among other things, it would direct FinCEN to update its MRB guidance and require the FFIEC to develop guidance and examination procedures for depository institutions that service state-lawful cannabis companies. If enacted, this legislation could provide depository institutions needed legal protections and helpful additional clarity regarding their BSA and other federal obligations as they consider working with state-lawful cannabis companies.