01 Apr 2019
House lawmakers have advanced legislation that would prevent US banking regulators from withholding deposit and share insurance from banks solely because they provide services to state-sanctioned cannabis companies.
The House Financial Services Committee on Thursday voted 34-26 to send the Secure and Fair Enforcement Banking Act of 2019 to the full House of Representatives, where it is expected to be approved for Senate consideration.
The measure would obligate the US Treasury Secretary to issue new guidance on how banks should file related suspicious activity reports (SARs) under guidelines set by the Financial Crimes Enforcement Network (FinCEN). The secretary must ensure that the guidance “does not significantly inhibit the provisions of financial services” to the state-licensed companies, under the bill.
Political pressure to address the topic has mounted as a majority of states now permit some form of cannabis use and the industry as a whole is estimated to have grown north of $10 billion. But because the federal government still prohibits the distribution and sale of marijuana, banks cannot technically accept funds from cannabis-linked businesses without violating U.S. anti-money laundering laws.
In 2014, FinCEN attempted to clarify regulatory expectations in guidance that called on banks to make clear when they were filing SARs on licensed cannabis businesses only because of discrepancies in state and federal laws and not because of signs of criminality.
The bureau’s guidance complemented a US Justice Department memorandum asking federal attorneys to prioritize prosecutions of unlicensed marijuana businesses and drug trafficking groups operating outside of state laws.
If passed, the legislation would mark “the single largest rewrite of drug policy this Congress has ever undertaken,” according to Rep. Patrick McHenry, the ranking Republican on the committee.
In a letter penned last month, the North Carolina Republican called on committee Chairwoman Maxine Waters (D-CA) to delay consideration of the measure until it could be determined how its passage would impact AML and SAR obligations for financial institutions.
“This SARs regime [in the bill] is not deeply contemplated,” said McHenry, during the committee’s markup meeting. “Will this legislation result in a more efficient SARs reporting process or a less efficient SARs process, we cannot derive from the contents of this legislation.”
Since 2014, FinCEN has received more than 67,000 SARs citing marijuana-related businesses, with nearly 50,000 of the reports indicating that they were filed on state-legal companies that did not otherwise raise red flags, the bureau said in December.
The committee separately considered, but did not advance, legislation that would create a whistleblower rewards program for individuals who turn over information on kleptocracies.
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