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

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.

Banks and credit unions have moved in and out of the business as their perception of the risks has changed. There is scant publicly available data that illustrates the trends over time. Financial institutions that are working with pot merchants generally prefer to keep a low profile for fear that they will become associated with marijuana.

After the pot guidance was released in February, numerous bank industry officials predicted that the document would have little impact on the willingness of bankers to stick their necks out.

"Where we were expecting a yellow light, we think we effectively got a red one," Don Childears, president of the Colorado Bankers Association, said at the time.

Even before the guidance, banks were filing suspicious activity reports that related to the marijuana business. But the new instructions created three specific categories of marijuana-related reports.

Banks were instructed to file a "marijuana-limited" suspicious activity report in instances where the customer is not thought to be violating state law or any federal law-enforcement priorities, such as the diversion of pot into states that ban the drug.

Fincen has received 502 of those reports since the guidance was issued, according to Tuesday's speech.

That compares with 123 reports filed in the second category, which is supposed to be used when banks believe that a state law or one of the federal priorities has been implicated.

The third category of marijuana suspicious activity report is supposed to be filed when a bank terminates its relationship with a pot business. Since February, just over 475 of those reports have been received by federal authorities, according to the speech.

Shasky is expected to make her remarks in a speech at the Mid-Atlantic Anti-Money Laundering Conference in Washington. The audience is likely to include a mix of bank industry officials, regulators and law enforcement officials.

Also in the speech, Shasky will respond to the concern, voiced by numerous bankers, that no one reads the many suspicious activity reports that their institutions file.

Between January and March 2014, teams across the country reviewed more than 180,000 of the more than 290,000 suspicious activity reports that were filed, according to the speech, which also details how the reports have been used to catch various kinds of criminals.

"So, as you can see, BSA reporting does not go into a 'black hole' as suggested by some in the financial industry," Shasky will say.