WASHINGTON — The head of the Senate Banking Committee plans to use a bill passed by the House as the foundation for marijuana banking reforms, but also may add language to combat money-laundering risks, according to sources.
A focus of Chairman Mike Crapo, R-Idaho, is the so-called legacy cash that marijuana business have accumulated while they have not been able to open up bank accounts, these sources say. They say Crapo is looking to amend the Senate version of the bill passed by the House to prevent bad actors in the cannabis industry from taking advantage of their access to the banking system.
Yet Crapo is apparently willing to revise the SAFE Banking Act, championed by lawmakers from states where cannabis is legal, rather than start from scratch. That bill would prohibit federal regulators from penalizing a bank that accepts deposit from a cannabis company compliant with state law.
One industry source, who spoke on the condition of anonymity, said it is still unclear how banks can accept cash from cannabis businesses if the firms don’t have receipts or other documentation. Banks can file suspicious activity reports on unverified funds, but financial institutions may still want more certainty on how to handle legacy cash that they cannot track.
All eyes have been on Crapo since the House passed the SAFE Banking Act last week by a vote of 321-103. He has indicated that he hopes to hold a committee vote on cannabis banking legislation “soon,” but hasn’t publicly said what form that bill would take.
Paul Merski, group executive vice president for congressional relations and strategy at the Independent Community Bankers of America, said he thinks Crapo wants to make sure that any new cannabis banking legislation doesn’t sidestep anti-money-laundering laws.
“I think he wants to put his own mark on the legislation and make sure it actually works as intended and still abides by the anti-money-laundering rules and [the Financial Crimes Enforcement Network] and make sure that all the moving parts work as they are supposed to,” Merski said. “I think he is going to take a very thorough approach.”
The House bill that passed last week garnered bipartisan support in the chamber, though its Senate prospects have been unclear. A companion bill was introduced by Sens. Cory Gardner, R-Colo., and Jeff Merkley, D-Ore., in April.
Trent Wright, president and CEO of the Idaho Bankers Association, said the bill that the Senate Banking Committee will consider will include changes to limit risks associated with legacy cash.
“I think that [Crapo] has full intention of bringing legislation before the U.S. Senate Banking Committee, but it will have differences from that SAFE Banking Act that passed the House last week, and that will include resolving issues with legacy cash,” said Wright, who said he met with Crapo last week along with other Idaho bankers. “It will have additional things to deal with — cartels, legacy cash, money laundering. We don’t want to have an illegal way for bad performers to have access to the law. … That’s what we want to protect against.”
Many cannabis businesses in states that have legalized the substance have had to operate in all cash. With pot still illegal at the federal level, banks have been hesitant to open accounts for them. But there are still questions about how to bank legacy cash.
The industry source said lawmakers could potentially include language directing Fincen to issue guidance to banks on how to handle legacy cash. Or Congress could require banks to provide documentation on all of the cash that they hold in order to qualify for a safe harbor to serve legal cannabis businesses.
Merski said that banks want to be sure they “are not mixing previous monies with new cannabis-created money.”
The issue of cannabis banking has been tricky for Republicans in Congress, partly because of concerns that enabling banks to serve legal marijuana businesses would be viewed as support for overall legalization of cannabis. But two amendments were included in the House bill in order to attract Republican support.
One would provide protection for industrial hemp businesses. Senate Majority Leader Mitch McConnell, R-Ky., helped lead an effort to legalize the crop in a farm bill last year. The House bill would also formally end Operation Choke Point, the Obama-era Justice Department policy, sharply criticized by Republicans, that drew banks into fraud investigations of controversial merchants such as payday lenders.
Those changes would likely be included as amendments to the bill introduced by Gardner and Merkley. But a financial services lobbyist who has been working on the issue said Crapo also plans to address concerns with legacy cash, which he raised at a committee hearing in July.
“I think a pretty strong case has been made, both that legacy cash poses a real problem, in terms of providing an access point for cartels and for other illegal anti-money-laundering activities, as well as the ongoing operations,” Crapo said.
Bankers have been optimistic about the prospects of marijuana banking reforms being enacted in this Congress, particularly after what was viewed as strong bipartisan support in the House. Nearly all of the chamber’s Democrats were joined by 91 Republicans in support of the legislation. But it is unclear if Republican senators in states that have not legalized marijuana will get on board.
Wright said bankers in Idaho, which has not legalized cannabis in any form, would prefer that the Senate Banking Committee focus on issues such as Bank Secrecy Act reforms or a new accounting standard known as the Current Expected Credit Loss model. Still, the state trade group has signed onto industry letters to Congress in support of the SAFE Banking Act.
“There are better things that that committee can focus their time on,” Wright said. “But we support the senator 100%. … Before April of this year, I had never talked about cannabis at any level with any group, period.”
Even though Crapo might try to advance a standalone pot banking bill, some analysts say they still think some version of the House-passed SAFE Banking Act to be attached as a rider to must-pass spending measures.
“I expect the Senate will attempt to make the cannabis banking clarity legislation stronger, which can take a number of different forms, but ultimately I think that the simplest and therefore likeliest outcome is that the SAFE Banking Act, as it cleared the House, will be attached to a larger legislative vehicle,” said Isaac Boltansky, director of policy research at Compass Point Research & Trading.
Jaret Seiberg, a policy analyst at Cowen Washington Research Group, said he doesn’t think Crapo’s concerns with legacy cash will hinder lawmakers' progress in advancing a cannabis banking bill.
“This is not a poison-pill approach where he is trying to kill the bill by amending it in ways that will cause Democrats and the cannabis industry to drop their support,” Seiberg said. “I think the challenge is going to be to devise a legislative solution that’s workable. I don’t think this puts the bill itself in jeopardy. But it’s not as simple as including a phrase ‘keep cartel money out of the banks.’ ”
