Financial Regulatory Report

On Tuesday February 6, 2018, U.S. Treasury Secretary Steven Mnuchin, in a speech before the House Financial Services Committee, offered some insights into how the Treasury Department may respond the growing area of marijuana banking. As we reported in a January 5th client alert, the Justice Department rescinded Obama-era policies that provided guidance to federal prosecutors on marijuana enforcement in states where the distribution of marijuana is legal under state law. Those Obama-era policies guided prosecutors to commit scarce federal resources to those areas where the public harm is the greatest, such as selling marijuana to children, using violent crime in operating a marijuana business, transporting marijuana from those states where it is legal to those states where it is not, and distributing marijuana on federal land. The Justice Department’s rescission of the Obama-era policies not only created uncertainty as to whether marijuana businesses in states where it is legal may continue to operate unobstructed by federal law enforcement, but also called into question the continued validity of the marijuana banking guidance issued by the Financial Crimes Enforcement Network (FinCEN) in 2014 that gave banks some flexibility in providing account and payment services to the marijuana industry. In responding to lawmakers’ questions, Secretary Mnuchin confirmed that he does not want to go back to the days where legal marijuana businesses were having to carry around “bags of cash” to pay their employees. Moreover, Secretary Mnuchin noted with respect to the continued validity of the 2014 FinCEN guidance: “We are reviewing it, but the intent is not to take it down without a replacement that can deal with the current situation.” Additionally, Secretary Mnuchin, ever the pragmatist, remarked: “We want to make sure that we can collect our necessary taxes and other things.” Secretary Mnuchin’s remarks strongly suggest that the 2014 FinCEN guidance is still effective, and that the Treasury Department is working diligently to craft a new replacement policy that will provide greater clarity for the industry. As an added wrinkle for banks, while the Treasury seems hard at work to offer updated guidance, the prudential regulators still appear silent on the issue. At a January 19, 2018, meeting of the America Bar Association’s Banking Law Committee, I asked the Acting Chief Counsel of the Office of the Comptroller of the Currency (OCC) whether she anticipated the OCC issuing any clarifying guidance to the banks on dealing with marijuana-related businesses. She responded that the agency was still waiting to determine what position, if any, the new Comptroller Joseph Otting (a former colleague of Secretary Mnuchin) decides to take on the issue, but would not issue any guidance before then, if at all. While Secretary Mnuchin’s comments do indeed provide some comfort for banks that they may continue to rely on the 2014 FinCEN guidance, there remain significant compliance obstacles that must be addressed. For example, banks need to determine whether they have the risk appetite to serve marijuana-related businesses, whether their Bank Secrecy Act/Anti-Money Laundering policies and procedures meet supervisory expectations for serving the marijuana industry, and whether they have the vetting mechanisms in place to conduct appropriate due diligence on prospective and current customers. Ensuring that these and other regulatory protocols are in place will enable banks to meet their regulatory obligations, while effectively serving this new customer base that has the potential of generating plenty of green.


Travis P. Nelson is a partner in the Financial Industry Group, resident in the Firm’s Princeton and New York Offices, and is also a member of the Firm’s Cannabis Law Team. Travis was formerly with the Enforcement Division of the Office of the Comptroller of the Currency, the bureau of the U.S. Treasury Department that regulates federally chartered banks. Travis is also Chair of the Banking Law Section of the New Jersey State Bar Association, adjunct faculty at Villanova Law School and Temple Law School and a frequent speaker on bank regulatory and enforcement issues.