BSA Expectations Regarding Marijuana-Related Businesses

www.fincen.gov

Guidance

FIN-2014-G001

Issued:

February 14, 2014

Subject:

BSA Expectations Regarding Marijuana-Related Businesses

The Financial Crimes Enforcement Network (“FinCEN”) is issuing guidance to clarify Bank

Secrecy Act (“BSA”) expectations for financial institutions seeking to provide services to

marijuana-related businesses. FinCEN is issuing this guidance in light of recent state initiatives

to legalize certain marijuana-related activity and related guidance by the U.S. Department of

Justice (“DOJ”) concerning marijuana-related enforcement priorities. This FinCEN guidance

clarifies how financial institutions can provide services to marijuana-related businesses

consistent with their BSA obligations, and aligns the information provided by financial

institutions in BSA reports with federal and state law enforcement priorities. This FinCEN

guidance should enhance the availability of financial services for, and the financial transparency

of, marijuana-related businesses.

Marijuana Laws and Law Enforcement Priorities

The Controlled Substances Act (“CSA”) makes it illegal under federal law to manufacture,

distribute, or dispense marijuana.1 Many states impose and enforce similar prohibitions.

Notwithstanding the federal ban, as of the date of this guidance, 20 states and the District of

Columbia have legalized certain marijuana-related activity. In light of these developments, U.S.

Department of Justice Deputy Attorney General James M. Cole issued a memorandum (the

“Cole Memo”) to all United States Attorneys providing updated guidance to federal prosecutors

concerning marijuana enforcement under the CSA.2 The Cole Memo guidance applies to all of

DOJ’s federal enforcement activity, including civil enforcement and criminal investigations and

prosecutions, concerning marijuana in all states

ice Deputy Attorney General James M. Cole issued a memorandum (the

“Cole Memo”) to all United States Attorneys providing updated guidance to federal prosecutors

concerning marijuana enforcement under the CSA.2 The Cole Memo guidance applies to all of

DOJ’s federal enforcement activity, including civil enforcement and criminal investigations and

prosecutions, concerning marijuana in all states.

The Cole Memo reiterates Congress’s determination that marijuana is a dangerous drug and that

the illegal distribution and sale of marijuana is a serious crime that provides a significant source

of revenue to large-scale criminal enterprises, gangs, and cartels. The Cole Memo notes that

DOJ is committed to enforcement of the CSA consistent with those determinations. It also notes

that DOJ is committed to using its investigative and prosecutorial resources to address the most

1 Controlled Substances Act, 21 U.S.C. § 801, et seq.

2 James M. Cole, Deputy Attorney General, U.S. Department of Justice, Memorandum for All United States

Attorneys: Guidance Regarding Marijuana Enforcement (August 29, 2013), available at

http://www.justice.gov/iso/opa/resources/3052013829132756857467.pdf.

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significant threats in the most effective, consistent, and rational way. In furtherance of those

objectives, the Cole Memo provides guidance to DOJ attorneys and law enforcement to focus

their enforcement resources on persons or organizations whose conduct interferes with any one

or more of the following important priorities (the “Cole Memo priorities”):3

• Preventing the distribution of marijuana to minors;

• Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs,

and cartels;

• Preventing the diversion of marijuana from states where it is legal under state law in some

form to other states;

• Preventing state-authorized marijuana activity from being used as a cover or pretext for the

trafficking of other illegal drugs or other

istribution of marijuana to minors;

• Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs,

and cartels;

• Preventing the diversion of marijuana from states where it is legal under state law in some

form to other states;

• Preventing state-authorized marijuana activity from being used as a cover or pretext for the

trafficking of other illegal drugs or other illegal activity;

• Preventing violence and the use of firearms in the cultivation and distribution of marijuana;

• Preventing drugged driving and the exacerbation of other adverse public health

consequences associated with marijuana use;

• Preventing the growing of marijuana on public lands and the attendant public safety and

environmental dangers posed by marijuana production on public lands; and

• Preventing marijuana possession or use on federal property.

Concurrently with this FinCEN guidance, Deputy Attorney General Cole is issuing supplemental

guidance directing that prosecutors also consider these enforcement priorities with respect to

federal money laundering, unlicensed money transmitter, and BSA offenses predicated on

marijuana-related violations of the CSA.4

Providing Financial Services to Marijuana-Related Businesses

This FinCEN guidance clarifies how financial institutions can provide services to marijuana-

related businesses consistent with their BSA obligations. In general, the decision to open, close,

or refuse any particular account or relationship should be made by each financial institution

based on a number of factors specific to that institution. These factors may include its particular

business objectives, an evaluation of the risks associated with offering a particular product or

service, and its capacity to manage those risks effectively. Thorough customer due diligence is a

critical aspect of making this assessment

relationship should be made by each financial institution

based on a number of factors specific to that institution. These factors may include its particular

business objectives, an evaluation of the risks associated with offering a particular product or

service, and its capacity to manage those risks effectively. Thorough customer due diligence is a

critical aspect of making this assessment.

In assessing the risk of providing services to a marijuana-related business, a financial institution

should conduct customer due diligence that includes: (i) verifying with the appropriate state

authorities whether the business is duly licensed and registered; (ii) reviewing the license

application (and related documentation) submitted by the business for obtaining a state license to

operate its marijuana-related business; (iii) requesting from state licensing and enforcement

authorities available information about the business and related parties; (iv) developing an

understanding of the normal and expected activity for the business, including the types of

3 The Cole Memo notes that these enforcement priorities are listed in general terms; each encompasses a variety of

conduct that may merit civil or criminal enforcement of the CSA.

4 James M. Cole, Deputy Attorney General, U.S. Department of Justice, Memorandum for All United States

Attorneys: Guidance Regarding Marijuana Related Financial Crimes (February 14, 2014).

3 The Cole Memo notes that these enforcement priorities are listed in general terms; each encompasses a variety of

conduct that may merit civil or criminal enforcement of the CSA.

4 James M. Cole, Deputy Attorney General, U.S. Department of Justice, Memorandum for All United States

Attorneys: Guidance Regarding Marijuana Related Financial Crimes (February 14, 2014).

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products to be sold and the type of customers to be served (e.g., medical versus recreational

customers); (v) ongoing monitoring of publicly available sources for adverse information about

the business and related parties; (vi) ongoing monitoring for suspicious activity, including for

any of the red flags described in this guidance; and (vii) refreshing information obtained as part

of customer due diligence on a periodic basis and commensurate with the risk. With respect to

information regarding state licensure obtained in connection with such customer due diligence, a

financial institution may reasonably rely on the accuracy of information provided by state

licensing authorities, where states make such information available.

As part of its customer due diligence, a financial institution should consider whether a

marijuana-related business implicates one of the Cole Memo priorities or violates state law. This

is a particularly important factor for a financial institution to consider when assessing the risk of

providing financial services to a marijuana-related business. Considering this factor also enables

the financial institution to provide information in BSA reports pertinent to law enforcement’s

priorities. A financial institution that decides to provide financial services to a marijuana-related

business would be required to file suspicious activity reports (“SARs”) as described below.

Filing Suspicious Activity Reports on Marijuana-Related Businesses

The obligation to file a SAR is unaffected by any state law that legalizes marijuana-related

activity

nent to law enforcement’s

priorities. A financial institution that decides to provide financial services to a marijuana-related

business would be required to file suspicious activity reports (“SARs”) as described below.

Filing Suspicious Activity Reports on Marijuana-Related Businesses

The obligation to file a SAR is unaffected by any state law that legalizes marijuana-related

activity. A financial institution is required to file a SAR if, consistent with FinCEN regulations,

the financial institution knows, suspects, or has reason to suspect that a transaction conducted or

attempted by, at, or through the financial institution: (i) involves funds derived from illegal

activity or is an attempt to disguise funds derived from illegal activity; (ii) is designed to evade

regulations promulgated under the BSA, or (iii) lacks a business or apparent lawful purpose.5

Because federal law prohibits the distribution and sale of marijuana, financial transactions

involving a marijuana-related business would generally involve funds derived from illegal

activity. Therefore, a financial institution is required to file a SAR on activity involving a

marijuana-related business (including those duly licensed under state law), in accordance with

this guidance and FinCEN’s suspicious activity reporting requirements and related thresholds.

One of the BSA’s purposes is to require financial institutions to file reports that are highly useful

in criminal investigations and proceedings. The guidance below furthers this objective by

assisting financial institutions in determining how to file a SAR that facilitates law

enforcement’s access to information pertinent to a priority.

“Marijuana Limited” SAR Filings

A financial institution providing financial services to a marijuana-related business that it

reasonably believes, based on its customer due diligence, does not implicate one of the Cole

Memo priorities or violate state law should file a “Marijuana Limited” SAR

to file a SAR that facilitates law

enforcement’s access to information pertinent to a priority.

“Marijuana Limited” SAR Filings

A financial institution providing financial services to a marijuana-related business that it

reasonably believes, based on its customer due diligence, does not implicate one of the Cole

Memo priorities or violate state law should file a “Marijuana Limited” SAR. The content of this

5 See, e.g., 31 CFR § 1020.320. Financial institutions shall file with FinCEN, to the extent and in the manner

required, a report of any suspicious transaction relevant to a possible violation of law or regulation. A financial

institution may also file with FinCEN a SAR with respect to any suspicious transaction that it believes is relevant to

the possible violation of any law or regulation but whose reporting is not required by FinCEN regulations.

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SAR should be limited to the following information: (i) identifying information of the subject

and related parties; (ii) addresses of the subject and related parties; (iii) the fact that the filing

institution is filing the SAR solely because the subject is engaged in a marijuana-related

business; and (iv) the fact that no additional suspicious activity has been identified. Financial

institutions should use the term “MARIJUANA LIMITED” in the narrative section.

A financial institution should follow FinCEN’s existing guidance on the timing of filing

continuing activity reports for the same activity initially reported on a “Marijuana Limited”

SAR.6 The continuing activity report may contain the same limited content as the initial SAR,

plus details about the amount of deposits, withdrawals, and transfers in the account since the last

SAR

section.

A financial institution should follow FinCEN’s existing guidance on the timing of filing

continuing activity reports for the same activity initially reported on a “Marijuana Limited”

SAR.6 The continuing activity report may contain the same limited content as the initial SAR,

plus details about the amount of deposits, withdrawals, and transfers in the account since the last

SAR. However, if, in the course of conducting customer due diligence (including ongoing

monitoring for red flags), the financial institution detects changes in activity that potentially

implicate one of the Cole Memo priorities or violate state law, the financial institution should file

a “Marijuana Priority” SAR.

“Marijuana Priority” SAR Filings

A financial institution filing a SAR on a marijuana-related business that it reasonably believes,

based on its customer due diligence, implicates one of the Cole Memo priorities or violates state

law should file a “Marijuana Priority” SAR. The content of this SAR should include

comprehensive detail in accordance with existing regulations and guidance. Details particularly

relevant to law enforcement in this context include: (i) identifying information of the subject and

related parties; (ii) addresses of the subject and related parties; (iii) details regarding the

enforcement priorities the financial institution believes have been implicated; and (iv) dates,

amounts, and other relevant details of financial transactions involved in the suspicious activity

larly

relevant to law enforcement in this context include: (i) identifying information of the subject and

related parties; (ii) addresses of the subject and related parties; (iii) details regarding the

enforcement priorities the financial institution believes have been implicated; and (iv) dates,

amounts, and other relevant details of financial transactions involved in the suspicious activity.

Financial institutions should use the term “MARIJUANA PRIORITY” in the narrative section to

help law enforcement distinguish these SARs.7

“Marijuana Termination” SAR Filings

If a financial institution deems it necessary to terminate a relationship with a marijuana-related

business in order to maintain an effective anti-money laundering compliance program, it should

6 Frequently Asked Questions Regarding the FinCEN Suspicious Activity Report (Question #16), available at:

http://fincen.gov/whatsnew/html/sar_faqs.html (providing guidance on the filing timeframe for submitting a

continuing activity report).

7 FinCEN recognizes that a financial institution filing a SAR on a marijuana-related business may not always be

well-positioned to determine whether the business implicates one of the Cole Memo priorities or violates state law,

and thus which terms would be most appropriate to include (i.e., “Marijuana Limited” or “Marijuana Priority”). For

example, a financial institution could be providing services to another domestic financial institution that, in turn,

provides financial services to a marijuana-related business. Similarly, a financial institution could be providing

services to a non-financial customer that provides goods or services to a marijuana-related business (e.g., a

commercial landlord that leases property to a marijuana-related business)

institution could be providing services to another domestic financial institution that, in turn,

provides financial services to a marijuana-related business. Similarly, a financial institution could be providing

services to a non-financial customer that provides goods or services to a marijuana-related business (e.g., a

commercial landlord that leases property to a marijuana-related business). In such circumstances where services are

being provided indirectly, the financial institution may file SARs based on existing regulations and guidance without

distinguishing between “Marijuana Limited” and “Marijuana Priority.” Whether the financial institution decides to

provide indirect services to a marijuana-related business is a risk-based decision that depends on a number of factors

specific to that institution and the relevant circumstances. In making this decision, the institution should consider

the Cole Memo priorities, to the extent applicable.

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file a SAR and note in the narrative the basis for the termination. Financial institutions should

use the term “MARIJUANA TERMINATION” in the narrative section. To the extent the

financial institution becomes aware that the marijuana-related business seeks to move to a

second financial institution, FinCEN urges the first institution to use Section 314(b) voluntary

information sharing (if it qualifies) to alert the second financial institution of potential illegal

activity. See Section 314(b) Fact Sheet for more information.8

Red Flags to Distinguish Priority SARs

The following red flags indicate that a marijuana-related business may be engaged in activity that

implicates one of the Cole Memo priorities or violates state law. These red flags indicate only

possible signs of such activity, and also do not constitute an exhaustive list

ntial illegal

activity. See Section 314(b) Fact Sheet for more information.8

Red Flags to Distinguish Priority SARs

The following red flags indicate that a marijuana-related business may be engaged in activity that

implicates one of the Cole Memo priorities or violates state law. These red flags indicate only

possible signs of such activity, and also do not constitute an exhaustive list. It is thus important

to view any red flag(s) in the context of other indicators and facts, such as the financial

institution’s knowledge about the underlying parties obtained through its customer due diligence.

Further, the presence of any of these red flags in a given transaction or business arrangement

may indicate a need for additional due diligence, which could include seeking information from

other involved financial institutions under Section 314(b). These red flags are based primarily

upon schemes and typologies described in SARs or identified by our law enforcement and

regulatory partners, and may be updated in future guidance.

• A customer appears to be using a state-licensed marijuana-related business as a front or

pretext to launder money derived from other criminal activity (i.e., not related to

marijuana) or derived from marijuana-related activity not permitted under state law.

Relevant indicia could include:

o The business receives substantially more revenue than may reasonably be

expected given the relevant limitations imposed by the state in which it operates.

o The business receives substantially more revenue than its local competitors or

than might be expected given the population demographics.

o The business is depositing more cash than is commensurate with the amount of

marijuana-related revenue it is reporting for federal and state tax purposes

easonably be

expected given the relevant limitations imposed by the state in which it operates.

o The business receives substantially more revenue than its local competitors or

than might be expected given the population demographics.

o The business is depositing more cash than is commensurate with the amount of

marijuana-related revenue it is reporting for federal and state tax purposes.

o The business is unable to demonstrate that its revenue is derived exclusively from

the sale of marijuana in compliance with state law, as opposed to revenue derived

from (i) the sale of other illicit drugs, (ii) the sale of marijuana not in compliance

with state law, or (iii) other illegal activity.

o The business makes cash deposits or withdrawals over a short period of time that

are excessive relative to local competitors or the expected activity of the business.

8 Information Sharing Between Financial Institutions: Section 314(b) Fact Sheet, available at:

http://fincen.gov/statutes_regs/patriot/pdf/314bfactsheet.pdf.

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o Deposits apparently structured to avoid Currency Transaction Report (“CTR”)

requirements.

o Rapid movement of funds, such as cash deposits followed by immediate cash

withdrawals.

o Deposits by third parties with no apparent connection to the accountholder.

o Excessive commingling of funds with the personal account of the business’s

owner(s) or manager(s), or with accounts of seemingly unrelated businesses.

o Individuals conducting transactions for the business appear to be acting on behalf

of other, undisclosed parties of interest.

o Financial statements provided by the business to the financial institution are

inconsistent with actual account activity.

o A surge in activity by third parties offering goods or services to marijuana-related

businesses, such as equipment suppliers or shipping servicers

als conducting transactions for the business appear to be acting on behalf

of other, undisclosed parties of interest.

o Financial statements provided by the business to the financial institution are

inconsistent with actual account activity.

o A surge in activity by third parties offering goods or services to marijuana-related

businesses, such as equipment suppliers or shipping servicers.

• The business is unable to produce satisfactory documentation or evidence to demonstrate

that it is duly licensed and operating consistently with state law.

• The business is unable to demonstrate the legitimate source of significant outside

investments.

• A customer seeks to conceal or disguise involvement in marijuana-related business

activity. For example, the customer may be using a business with a non-descript name

(e.g., a “consulting,” “holding,” or “management” company) that purports to engage in

commercial activity unrelated to marijuana, but is depositing cash that smells like

marijuana.

• Review of publicly available sources and databases about the business, its owner(s),

manager(s), or other related parties, reveal negative information, such as a criminal

record, involvement in the illegal purchase or sale of drugs, violence, or other potential

connections to illicit activity.

• The business, its owner(s), manager(s), or other related parties are, or have been, subject

to an enforcement action by the state or local authorities responsible for administering or

enforcing marijuana-related laws or regulations.

• A marijuana-related business engages in international or interstate activity, including by

receiving cash deposits from locations outside the state in which the business operates,

making or receiving frequent or large interstate transfers, or otherwise transacting with

persons or entities located in different states or countries.

or

enforcing marijuana-related laws or regulations.

• A marijuana-related business engages in international or interstate activity, including by

receiving cash deposits from locations outside the state in which the business operates,

making or receiving frequent or large interstate transfers, or otherwise transacting with

persons or entities located in different states or countries.

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• The owner(s) or manager(s) of a marijuana-related business reside outside the state in

which the business is located.

• A marijuana-related business is located on federal property or the marijuana sold by the

business was grown on federal property.

• A marijuana-related business’s proximity to a school is not compliant with state law.

• A marijuana-related business purporting to be a “non-profit” is engaged in commercial

activity inconsistent with that classification, or is making excessive payments to its

manager(s) or employee(s).

Currency Transaction Reports and Form 8300’s

Financial institutions and other persons subject to FinCEN’s regulations must report currency

transactions in connection with marijuana-related businesses the same as they would in any other

context, consistent with existing regulations and with the same thresholds that apply. For

example, banks and money services businesses would need to file CTRs on the receipt or

withdrawal by any person of more than $10,000 in cash per day. Similarly, any person or entity

engaged in a non-financial trade or business would need to report transactions in which they

receive more than $10,000 in cash and other monetary instruments for the purchase of goods or

services on FinCEN Form 8300 (Report of Cash Payments Over $10,000 Received in a Trade or

Business). A business engaged in marijuana-related activity may not be treated as a non-listed

business under 31 C.F.R. § 1020.315(e)(8), and therefore, is not eligible for consideration for an

exemption with respect to a bank’s CTR obligations under 31 C.F.R. § 1020.315(b)(6)

or the purchase of goods or

services on FinCEN Form 8300 (Report of Cash Payments Over $10,000 Received in a Trade or

Business). A business engaged in marijuana-related activity may not be treated as a non-listed

business under 31 C.F.R. § 1020.315(e)(8), and therefore, is not eligible for consideration for an

exemption with respect to a bank’s CTR obligations under 31 C.F.R. § 1020.315(b)(6).

* * * * *

FinCEN’s enforcement priorities in connection with this guidance will focus on matters of

systemic or significant failures, and not isolated lapses in technical compliance. Financial

institutions with questions about this guidance are encouraged to contact FinCEN’s Resource

Center at (800) 767-2825, where industry questions can be addressed and monitored for the

purpose of providing any necessary additional guidance.