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Marijuana Banking & Payments: The Impact of AG Sessions’ Recent Memo

16 Jan

On January 4, 2018, U.S. Attorney General Sessions formally rescinded guidance issued by the Department of Justice (DOJ) during the Obama administration related to the DOJ’s approach to the enforcement of state-legalized marijuana activity.   Sessions replaced the former guidance by issuing a memo (“Sessions Memo”) that instructs U.S. Attorneys to “follow the well-established principles that govern all federal prosecutions” when determining which marijuana activities to prosecute.

The question banks and payment processors must be asking is:  How does the Sessions Memo impact the provision of financial services to marijuana-related businesses?

It is no secret that one of the critical issues that has plagued the state-legalized marijuana industry since its inception is the difficulty for marijuana businesses to obtain banking and other essential financial services such as electronic payment acceptance.

For banks and payment processors providing (or those that are considering to provide) services to marijuana related businesses, the greatest impact of the Sessions Memo is the rescission of the federal government’s hand-off approach to enforcement articulated in a memo titled “Guidance Regarding Marijuana Related Financial Crimes” issued by former Deputy Attorney General James Cole in 2014 (“2014 Cole Memo”).

The 2014 Cole Memo outlined the key enforcement priorities for prosecutions involving “financial crimes for which marijuana-related conduct is a predicate,” such as money laundering, unlicensed money transmission, and violations of the Bank Secrecy Act (“BSA”).  The 2014 Cole Memo was issued simultaneously with guidance issued by the Financial Crimes Enforcement Network (“FinCEN”).  The FinCEN guidance clarified how financial institutions could provide services to marijuana-related businesses consistent with their BSA obligations and federal enforcement priorities.

An apparent unintended consequence of the Sessions Memo is that the FinCEN guidance is now uncertain.  The FinCEN guidance is predicated on the DOJ guidance that has now been rescinded. It is unclear how the FinCEN guidance will be implemented in light of the Sessions Memo, as FinCEN has not issued any revised or supplemental guidance.  Initial news reports indicate that FinCEN was not aware of the DOJ’s change in position prior to it becoming public.  A spokesperson of FinCEN has been quoted stating the FinCEN guidance currently “remains in place.”

To be clear, the 2014 Cole Memo and the FinCEN guidance did not obviate or amend federal law prohibiting the sale or use of marijuana. Nor did it provide a defense to those violating such laws.  Instead, the guidance provided marijuana-related businesses and the financial institutions servicing such businesses a framework of the federal government’s enforcement priorities.  In that regard, it provided some degree of comfort to those providing services to this industry.

Although the Sessions Memo presents a change in the status quo of the federal policy on marijuana enforcement, the Sessions Memo is not as aggressive as many had feared it would be given Sessions’ outspoken criticism of marijuana.   The current policy continues to recognize the prosecutorial discretion of the U.S. Attorneys in determining on which conduct to focus its efforts.  Further, it does not instruct U.S. Attorneys to take a more aggressive approach towards state-legalized marijuana conduct by enforcing federal law in all circumstances, nor does it impose a more stringent set of enforcement priorities.  Instead, the current policy leaves marijuana enforcement up to each state’s U.S. Attorney.

For now, it is imperative to closely monitor the actions of the states’ U.S. Attorneys to gauge how the new policy will be implemented.  There is more uncertainty as to whether the federal government will take a more aggressive approach. The bottom line is, more uncertainty = more risk.

Only time will tell the full extent of the impact that the Sessions Memo will have on marijuana-related businesses and the companies that service them.  Stay tuned.

–Nicole Meisner, Attorney, Jaffe, Raitt, Heuer & Weiss, P.C.

DISCLAIMER:  The possession, sale, use, and distribution of marijuana and conduct that assists or facilitates such conduct is illegal under federal law.  This blog is for informational purposes only.  The information contained herein is not legal advice—consult with legal counsel for definitive advice.

Money Transmitter Regulatory Developments

25 May

The controversy swirling around the application of state money transmitter laws to payments companies just won’t abate. The difficulty stems from state regulators grappling with applying old statutory language to the new world of payments. And it leaves payment companies struggling to keep up with those new interpretations.

Next week the Electronic Transactions Association (ETA) will be facilitating the conversation by hosting a Money Transmitter Policy Day in Washington, D.C. A state regulator and FinCEN representative will speak. I am looking forward to participating by presenting a talk there, on June 2nd, on where things stand in “The Changing Regulatory Landscape”. If you are concerned that the myriad of state money transmitter laws may apply to your business, I hope you will join us.

Historically, the states regulated money transmission companies to protect the “unbanked” – consumers that used non-banks for financial services such as check cashing and wire transfers. The goal was to provide oversight of companies holding consumer money. Regulated companies were required to obtain a state license. The regulated activity typically was defined as selling or issuing stored value or receiving monetary value for transmission. That wording is so broad that it arguably brings within its sweep unintended links in the payments chain, such as independent sales organizations.

Barely a week goes by without another state money transmitter development. Some state legislators are taking a fresh look at their statutes, amending the laws to apply to new technologies, such as virtual currencies. Other states are interpreting existing laws in new ways, focusing the application of the licensing requirements on payment processors. And others are recognizing that the purpose of the money transmitter laws was never to regulate the card processing business. Those regulators are publishing guidance indicating that various arguments support the interpretation that the money transmitter laws do not apply to payment processors.

It will be some time before the issue of the extent to which state money transmitter laws apply to payment processors is settled. A vigilant eye on developments is critical to the payments industry. The policy day organized by the ETA, and panel discussions at other industry conferences, is exactly what is needed to keep the conversation flowing and the industry informed.

–Holli Targan, Attorney and Partner, Jaffe, Raitt, Heuer & Weiss, P.C.

Holli Targan

Attorney & Partner

htargan@jaffelaw.com

AML Program Tips

20 Feb

money launderingDeveloping an anti-money laundering program (AML) can prove challenging for card processing companies.  While not an exhaustive list, here are 9 areas that an AML program should be sure to include:

1.  Firm Policy – A general written AML policy reflecting fulfillment of the obligations set forth in the AML program.

 2.  AML Compliance Person – Designation of an AML compliance person along with a description of his or her duties. 

 3.  Merchant Identification Program A description of how merchants are identified and how their identities are verified. 

 4.  Merchant Due Diligence A description of the merchant due diligence process (this is in addition to merchant identification procedures). 

 5.  Record-KeepingA description of record-keeping procedures as they relate to merchant identification, merchant due diligence and any other AML program related records or documents (such as suspicious activity reports). 

 6.  Suspicious Activity A description of merchant activity monitoring and the steps taken when suspicious activity is detected. 

 7.  Employee Training A description of ongoing employee AML training and programs. 

 8.  Checking OFAC Listings An explanation of how all merchant accounts are checked against the specially designated nationals and blocked persons list issued by the U.S. Treasury’s Office of Foreign Assets Control (OFAC).

 9.  Audit ProcessA description of the independent testing function that will be used to assess AML program compliance.

Heather Maldegen-Long

Attorney

heamal@jaffelaw.com