WASHINGTON (2/21/14)--Working with now-legal marijuana dispensaries could be a big compliance headache for credit unions and other financial institutions, and, in some cases, just too difficult to do, Credit Union National Association Federal Compliance Counsel Colleen Kelly said in a Wall Street Journal piece.
The Journal article highlighted some of the unique challenges already faced by financial institutions that have worked with marijuana dispensaries in states where the product is now legal.
For instance, as part of customer/member due diligence rules, a financial institution may have to decide whether a business relationship with a marijuana-related business triggers a "Cole Memo" priority.
The article explains that last August Deputy Attorney General James Cole issued a memo identifying eight priorities for marijuana businesses, such as preventing distribution to minors, diversion of marijuana from states where it is legal to states where it is not, among others.
"If a credit union has a business account for a restaurant or bar, the credit union doesn't have responsibility for making sure minors don't drink or customers don't drive drunk," Kelly told the Journal, highlighting that the marijuana businesses may bring compliance challenges not before seen by financial institutions.
Kelly also pointed out in a recent CUNA CompBlog posting that financial institutions that work with these businesses should be aware of three new types of suspicious activity reports ("Marijuana Limited" SAR, "Marijuana Priority" SAR and "Marijuana Termination" SAR), as well as the seven specific customer due diligence requirements, such as verifying with the state whether the business is duly licensed and registered.
The piece also highlighted Verity CU, Seattle, Wash., which provided 15 checking and savings accounts for medical marijuana businesses in that state in 2012. The credit union stepped out of that business early last year after state authorities said Bank Secrecy Act reports would need to be filed, as marijuana sales were still federally prohibited.
Aside from the regulatory burdens and other potential consequences, Verity CEO John Zmolek said there is one more issue: The smell.
The cash from marijuana businesses reeks, he said. "When we got the cash in we really couldn't do anything with it. We couldn't turn around and give it to any of our other members. It really smelled a lot, like marijuana. Not every customer wants to have marijuana-smelling cash," he told the Journal.