Most banks and credit unions in Washington aren’t ready to open accounts for the state’s fledgling marijuana industry, despite new federal guidelines that offer some protection from prosecution.
The Justice and Treasury departments announced earlier this month that banks will be allowed to serve businesses in the two states where marijuana has been legalized, as well as in the other 18 where medical marijuana is sold. Banks currently can’t accept money linked to marijuana sales because the drug is illegal under federal law. As a result, pot has been an all-cash business.
The guidelines released Feb. 14 lay out several practices financial institutions will need to follow to avoid federal intervention and allow them to work with licensed pot businesses.
An informal survey of banks and credit unions in Eastern Washington found just one institution ready to create bank accounts for licensed pot businesses: Spokane Valley-based Numerica Credit Union.
But Washington’s banks, in general, don’t see the guidelines as a green light, said James Pishue, executive director of the Seattle-based Washington Bankers Association, which represents about 80 financial institutions in the state.
“Bankers are risk-averse,” Pishue said. “They don’t want to find themselves later subject to federal investigations. They’ve very concerned that the basic law (making pot illegal) is still there,” he said.
The American Bankers Association, a nationwide industry group, echoed that message after seeing the guidelines. “As it stands, possession or distribution of marijuana violates federal law, and banks that provide support for those activities face the risk of prosecution and assorted sanctions,” said Frank Keating, president of the group.
Officials at Numerica say they’re prepared to manage the risks involved in working with legal pot businesses. With 98,000 members, it’s the state’s fifth-largest credit union.
“We’re excited about the prospects,” said Lynn Ciani, general counsel for Numerica. “What we need to do now is form procedures” the credit union will use to open new accounts, she said.
The Washington State Liquor Control Board plans to approve the first group of pot growers, processors and retailers during the next few months.
Without a banking system in place to process pot revenues, predicted to be in the millions of dollars, the state has created a marketplace that will be rife with problems, said Sen. Bob Hasegawa, a Democrat representing Seattle’s Beacon Hill area.
Hasegawa introduced a bill in the current session that would create a state bank for state-licensed pot businesses, but it failed to get out of committee.
Large banks and bond brokers opposed the bill, Hasegawa said. “They don’t want the state to get its foot into the banking business,” he said.
That leaves the state pot marketplace dealing in cash, he said.
“It’s irresponsible to have millions of dollars floating around like that,” Hasegawa said. “It’s going to become a magnet for organized crime.”
Executives at Spokane Teachers Credit Union, the state’s third-largest credit union, are reviewing the new guidelines, spokesman Dan Hansen said.
An initial reaction is that monitoring and compliance would create additional work, he said. Those extra obligations include monitoring accounts for any suspicious activity, including cross-border sales or money laundering.
Mark Smith, CEO of Sears Spokane Employees Federal Credit Union, said the federal guidance didn’t give him a solid reason to change the financial institution’s policies. “The main reason we will follow the federal law is that even though the Justice Department has issued guidance, guidance is not the same as a court ruling,” he said.
Lynn Heider, vice president of communications for the Northwest Credit Union Association, said her group advises its 165 members to continue reviewing the legal issues involved before creating business ties to the pot industry.
“It’s very early. This is a complicated area and anyone heading in that direction needs to take time studying what’s involved,” she said.
In 2012, Seattle-based Verity Credit Union opened business accounts for a number of Puget Sound medical marijuana cooperatives. But last May, due to the federal-state law conflict, Verity’s board decided to stop that practice, said its CEO and president, John Zmolek.
“Closing members’ accounts is painful, so before we commit to jumping in again, we want to make sure that we can stay in the business,” Zmolek wrote in an email.