The Legal Intelligencer

At this point, the Secure and Fair Enforcement Banking Act (the “SAFE Banking Act”) is well known. The law would not formally legalize marijuana on a federal level. Rather, for depository institutions, the SAFE Banking Act would prohibit federal regulators from penalizing them for providing financial services to state-legal cannabis businesses.  The law would also re-categorize proceeds from such businesses as not deriving from unlawful activity, thus abrogating application of certain anti-money laundering laws.  Moreover, institutions would not be subject to asset forfeiture for providing loans or other services to legitimate cannabis-related businesses. Succinctly put, the SAFE Banking Act seeks to harmonize state and federal law by creating a safe harbor for depository institutions providing banking services to properly licensed cannabis-related businesses and ancillary businesses that serve them. 

Under the current regulatory framework, an ever-increasing number of banks and credit unions continue to provide financial services to the cannabis industry. See Marijuana Banking Update, FinCEN (March 2022) (available at: Yet the law remains unpassed by the Senate despite effectively formalizing what already occurs to allow financial institutions to bank cannabis-related businesses without fear of reprisal from federal regulators.  

The law was initially introduced by Representative Edward Perlmutter (D-C.O.) in March 2019, and again in 2021.  See H.R. 1595, 116th Cong. (2019); H.R. 1595, 117th Cong. (2021). The House, as opposed to the Senate, has now passed the bill six times in various forms.  

The stand-alone legislation, which initially passed by a nearly 3:1 margin, has passed the House four times as inclusions to other legislation since 2019. It twice passed as included in the HEROES Act, and once contained in the National Defense Authorization Act for Fiscal Year 2022. Most recently, it was included in the America COMPETES Act (the House’s version of the Senate introduced U.S. Innovation and Competition Act).

In each instance, bipartisan Congress members, state regulators and financial industry organizations have voiced resounding support for the law. The policy arguments for the passage of the law have remained similar. In short, by formalizing the current framework and assuring financial institutions that they will not be punished for appropriately banking legitimate cannabis-related businesses, the SAFE Banking Act will promote a currently cash intensive industry to utilize the formal banking system.  The law would also improve public safety by mitigating the violent crime risks associated with cash businesses.  Moreover, according to policy arguments, the greater transparency into the cannabis industry would curtail the money laundering or tax evasion risks associated with cash-intensive operations, and access to the sector would stimulate the banking industry by opening an ever-growing and lucrative multi-billion dollar market.

Indeed, in May 2019, the National Association of Attorney Generals (“NAAG”), with the support of Attorney Generals from thirty-eight states, submitted a letter to congressional leaders in support of the legislation noting a similar rationale.  Letter from the Nat’l Ass’n of Attorney Generals to Congress, (May 8, 2019). The letter urged Congress to “bring[ ] grey market financial activities into the regulated banking sector” to protect public safety and avoid punishing financial institutions providing banking services to state-legal businesses. Noting the size of the cannabis industry, the letter also pointed out that by not reforming banking laws the “resulting grey market makes it more difficult to track revenues for taxation and regulatory compliance purposes, contributes to a public safety threat as cash-intensive businesses are often targets for criminal activity, and prevents proper tracking of billions in finances across the nation.”  The NAAG explained that the SAFE Banking Act, or similar legislation, “would bring billions of dollars into the banking sector, enabling law enforcement; federal, state and local tax agencies; and cannabis regulators . . . to more effectively monitor cannabis businesses and their transactions.”

With relation to its current form, a bipartisan letter signed by twenty-four senators sought to persuade Senate leadership to “ensure that the text of that amendment remains in the final conferenced version of the bill to be considered by both the House and the Senate.”  Letter from Bipartisan Group of 24 Senators to Senate Leaders, (May 12, 2022).

On May 26, 2022, the Conference of State Bank Supervisors (“CSBS”), a national organization of state banking regulators with membership from all fifty states, sent letters to Senate and House leaders urging them to retain the law in the America COMPETES Act.  In those letters, the CSBS explained that the law would provide clarity between federal and state law, which “would also benefit the regtech companies operating in this space to assist with anti-money laundering requirements.”  Letter from James M. Cooper, Acting Pres., Conference of State Bank Supervisors, to Senate, (May 25, 2022). CSBS also voiced concerns that “[a]dding to the burden and uncertainty is that the U.S. Department of Justice Cole Memorandum underlying the 2014 guidance was rescinded in January 2018 and has not been replaced with new guidance.”

Opposition to the SAFE Banking Act has been mixed with arguments against it coming from both sides of the aisle.  One point of view is that of Ranking Minority Member of the U.S. Senate Banking Committee, Senator Mike Crapo (R-I.D.).

In July 2019, the Senate Banking Committee heard discussion on public health and money laundering concerns related to marijuana and the SAFE Banking Act. Challenges for Cannabis and Banking: Outside Perspectives: Hearing on S. 1200 Before the S. Comm. on Banking, Housing, and Urban Affairs, 116th Cong. (2019).  In December 2019, then Senate Banking Committee Chairman Crapo issued a request for public feedback, noting he remained opposed to legalization of marijuana on a federal level.  He further explained that he could not support the SAFE Banking Act where “[s]ignificant concerns remain that the [law] does not address the high level potency of marijuana, marketing tactics to children, lack of research on marijuana’s effects, and the need to prevent bad actors and cartels from using the banks to disguise ill-gotten cash to launder money into the financial system.”   Chairman Crapo Outlines Concerns with Cannabis Banking Legislation, S. Comm. on Banking, Housing, and Urban Affairs (Dec. 18, 2019).

In February 2020, twelve Republican senators penned a letter to Crapo thanking him for his position and outlining a number of concerns regarding THC potency, public health, and the lack of effective ways to detect marijuana-impaired driving.  Letter from 12 Republican Representatives to Sen. Mike Crapo, Chairman of S. Banking Comm., (Feb. 13, 2020).  These and similar concerns represent stalwart opposition to effective reform in the cannabis industry, whether related solely to banking or legalization of marijuana as a whole.  By contrast, some opposition comes from more aggressive supporters of legalization, who believe the SAFE Banking Act does not go far enough in seeking social equity and criminal justice reform.

Leading the charge for more aggressive reform, and in doing so slowing banking reform, are Democrats like Senate Majority Leader Charles Schumer (D-N.Y.), Senate Finance Committee Chairman Ron Wyden (D-O.R.), and Senator Corey Booker (D-N.J.). They have previously declined wholesale support of the more modest banking reform law if it lacks provisions to address social inequity or provide for expungement of marijuana related crimes. Instead, the trio has drafted the Cannabis Administration & Opportunity Act, which they believe will provide a more comprehensive framework to address social inequity, criminal justice reform, and a banking regulatory framework. However, only a discussion draft of the bill has been published.

As it currently stands, something needs to be done. Financial services companies remain uncertain about their regulatory risks in banking the legal cannabis industry, yet that industry continues to grow as more states legalize the recreational use of cannabis. As that happens, legitimate businesses are left with few options. They can operate outside the formal banking system as cash-intensive businesses and incur numerous risks associated with such operations (including being targeted for violent crimes due to having cash on hand) or use a limited formal banking system with unclear regulatory policies and risk federal reprisal. Although the Department of Justice and FinCEN have taken a modest approach to enforcement, the lack of formalization leaves the industry wary of shifting political tides. 

The question is, what’s the point of continuing to stall legislation like the SAFE Banking Act when the industry is growing more rapidly than congressional support for more comprehensive laws?  Without regard to the variety of positions arguing against stand-alone banking reform, the reality is that years of congressional stagnation has left a growing industry banking in the grey. In doing so, Congress is leaving thousands of people, not just businesses, without banking solutions and effectively pushing businesses to operate in cash with little effective oversight to forestall criminal involvement and money laundering. With a growing industry comes growing risk associated with lack of oversight. Should Congress continue to stall, the burden associated with effectively implementing any reform will grow in tandem. 

Reprinted with permission from the June 7, 2022 issue of The Legal Intelligencer. ©2022 ALM Media Properties, LLC. Further duplication without permission is prohibited.  All rights reserved.

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