that are often difficult to identify. For example, if a bank provides a commercial loan on a property that is later rented to a cannabis industry-related business, it could put the bank’s federal deposit insurance at risk. In addition to helping protect cannabis businesses, employees and customers by providing them access to banking services, the SAFER Banking Act would extend protections to banks and financial institutions that do business with the state-legal marijuana industry, including: • Provide a safe harbor for depository institutions who provide financial services to legal cannabisrelated businesses by precluding federal banking regulators from inhibiting those services. • Remove any requirement to treat the proceeds of transactions conducted by cannabis-related businesses, which are operating in accordance with Colorado cannabis laws, as proceeds from an unlawful activity for purposes of taxation. • Protect financial institution employees from being held personally liable under federal law or regulation. • Grant power to the Financial Crimes Enforcement Network (FinCEN) to amend the requirements under which depository institutions are required to provide suspicious activity reports. • Add protections for ancillary businesses providing products or services to legitimate cannabisrelated businesses. Importantly, the SAFER Banking Act would not compel any financial institution or insurer to do business with the cannabis industry. Colorado banks could still choose whether to offer financial products or services to marijuana businesses. How To Prepare Financial institutions currently need significant expertise in state marijuana laws and the marijuana business environment to provide services to the cannabis industry. The only guidance comes from the 2013 and 2014 Cole memorandums, Obama-era Department of Justice (DOJ) communiques to U.S. attorneys deprioritizing federal marijuana prohibitions in legal states, and an attendant FinCEN memorandum. Per these memos, banks that do business with the cannabis industry must perform initial and ongoing customer due diligence, file suspicious activity reporters on marijuana businesses, even in legal states, as well as comply with all currency transaction reporting requirements. If the SAFER Banking Act becomes law, this guidance will be updated within one year of enactment “to ensure consistency with the purpose and intent of the Secure And Fair Enforcement Regulation Banking Act, and the amendments made by that Act, and that such guidance ensures that a financial institution, and any director, officer, employee, or agent of a financial institution, continues to report suspicious transactions pursuant to this subsection, as applicable, relating to State-sanctioned marijuana businesses and service providers to preserve the ability of the Financial Crimes Enforcement Network to prevent and combat illicit activity.” Given that marijuana is big business in Colorado, some banks may not wait for new FinCEN guidelines to begin offering financial services to the cannabis industry in order to get in before market saturation. To mitigate risk, these banks will need to train employees in cannabisrelated business operations, the initial FinCEN memo, the two Cole memo enforcement priorities, applicable state law as well as identification of red flags. Access to Bankruptcy Courts Remains in Question Currently, cannabis-related businesses are denied access to important federal legal rights because they are in violation of the CSA, the most significant of these is federal bankruptcy protection. U.S. bankruptcy courts have uniformly denied relief for these enterprises. As part of the DOJ, the U.S. Trustee is compelled to enforce federal law. Accordingly, the U.S. Trustee will generally move to dismiss any bankruptcy case where a debtor is a cannabis-related business. Furthermore, bankruptcy courts cannot confirm reorganization or liquidation plans that include violations of federal criminal law. The DOJ’s approach in the bankruptcy context contrasts with its relative leniency with respect to prosecuting violations of the CSA that otherwise comply with state law. As such, distressed cannabis companies that seek a structured wind-down or Colorado Banker 10
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