ABA Letter to the House: Support H.R. 1996, SAFE Banking Act of 2021

The Honorable Nancy Pelosi
Speaker of the House
U.S. House of Representatives
Washington, D.C. 20515

The Honorable Kevin McCarthy
Minority Leader
U.S. House of Representatives
Washington, D.C. 20515

Dear Speaker Pelosi and Minority Leader McCarthy:

On behalf of the American Bankers Association (ABA), I am writing to express our strong support for H.R. 1996, the Secure and Fair Enforcement Banking Act (SAFE Banking Act) of 2021 introduced by Representatives Ed Perlmutter (D-CO), Steve Stivers(R-OH), Warren Davidson (R-OH), Nydia Velazquez (D-NY) and over 150 bipartisan cosponsors.

This legislation, scheduled for consideration on this week’s suspension calendar, addresses the conflict between federal and state law and whether banks can serve cannabis and cannabis related businesses. This issue has become a challenge for so many of our nation’s communities and the banks that serve them. We were pleased to see this legislation passed the House of Representatives last Congress with over 300 bipartisan votes. With more states legalizing some form of cannabis use, we are hopeful that H.R. 1996 will once again receive a favorable and strong bipartisan vote.

Since 1996, voters across the country have determined that it is appropriate to allow their citizens to use cannabis for medical purposes and, since 2012, for adult use. Currently, 36 states have legalized cannabis for medical or adult use and that number continues to grow. Nevertheless, current federal law prevents banks from safely banking cannabis businesses, as well as the ancillary businesses that provide them with goods and services.

As a result, a majority of states are struggling to address the significant challenges to public safety, as well as regulatory and tax compliance that go hand-in-hand with businesses forced to operate in an all-cash environment. Providing a mechanism for the cannabis industry to access the banking system would help those communities reduce cash-motivated crimes, increase the efficiency of tax collections, and improve the financial transparency of the cannabis industry. Since bank accounts are monitored in accordance with existing anti-money laundering and Bank Secrecy Act requirements, bringing cannabis-related legitimate businesses into the mainstream banking sector would also help law enforcement to identify suspicious transactions – an opportunity that is not available in an all-cash environment.

ABA does not take a position on the legalization of cannabis. Nevertheless, our member banks find themselves in a difficult situation due to the conflict between state and federal law, with local communities encouraging them to bank cannabis businesses and federal law prohibiting it. Congress must act to resolve this conflict between state and federal law.

The Controlled Substances Act (21 U.S.C. §801 et seq.) classifies cannabis as an illegal drug and prohibits its use for any purpose. For banks, that means that all proceeds generated by a cannabis-related business, even when it is operating in compliance with state law, are unlawful proceeds under federal law, and so any attempt to conduct a financial transaction with that money (including simply accepting a deposit) can be considered money-laundering. All banks, whether state or federally chartered, are subject to federal anti-money laundering laws. And, all banks must have access to the federal payment system to operate, which is under the purview of federal authority. Thus, banking entities related to the cannabis business can pose significant regulatory sanction risk, loss of access to the payments system, and the potential loss of the bank charter itself. This places banks in an untenable position in dealing with these state-authorized businesses.

Currently, the only direction available to financial institutions in connection with cannabis-related accounts comes from guidance issued by the Financial Crimes Enforcement Network (FinCEN) in 2014. That guidance, which references a now rescinded memorandum from the U.S. Department of Justice (the “Cole Memo”), describes how financial institutions can report cannabis-related business activity consistent with their Bank Secrecy Act obligations. It does not create a safe harbor or otherwise modify federal law to protect banks from criminal and civil liability for money laundering. It merely creates a system for reporting activity that is illegal under federal law but otherwise legal under state law.

Although some financial institutions have weighed the prevailing climate of non-enforcement and have decided to shoulder the risk in order to serve the needs of their communities, the majority of financial institutions will not take the legal, regulatory, or reputational risk associated with banking cannabis-related businesses without congressional action. As a result, state-legal businesses are being excluded from the mainstream financial system.

The problems, though, are not limited to those businesses that have direct contact with the marijuana plant, such as growers and dispensaries. The impact of the divide between state and federal law extends to any person or business that derives revenue from a cannabis firm – including real estate owners, security firms, utilities, vendors and employees of cannabis businesses, as well as investors. As the legal state-cannabis industry continues to grow, the indirect connections to cannabis revenues will also continue to expand. Without greater clarity, that entire portion of economic activity in legal cannabis states will continue to be marginalized from the banking system.

The bipartisan SAFE Banking Act would be an important step toward enabling financial services for cannabis-related businesses. The bill specifies that proceeds from a legitimate cannabis business would not be considered unlawful under federal money laundering statutes or any other federal law, which is necessary to allow the provision of financial services to cannabis-related legitimate businesses as well as any ancillary businesses that derive some portion of their income from those businesses. The bill would also direct FinCEN, and the federal banking regulators through the Federal Financial Institutions Examination Council, to issue guidance and exam procedures for banks doing business with cannabis-related legitimate businesses. Explicit, consistent direction from federal financial regulators will provide needed clarity for banks and help them better evaluate the risks and supervisory expectations for cannabis-related customers. The SAFE Banking Act is not a cure all for the cannabis banking challenge, but it is a measure that helps clarify many issues for the banking industry and regulators.

ABA is pleased to support the SAFE Banking Act and urges members of the House of Representatives to vote in favor of this legislation when it is brought up on this week’s suspension calendar.

Sincerely,

Rob Nichols