Since the Secure and Fair Enforcement (SAFE) Banking Act (the “Act”) found bipartisan support in the House Financial Services Committee back in March, the industry has been waiting for even the slightest sign of its legislative progress. Fortunately — on September 25, 2019 — the U.S. House of Representatives formally passed the SAFE Banking Act of 2019, which marks the first standalone cannabis reform bill to ever pass the House. The Act, if codified into law, would unshackle the cannabis industry and open access to insurance, traditional banks and other imperative financial service companies.
Even as states have made marked progress on cannabis legalization, the federal government’s regulatory regime continues to burden the industry, including with respect to banking and similar services. Two primary issues plague the cannabis industry’s access to meaningful financial services: (i) any business operating pursuant to a state law, whether it be a financial institution, real estate company, or any other ancillary operation working in connection with cannabis industry, is subject to risk of being construed as aiding or abetting a criminal conspiracy in violation of the Controlled Substance Act since those services do, in fact, facilitate and promote the marijuana industry; and (ii) under U.S. money laundering laws, it is unlawful to knowingly conduct a financial transaction where an individual has intent or the requisite knowledge that the proceeds of such transaction are a direct result of the distribution, sale or manufacturing of marijuana (i.e., as a specific unlawful activity). Notably, the newly minted Act does not decriminalize or legalize the distribution, sale, or manufacturing of marijuana, but rather, provides a safe harbor for financial institutions offering financial services to cannabis-related business (“CRBs”) and their service providers despite continued federal prohibition.
Specifically, the SAFE Banking Act provides significant protections for financial institutions, which (in its current House form) would:
- Prohibit bank regulators from taking any corrective or managerial action on loans made to employees and owners of CRBs, any real estate or equipment leased to CRBs, and any CRBs themselves, while also limiting the regulators ability to punish depository institutions for providing financial services to CRBs.
- Obligate FinCEN to furnish guidelines and examination procedures that remove significant constraints on financial institution’s ability to provide services to CRBs.
- Provide protection from civil, administrative, or criminal forfeiture of any collateral interest held by financial institutions in CRBs with respect to both loans and other financial service transactions.
- Offer protection to any depository institution that provides services to CBD and hemp related businesses, through the bills clarification on the legality of hemp and CBD pursuant to the Agriculture Improvement Act of 2018.
- Create a safe harbor for CRBs so that they cannot be prosecuted under the U.S. money laundering laws solely from participating in transactions involving CRB-related proceeds.
The Act will drastically influence the participation of federal financial institutions in CRBs as a result of the reduction in risk to these institutions and the opening of a broad new customer base. Funds from CRBs would no longer be considered profits derived from a specified unlawful activity under the U.S. money laundering laws as well as other federal laws. Moreover, the SAFE Banking Act’s expressed inclusion of all ancillary businesses in the financial services industry, means that the bill not only applies to depository institutions but also investments, brokerage services and capital markets activity, further illustrates the reduced risk on financial institutions.