By a 45-15 vote, the House Financial Services Committee approved the Secure and Fair Enforcement Banking Act of 2019 (the "SAFE Banking Act"). The legislation provides a safe harbor from federal money laundering and regulatory prohibitions for financial institutions and banks that supply financial services to cannabis-related legitimate businesses.
The SAFE Banking Act, which has 150 sponsors, has yet to be scheduled for consideration by the full U.S. House of Representatives. The Judiciary Committee will likely consider the bill before it is voted upon.
As previously covered, the Safe Banking Act explicitly insulates ancillary businesses, including real estate owners and accountants, from federal money-laundering liability for providing services to legal cannabis businesses. If enacted, the legislation will make clear that any service, including trading, clearing or custody, that the bank or financial institution performs for a legal cannabis-related business is exempt from prosecution or regulation. The SAFE Banking Act also requires the Financial Crimes Enforcement Network ("FinCEN") to provide additional guidance to depository institutions on their obligations to file Suspicious Activity Reports, and explicitly directs FinCEN to ensure that the guidance does not "significantly inhibit" the provision of financial services to a cannabis-related legitimate business or service provider in a state where cannabis is legal.
The Safe Banking Act requires federal banking regulators to submit an annual report to Congress and commissions a study by the Government Accountability Office on barriers to market-place entry and access to financial services by minority-owned and women-owned cannabis-related legitimate businesses.
Commentary / Jodi Avergun
The lack of banking services for marijuana businesses is one of the largest impediments to the growth of the sector. Regulated banks, especially those subject to cooperation and compliance obligations as a result of past corporate settlements with the DOJ, have not had the appetite or ability to enter the cannabis-finance space. This bill, if passed, will significantly ease the reluctance of banks to enter the fray, both as depository institutions and investment bankers. Surely a huge beneficiary of the proposed legislation will be service providers to cannabis-related legitimate businesses. The landscape for service providers has been particularly fraught, with their access to banking being severely limited, no matter how far from the cannabis plant they might have been. The extension of the safe harbor to those businesses should give banks additional comfort that these businesses can be safely banked. It remains to be seen when the bill will come to the floor for a vote. The Judiciary Committee still needs to weigh in. And of course, even assuming a yes vote in the House, there is still the Senate, which seems less inclined to pass the bill. A word of caution though: even with the safe harbor firmly established, banks and service providers can only safely service "legitimate" cannabis-related businesses. What diligence will be sufficient to establish that a cannabis-related business is legitimate enough to qualify for the safe harbor protection remains to be seen.
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