As financial institutions worldwide move to cut off relationships with industries that regulators consider risky, the few banks that serve these businesses are charging hefty fees for basic services.
For companies in the cryptocurrency and legal marijuana businesses two sectors that regulators now scrutinize most closely getting access to a bank account can cost thousands in monthly fees, if it can be done at all.
Marijuana businesses routinely pay as much as $3,000 a month for basic checking accounts, people who work in the pot industry say. Additional fees for picking up deposits in armored cars or for audits required by a bank's regulators make the all-in costs even higher, they say. (For perspective: Most banks offer small-business checking with monthly fees below $50, if any.)
For crypto-currency companies, banking options are even more limited, and more expensive. Monthly fees for a basic checking account can range into the tens of thousands of dollars, say lawyers and consultants who work with these companies.
There's no question that banking these companies is expensive and risky for banks, given the due diligence required and the potential fines for lapses in anti-money laundering compliance. But many people who work in these industries think that banks are using risk as a cover to take advantage of the fact that companies in these industries have few other options.
"The reality is that it's extremely difficult to get a bank account in this industry, so if you do find a bank you are highly incentivized to play by whatever rules they set for you," said Taylor West, deputy director of the National Cannabis Association.
From banks' perspective, higher fees are inevitable. Banking high-risk businesses requires extensive documentation and reporting, which would be unprofitable without charging more.
Charging risky companies high monthly fees for bank accounts is "absolutely reasonable," said Andre Herrera, executive vice president of banking and compliance for Hypur, a firm that helps banks serve challenging industries.
"There are a number of legal, legitimate businesses that pay a higher price for their financial services," he said. "Banks are looking at all the risk factors and saying, 'I have more on the line to bank this industry and we're going to bill them more to offset this risk.'"
The risks of the pot and cryptocurrency industries are due in part to their cloudy regulatory status. No bank has been publicly censured or fined by bank regulators for working with either industry, and regulators have issued guidelines on how banks can legally serve these industries.
But for most banks the business isn't worth the risk. The result is that even as these industries begin to join the mainstream with legal cannabis now a multi-billion-dollar business and traditional financial institutions investing millions in Bitcoin companies basic banking services remain either off-limits or onerously expensive.
There are "a lot of parallels between the marijuana-banking space and the crypto-banking space," said Andrew Ittleman, an attorney at Fuerst, Ittleman, David & Joseph who has published articles on both subjects.
"Banks are trying to pick up fee revenue any way they can, and they're now seeing some of these fringe businesses as being desperate and willing to pay virtually anything to get an account," he said.
In the pot and cryptocurrency businesses, banks are extremely reluctant to make their relationships public, much less discuss their fees. No banks that serve the cannabis industry would comment publicly on their pricing structures, and West said that banks sometimes ask pot businesses not to disclose who banks them in order to avoid unwanted attention.
Silicon Valley Bank in Santa Clara, Calif., is the only lender to publicly disclose that it works with Bitcoin companies. A spokeswoman for the $36 billion-asset bank would not say what range of fees it charges its cryptocurrency clients, but said they are comparable the charges imposed on ordinary money transmitters.
"For any [money-service business] or money transmitter, banks incur overhead costs for onboarding, screening and closer transaction monitoring. Those costs are passed on to the [money-service business] customer, based on the nature of their business," Silicon Valley Bank spokeswoman Carrie Merritt wrote in an email.
'Only Game in Town'
For many pot businesses, the problem is not finding a bank that will take them on; it's finding more than one.
Nationwide, there's no shortage of banks and credit unions serving the pot business: more than 100 as of last August, according to a speech by Jennifer Shasky Calvery, the director of the Treasury's Financial Crimes Enforcement Network. (Fincen did not respond to a request for an updated figure.)
In practice, however, pot businesses often have few choices. Large banks won't take on marijuana companies, so they have to bank locally. And in many of the 23 states with some form of legal pot, there are only one or two banks taking on marijuana clients, leaving these businesses with little negotiation leverage over fees.
High banking fees are due to "a combination of the reporting and documentation that banks have to file and the fact that they're the only game in town," said Kris Krane, managing partner of 4Front Advisors, which handles operations and compliance for marijuana companies in many states.
"It's expensive, but in most states there's just one bank, and that's your only option," he said.
Fincen released federal guidelines last year for banking marijuana companies, but state laws vary, and can be complex. This has further fragmented the pot-banking market by making it hard for banks to serve out-of-state clients.
Furthermore, it's not clear that a bank could legally take on out-of-state pot businesses even if it wanted to, since marijuana remains illegal at the federal level.
The about-face by the Oregon community lender MBank, which announced this year that it would serve out-of-state marijuana businesses but quickly changed its mind, shows the huge unmet demand from pot businesses as well as the legal perils of serving them.
The $163 million-asset MBank started banking Colorado pot businesses in January but was so overwhelmed by the demand that it closed its out-of-state pot accounts a week later, according to reports.
That, at least, is the reason the bank gave publicly; but the Denver Post reported that federal banking regulators made it clear that they didn't want the company crossing state lines to serve businesses that remain illegal under federal law. MBank CEO Jef Baker did not respond to a call seeking comment.
There has been some movement in the past year toward resolving this legal impasse, and on Thursday marijuana business owners met with a top Federal Reserve official to discuss the problem.
But no solution appears imminent, and real competition in the pot-banking sector is not likely until state and federal laws are harmonized.
"Banks aren't interested in a flashing yellow light," said Jeff Gard of Gard & Bond, an attorney for marijuana businesses. "They need a green or red."
The shortage of banks lets a few players "gouge the hell out of" a "vulnerable industry," Gard said.
"There's all kinds of fees that in a competitive banking environment you could never get away with," he said.
Bitcoin Is 'Not Our Place'
If marijuana companies have limited banking choices, cryptocurrency companies have almost none.
"I've dealt with many banks over the years that are willing to take some risk say, to bank a money-services or remittances company but they're not going to do Bitcoin," said Judy Rinearson of the law firm Bryan Cave.
Silicon Valley Bank is one of few banks willing to take the risk for select Bitcoin companies and the only one that has disclosed its involvement with the cryptocurrency publicly. It banks Coinbase, a Bitcoin exchange whose investors include the New York Stock Exchange, USAA Bank and former Citigroup Chief Executive Vikram Pandit. Coinbase would not discuss its relationship with the bank.
Other banks that have taken on Bitcoin businesses have done so more quietly. Gemini, a digital currency exchange founded by the Winkelvoss twins (of Facebook fame), announced in January that it had secured a banking relationship with a New York State-charted bank, but did not name the bank or provide details on the relationship.
Part of the difficulty for Bitcoin companies is that they are seen as a riskier version of money transmitters, which were already considered high-risk, since Bitcoin transactions are pseudonymous and the currency has been used for online black markets. Fincen ruled last year that all Bitcoin payments processors and exchanges need to be treated as money transmitters, which "essentially took the problems that the traditional [money transmitters] have been dealing with for many years and transplanted them onto the cryptocurrency space," said Ittleman.
For more than a decade, banks have routinely charged money transmitters monthly fees in the thousands of dollars for basic banking services, said Juan Llanos, executive vice president of Bitreserve and a former compliance executive for MSBs. These fees have now migrated to Bitcoin companies.
"In every bank they have a policy on [money transmitters], and if you add to that Bitcoin or cryptocurrency-related companies, it's very scary for internal or risk management," Llanos said.
Dan Myers, CEO of Bridge Bank, also based in Silicon Valley, said that not even charging for the risk would make him comfortable banking Bitcoin companies.
"That's really not our place or the place for any highly regulated commercial bank," he said.
The $1.8 billion-asset Bridge banks tech companies investigating the blockchain technology that underpins Bitcoin, but does not bank money transmitters and has turned down many opportunities to work with Bitcoin companies. He thinks Bitcoin and banks make a bad match, at any price.
"It's more to do with the inherent nature of Bitcoin than the cost of doing business with these companies," he said.
But Bitcoin startups that make an effort can minimize some of these extra costs, said P. Faisal Islam, managing director of pfi.io advisory, a boutique compliance and AML consultancy.
For example, he said, if a bank is unfamiliar with Bitcoin it may want an independent risk assessment of that industry and of the prospective client from an outside expert. The bank might charge $75,000 to have this done, but a business can order an assessment itself for $45,000 to $55,000, Islam said.
Also, some banks charge Bitcoin businesses upfront to pay for the bank to hire dedicated compliance staff. This fee is equivalent to a person's salary, close to six figures, Islam said. But a business with good in-house compliance staff can make a case to the bank that such hires are unnecessary.
One ray of hope: The latest AML examination manual from the Federal Financial Institutions Examinations Council was released late last year, incorporating guidance on virtual currencies for the first time. "Examiners haven't already had one cycle of audits using the manual yet," Islam said, and after a year the fees charged to cryptocurrency startups should come down as "more banks understand how to bank them better."