BankThink

One fix to the deluge of suspicious activity reports

Register now

Every 120 days, financial institutions holding accounts for marijuana-related businesses must file suspicious activity reports (SARs) to the U.S. Treasury’s Financial Crimes Enforcement Network, or Fincen.

The agency is charged with combating money laundering, terrorist financing and other financial crimes that may involve human trafficking, elder abuse or Bernie Madoff-type Ponzi schemes, just to name a few. The SARs are detailed, lengthy and time consuming, both to prepare and to read.

Fincen received more than 2 million SARs last year. That number has nearly doubled over the past decade, as financial institutions have faced mounting pressure to file, and the volume of international transactions has grown. Over the same period, budget cuts have reduced Fincen’s staff by more than 10%. It is dubious that most SARs are ever even read, let alone acted upon.

An investigative report by BuzzFeed News found that the crushing volume of SARs is overwhelming Fincen, suggesting that the onus should be on financial institutions to shut down suspected money-laundering activities.

This is a bit like asking the victim of a home burglary to not call 911 but wrestle the perp to the ground. Law enforcement and banks have separate roles, each of which should be respected.

The SARs are like the 911 calls to law enforcement. So why would someone call 911 on a friendly neighbor who is just stopping by for chat? State legalized marijuana-related businesses are those neighbors.

All but eight states have either legalized or decriminalized the use of cannabis in either medicinal or recreational form. Sales of legal cannabis in the U.S. exceeded $12 billion last year and are expected to pass $15 billion by the end of 2020.

A House bill (called the SAFE Act) would remove regulatory action against a financial institution for banking a cannabis business. The bill, now pending in the Senate, is part of a series of proposals that would open the doors to making cannabis commerce federally legal.

So, it’s time to ask: Does it make sense to continue to file ongoing SARs on state-legal businesses, particularly as Fincen is overwhelmed and money-launderers are slipping into the night?

These legalized-marijuana-related businesses are fully licensed (having passed stringent vetting processes by licensing authorities), pay taxes, contribute to their local economies and are providing a product that more than 55 million Americans use on a regular basis. These are not criminal enterprises. There are small-business operators making an honest living.

Are there bad players? Sure. Just like there are car wash operators,a la Breaking Bad, who are laundering illicit money, there are bound to be cannabis-related businesses dealing on the dark side.

Financial institutions monitor commercial accounts for red-flag triggers that might indicate the fetid smell of criminal activity. When found, it should be reported via a SAR for law enforcement consideration and follow-up. But to require a SAR for simply existing as a business is an edict that has run its course.

Fincen doesn’t need more 911 calls concerning friendly neighbors.

It’s a waste of time and resources for both bank compliance officers to prepare the detailed SARs, and for Fincen to process it when they identify no suspicious activity other than engaging in sales of a product, which the government has yet to bless with federal legalization.

That’s time better spent on serious crimes, of which, there is no shortage. Removing the requirement for ongoing SARs would also encourage financial institutions to provide much needed banking services to the sector. In turn, this would take the cashflow off the streets that’s used to promote crime and violence, and place it in a bank or credit union where it can be vetted and tracked, should law enforcement need to conduct a criminal investigation.

Financial institutions and government agencies are public-serving entities sorely in need of greater efficiencies. Eliminating costly, time-consuming paper pushing to report on state-legal businesses that are not doing anything suspicious is perhaps, a first step toward common sense that will refocus efforts on areas that really warrant attention.

Filing SARs on marijuana-related businesses is a relic of the Reefer Madness mentality whose time has long since expired.

For reprint and licensing requests for this article, click here.
Marijuana banking Marijuana industry Money laundering FinCEN AML
MORE FROM AMERICAN BANKER