Processing payments for legitimate, state-licensed marijuana-related businesses remains risky. Although a number of community banks have tested the waters with such payments, no safe harbor from potential problems exists with regulators under the present state of the law. That is true even for financial institutions (FIs) that comply with U.S. Department of the Treasury guidelines.

Moreover, shifting political tides threaten major policy changes that could reverse prior advances toward a more favorable climate for such FIs. Twenty-five states and the District of Columbia have legalized marijuana in some form. Yet marijuana remains illegal under federal law.

As I discussed on my website, these differing viewpoints led the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and the Department of Justice to issue separate guidance to banks more than two and a half years ago. Those guidelines had the goal of making fintech players more confident about offering financial services to legitimate state-licensed marijuana businesses, without fear of prosecution.

Since then, Visa and Mastercard have taken the position that local acquiring banks are best suited to make determinations regarding the legality of a marijuana-related merchant’s business. That is because the question represents an “evolving legal matter with different standards applicable in different states,” Visa stated.

Enforcement priorities

However, such guidance did not change federal law, but merely reflected a change in the federal government’s law enforcement priorities. Thus, FIs that extend merchant services to legal marijuana-related businesses remain subject to potential criminal and regulatory enforcement actions in the face of ever-shifting political tides and policy changes.

Indeed, the 2014 FinCEN guidance clarified how banks can extend services to marijuana-related businesses consistent with their obligations under the Bank Secrecy Act (BSA). The guidance recommends implementing appropriate anti-money laundering safeguards, including adequate customer due diligence, ongoing monitoring and proper suspicious activity reporting tailored to the marijuana industry.

Yet the concurrently released DOJ guidance emphasized the DOJ’s authority to enforce federal law regardless of state law. Thus, even for FIs that fully comply with the FinCEN guidance, the DOJ offered no safe harbor. Instead, it emphasized its discretion to investigate and prosecute FIs under money-laundering statutes and the BSA, where such action otherwise serves an important federal interest.

Therefore, most acquirers remain reluctant to offer financial services to marijuana-related businesses. Absent a change in federal law, banks that offer such services face the risk of potential criminal charges by the DOJ, or civil monetary penalties, cease and desist orders, fines and lifetime bans against responsible individuals from working in the industry by federal regulators.

Despite encouraging news in the past year, other recent developments suggest that such wariness is warranted. In both 2014 and 2015, Congress enacted amendments prohibiting the DOJ from spending funds to prevent any state from implementing its own laws authorizing the use, distribution, possession or cultivation of medical marijuana.

In August 2016, the Ninth Circuit Court of Appeals extended such protection for marijuana businesses by holding that these same appropriations riders prevent the DOJ from using such funds for the prosecution of individuals engaged in conduct permitted by state medical marijuana laws and who fully complied with such laws regarding use, distribution, possession and cultivation. However, the court emphasized that such protections are only temporary.

Flimsy protections

“Congress currently restricts the government from spending certain funds to prosecute certain individuals,” the court wrote. “But Congress could restore funding tomorrow, a year from now, or four years from now, and the government could then prosecute individuals who committed offenses while the government lacked funding.

Moreover, as of this writing, a presidential election looms and a new administration could shift enforcement priorities to place greater emphasis on prosecuting marijuana offenses. “Those admonitions should be taken seriously. Indeed, in April 2016, the Senate Appropriations Committee approved another amendment for fiscal year 2017 barring use of DOJ funds to investigate and prosecute legal marijuana businesses. Then, in June, the Senate Appropriations Committee approved a separate amendment prohibiting the Treasury Department from using funds to prohibit or penalize financial institutions solely because they provide financial services to state-legal marijuana businesses.

Nonetheless, that same month, House Republicans blocked a floor vote on the bank access amendment, and it appears they may also block a vote on the former amendment. Accordingly, there is uncertainty as to whether such medical marijuana protections will make their way into the final spending bill for fiscal year 2017.

Moreover, many believe New Jersey Governor Chris Christie is likely to be named attorney general in the event of a Trump presidency. Should that happen, many marijuana-related businesses and the banks that process for them may well end up in the federal government’s crosshairs.

The fiscal year ended on Sept. 30. Although existing marijuana protections are likely to be extended along with the current fiscal year’s funding until the Senate and House agree on a final spending package for fiscal year 2017, the future of such protections remains in doubt.

The information contained in this article is for informational purposes only. Please consult an attorney before relying upon it for your specific legal needs. Theodore F. Monroe is an Attorney whose practice focuses on the electronic payment and direct marketing industries. For more information about this article or any other matter, please e-mail Monroe at [email protected].