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#2257731 - 08/05/21 04:06 PM Marijuana Limited SARs on Indirect MRBs
jonv Offline
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Are Marijuana Limited SAR Filings required on Indirect Marijuana Related Businesses (i.e. bank has a loan to a commercial landlord that leases property to a marijuana related business (MRB))? What are you seeing in the industry regarding filing Marijuana Limited SARs on Indirect Marijuana Related Businesses?

Marijuana Limited SAR Filings: FIN-2014-G001 (BSA Expectation Regarding Marijuana-Related Businesses) indicates the following:
“Marijuana Limited” SAR Filings - A financial institution providing financial services to a marijuana-related business that it reasonably believes, based on its customer due diligence, does not implicate one of the Cole Memo priorities or violate state law should file a “Marijuana Limited” SAR. The content of this SAR should be limited to the following information: (i) identifying information of the subject and related parties; (ii) addresses of the subject and related parties; (iii) the fact that the filing institution is filing the SAR solely because the subject is engaged in a marijuana-related business; and (iv) the fact that no additional suspicious activity has been identified. Financial institutions should use the term “MARIJUANA LIMITED” in the narrative section.

Further, footnote #7 of FIN-2014-G001 indicates the following:
7 FinCEN recognizes that a financial institution filing a SAR on a marijuana-related business may not always be well-positioned to determine whether the business implicates one of the Cole Memo priorities or violates state law, and thus which terms would be most appropriate to include (i.e., “Marijuana Limited” or “Marijuana Priority”). For example, a financial institution could be providing services to another domestic financial institution that, in turn, provides financial services to a marijuana-related business. Similarly, a financial institution could be providing services to a non-financial customer that provides goods or services to a marijuana-related business (e.g., a commercial landlord that leases property to a marijuana-related business). In such circumstances where services are being provided indirectly, the financial institution may file SARs based on existing regulations and guidance without distinguishing between “Marijuana Limited” and “Marijuana Priority.” Whether the financial institution decides to provide indirect services to a marijuana-related business is a risk-based decision that depends on a number of factors specific to that institution and the relevant circumstances. In making this decision, the institution should consider the Cole Memo priorities, to the extent applicable.

I have reviewed some example MRB policies vendors and one of them I found on the internet (Sterling Compliance, Cannabis Banking Policy) stated:
“Marijuana-Limited SARs should be filed on businesses directly involved in a marijuana-related business (e.g. cultivator, processer, dispensary). FinCEN has communicated informally that Marijuana-Limited SARs are not required to be filed for businesses that are indirectly involved in a marijuana-related business.” The footnote to this policy comment states “This has not been written into formal guidance as of August 2019; FinCEN has communicated this only on a financial institution-by-financial institution basis. As such, you may consider reaching out to FinCEN directly to obtain confirmation and discussing the filing requirements and expectations with your regulators.”

To further muddy the question, I have found an OCC Supervisory Memorandum (see website here: https://www.governmentattic.org/38docs/OCCmarijuanaMemo_2020.pdf) dated May 12, 2020 that appears to indicate they don’t know the answer to my question either. See Question #10 on the document.

Other than calling FinCEN, what are you seeing in the industry for filing Marijuana Limited SARs on Indirect MRBs?

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#2257794 - 08/06/21 05:35 PM Re: Marijuana Limited SARs on Indirect MRBs jonv
ColoradoAML Offline
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Based on the footnote you cited, we used to file SARs on indirect MRBs. I think that it also makes sense conceptually; if I know our bank is receiving proceeds of a federal crime, I'm probably going to file a SAR to alert law enforcement. If my customer is knowingly depositing the proceeds of a federal crime, I'm probably going to call them a subject.

I think the OCC does know the answer to this question, which is why they say to call FinCEN. I have no question they're aware of the canned response that FinCEN gives when people ask that says SARs aren't required in these cases. It's just not the OCC's responsibility to publish guidance that FinCEN hasn't made public.

While I know you said without calling FinCEN, in my opinion the most sound reason not to file is because they've said they don't expect banks to file solely on the basis a that someone is receiving funds from an MRB operating lawfully in their state. Theirs is the opinion that matters. If it's not of interest to them, and you have that documented, why bother?

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#2258130 - 08/12/21 02:57 PM Re: Marijuana Limited SARs on Indirect MRBs jonv
bcompliance Offline
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Posts: 1,224
Email FinCEN, they will send you some wording back that indicates you don't need to file. here is what they sent me in 2018

FinCEN does not expect a financial institution to file SARs in accordance with FIN-2014-G001 on the basis that
a customer relationship indirectly involves a state-regulated marijuana-related business, so long as there is not
any other suspicious activity that would otherwise warrant the filing of a SAR. For example, a bank providing
account services to an individual who is an employee of a state-regulated marijuana-related business does not
need to file a SAR on that individual solely because he or she is an employee of that business. Similarly, a bank
providing services to a state, such as Colorado or Washington, for purposes of collecting fees or taxes from
marijuana-related businesses regulated by that state does not need to file a SAR solely because the fees or
taxes are being paid by those businesses. While a financial institution may file SARs in such circumstances, the
activity associated with these indirect relationships is not the focus of the Marijuana Guidance, and such
reports may be of limited value with respect to the priorities of FinCEN and its stakeholders. However, to be
clear, financial institutions should file SARs in circumstances when there is other suspicious activity that would
serve as an independent basis for filing SARs.

Regards,
FinCEN’s Resource Center
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#2258139 - 08/12/21 03:49 PM Re: Marijuana Limited SARs on Indirect MRBs jonv
jonv Offline
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Posts: 101
Thank you all for your insight.

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#2258324 - 08/17/21 08:18 PM Re: Marijuana Limited SARs on Indirect MRBs jonv
bcompliance Offline
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Joined: Sep 2014
Posts: 1,224
similar question, here is my scenario

1. Potential customer’s relative #1 is developing a marijuana related business.
2. Potential customer has several million invested with large investment company and will pledge this account to secure the loan.
3. Relative #1 will inherit the accounts upon potential customer’s passing (potential customer is elderly).
4. Purpose of loan is to purchase land and build a facility where marijuana would be cultivated. The potential customer would be the landlord, leasing the land & facility to relative #1 (who will own 25% of the marijuana operation with 2 outside investors). This will be the only tenant in the facility.
5. Relative #1 does have a preapproval for license in the state where this is legal.

I emailed fincen to get a determination on whether we'd need to file ongoing SARs and here is their response:

Good afternoon,

The SAR reporting structure laid out in FinCEN’s February 14, 2014 Guidance “BSA Expectations Regarding Marijuana-Related Business” remains in place, and that SAR reporting guidance with regard to financial institutions seeking to provide services to marijuana-related businesses applies to the specific facts and circumstance set forth in that document. Situations not specifically addressed in that guidance should be treated under standard due diligence and SAR reporting rules and related guidance. The manufacture, distribution, and dispensing of marijuana is an illegal act in violation of federal law. FinCEN will continue to work closely with law enforcement and the financial sector to combat illicit finance. We will notify the financial sector of any changes to FinCEN’s SAR reporting expectations.

https://www.fincen.gov/sites/default/files/guidance/FIN-2014-G001.pdf

Regards,

FinCEN’s Resource Center


based on this information would you consider this a MRB where SAR filings would be required? I am thinking no since the entity we are lending to is just leasing the property, but gets tricky if the borrower dies and relative 1 inherits the collateral. Thoughts and comments would be appreciated.
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#2258346 - 08/18/21 12:33 PM Re: Marijuana Limited SARs on Indirect MRBs jonv
edAudit Offline
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edAudit
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Posts: 4,709
You are here
You are getting into a gray area. I would run it by your legal.

Also are you sure that the large investment company will even allow this given all the facts?
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#2258350 - 08/18/21 01:10 PM Re: Marijuana Limited SARs on Indirect MRBs jonv
bcompliance Offline
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Joined: Sep 2014
Posts: 1,224
I agree on the gray area. The customer checked with the investment company and they said they would allow it. Thanks ed
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#2258359 - 08/18/21 02:27 PM Re: Marijuana Limited SARs on Indirect MRBs jonv
ColoradoAML Offline
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Posts: 227
In my interpretation, that doesn't sound like it fits within FinCEN's advisory. You're not opening an account for the MRB, you're opening an account for the landlord. SARs would not be required unless you identified other suspicious activity. Monitoring may be appropriate, especially if relative 1 ends up owning the account and may be inclined to try to run the MRB's transactions through your bank. Whether or not you want to deal with all of this is up to you, obviously.

A secondary question that always floats around in my mind is what would happen in these cases if the customer defaulted on the loan. Your bank would suddenly be taking rental payments from a marijuana cultivation facility, which certainly seems odd. Especially so if your policy prohibits serving MRBs as customers.

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#2258360 - 08/18/21 02:42 PM Re: Marijuana Limited SARs on Indirect MRBs jonv
bcompliance Offline
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Joined: Sep 2014
Posts: 1,224
Thanks for your input. The secondary question is where I am having a hard time, because we would at that point be accepting those payments from the MRB. We could take the investments held as collateral to recoup in this scenario instead of assuming the mortgage and I think that's where the loan officer is saying "what is the deal here". I get both sides, just want to makes sure we dot our i's and cross our t's before jumping in head first. We also don't have anything in our policy prohibiting us from banking these customers. It's a point i've brought up several times and was told not to add anything, so it is just in our procedures at this point.
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