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#2259101 - 09/01/21 05:33 PM Indirect Marijuana Related Businesses
GoLightly Offline
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Joined: Nov 2012
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What are other institutions doing for initial due diligence when in comes to an indirect MRB? I feel like they are riskier than a direct MRB since Indirect MRB's do not have to be licensed. If they are receiving over 51% of their income from a marijuana related business what documents are you requiring at account opening?

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#2259196 - 09/02/21 07:40 PM Re: Indirect Marijuana Related Businesses GoLightly
jonv Offline
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I'm not sure I agree with the assessment that Indirect MRBs are riskier than Direct MRBs but that is a matter of risk assessment and opinion. We do not offer accounts to Direct MRBs. For Indirect MRBs we are drafting policies / procedures that allow us to establish accounts for customers where no more than 30% of the revenue is from Direct MRB activity. We are using the 30% threshold to limit the risk and reduce the amount of due diligence required. We are not actively marketing these customers but want to accommodate business assuming the meet the revenue threshold. At this time (based on our draft procedures), due to the low revenue threshold, we are not obtaining licensing information for the Direct MRBs. All Indirect MRBs will be reviewed on a 3, 6, or 12 month EDD review cycle based on risk. Risk factors driving risk rating will be cash volume and % of revenue from Direct MRB activity. Annually, we will require customers to complete a questionnaire with typical MRB questions (i.e. % of revenue, types of services offered to Direct MRBs, etc). Again, we are working through these procedures now but those are some of our initial ideas.

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#2259219 - 09/02/21 09:07 PM Re: Indirect Marijuana Related Businesses GoLightly
Pat Patriot Act Offline
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The first thing you need to do is properly define what constitutes an "indirect MRB."

The consulting firm CRB Monitor developed the three-tiered approach several years ago, which has been so commonly adopted that industry colleagues I've spoken with have - at times - assumed that it had stemmed from regulatory guidance.

In my humble opinion, the "three tier" framework as originally presented is needlessly complex and also not as well defined in detail as expected. But the spirit of the framework is great. And by that, I mean the concept of three large levels of risk relative to MRBs is appropriate.

Getting back to defining them, I'd suggest focusing on those entities which provide either a service/product that is unique and essential to the marijuana cultivation process, provide a physical location (i.e. landlords), and provide some sort of direct non-bank financial service to them (e.g. transaction processing, investing, private loans, etc.). Why? Those are the entities which, if you're a "moderate" relative to your interpretation of the Controlled Substances Act, would require SARs.

But as the previous poster had indicated, organizational risk tolerance and the accompanying interpretation of the CSA play into your decisionmaking. If you're a "strict" constructionist of the CSA, then you'd treat nearly all indirect marijuana-related entities just like you'd treat an "indirect cocaine-related business" or a "Tier II Heroin Company." On the other end of the spectrum, I've observed financial institutions that don't file SARs based on "indirect MRB" status alone, have received "support" for that stance from FinCEN's resource center, do no real EDD beyond flagging them, and have had ZERO problems with regulators (yet). I'm not advocating that approach, but illustrating just how "plastic" the expectations are in this area.
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