We have a loan customer and loan was recently renewed. We are now aware that he holds a substantial ownership in a grower/distributor marijuana business. This income from this could be used to pay back the loan. In FInCEN guidance, it refers to Directly-related businesses and Indirectly-related businesses. Would ownership be considered indirectly-related? Would we file a SAR on this customer? We are in Florida.
Thank you.

The guidance does not refer to "directly" related businesses. It refers only refers to an "indirectly" related business in a footnote. Regardless, there is no adverb applicable to your customer, he owns a marijuana related business.

Florida voted to legalize medical marijuana last year, but I have no idea where the state is in terms of implementation. What do your policies and procedures say about your bank's willingness to bank marijuana related businesses?

Currently the polices do not address marijuana businesses. (They will soon) and this is the first time something like this has occurred.
Under Marijuana Limited SAR filings - we would file...

Note: There are no deposit accounts with this customer. How would one perform further due diligence? Loan payments come from another bank.

That's a good question, one that can only be answered by your own policies and procedures.

Like every other bank in Florida, you need to make a policy decision regarding whether or not you will bank marijuana related businesses. To be clear, the issue needs to first be addressed in your risk assessment. Then, it needs to be addressed in your board adopted policy; i.e. your policy needs to indicate, "Yes, we will," or "No we won't."

Then, you need to develop procedures to match. If the answer is "No," then you need safeguards at account inception to make sure you don't open the accounts inadvertently. It will require you to have knowledge of the state's registration requirements.

If the answer is "Yes," then you are right back at your starting point. How are you going to monitor your customers, particularly a customer whose only connection is via a loan, to make sure they comply with DOJ's eight commandments? Somewhere in this process you need to look at your security agreements and notes. I've seen banks that were surprised to discover that their notes made a statement that no payments were to be made with the proceeds of illegal activity. (Marijuana is still illegal under federal law so the wording is an issue.)

If the answer is "Yes," there is nothing to discuss in the way of SAR filing. You are going file to one per affected customer every 90 days, just like clockwork.

As an aside, I was surprised that no one resurrected the monster marijuana thread when the new administration indicated it might revert back to enforcing federal law, particularly in the states where marijuana is legal for recreational purposes. Those bankers who congratulated themselves for doing everything "right" in banking these folks may finally realize that they were not competent to assess prosecutorial risk.