Focusing On What Matters: Preventing Money Laundering Should Be the Shared Goal of the Government and the Cannabis Industry

Apr 18, 2017

Suffice it to say, the appointment of Jeff Sessions as the United States Attorney General did not remove uncertainty from the cannabis industry. How our new Attorney General will approach the industry remains unclear. Indeed, a quick search of the Office of the Attorney General’s website under “News and Speeches” shows no press releases regarding “cannabis.”

However, Attorney General Jeff Sessions’ March 15, 2017 speech on efforts to combat violent crime and restore public safety does merit consideration not only for what it says, but also for the opportunity that it offers – a way forward that aligns the federal government and the cannabis industry.  Attorney General Sessions opined:

Criminal enforcement is essential to stop both the transnational cartels that ship drugs into our country, and the thugs and gangs who use violence and extortion to move their product. One of the President’s executive orders directed the Justice Department to dismantle these organizations and gangs – and we will do just that.

… we need to focus on the third way we can fight drug use:  preventing people from ever taking drugs in the first place. 

I realize this may be an unfashionable belief in a time of growing tolerance of drug use. But too many lives are at stake to worry about being fashionable. I reject the idea that America will be a better place if marijuana is sold in every corner store. And I am astonished to hear people suggest that we can solve our heroin crisis by legalizing marijuana – so people can trade one life-wrecking dependency for another that’s only slightly less awful. Our nation needs to say clearly once again that using drugs will destroy your life.”

Attorney General Sessions is charged with enforcing federal laws, and this author does not disagree that drug abuse can “destroy your life.” However, the Attorney General’s comments offer the chance for a more constructive dialogue – i.e., what is the most effective approach to prevent criminal exploitation of the cannabis business?

The focus of effective regulation of the cannabis industry should be on money laundering, which is a federal crime under the Money Laundering Control Act of 1986 (18 U.S.C. §§ 1956, 1957). Money laundering is the process of concealing the true source of funds by using financial systems or services that do not identify or trace the sources or destinations of those funds.  See 18 U.S.C. § 1956(a).

In fact, preventing such unlawful activity is the focus of Financial Crime Enforcement Network (FinCEN) guidance issued to financial institutions in 2014. FinCEN’s stated mission is “to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities.”  Accordingly, FinCEN sought to promote greater financial transparency in the cannabis industry and mitigate the dangers associated with all-cash businesses – i.e., money laundering and criminal activity – through its guidance to banks.  In this regard, it was a thoughtful approach.

Moreover, FinCEN’s focus on money laundering to combat unlawful activity is not unique. For instance, the Financial Action Task Force (FATF) is a 33-member organization with primary responsibility for developing a worldwide standard to prevent money laundering that is used to finance terrorism. FATF was established in 1989 at the G-7 Summit in Paris, and it works closely with the International Monetary Fund (IMF), the World Bank, and the United Nations, among other regulatory bodies.

According to the IMF, “[a]n effective anti-money laundering/counter financing of terrorism framework must . . . prevent, detect and punish illegal funds entering the financial system and the funding of terrorist individuals, organizations and/or activities,” as well as “ aim at attacking the criminal or terrorist organization through its financial activities, and use the financial trail to identify the various components of the criminal or terrorist network. This implies to put in place mechanisms to read all financial transactions, and to detect suspicious financial transfers.” This policy position sounds exactly like what FinCEN sought to do by its 2014 guidance to financial institutions who work with cannabis businesses.

While many entrepreneurs are currently attempting to devise acceptable workarounds to the federal banking system so as to remove the all-cash element from the cannabis industry, an effective long-term strategy for regulating the industry to prevent criminal enterprises from using it for unlawful purposes would be to allow cannabis businesses full access to our banking institutions. In fact, on December 14, 2016, ten United States Senators wrote to FinCEN to make this very point. Perhaps it is time that the United States Attorney General recognize that the most effective way to combat drug crime is by hitting criminals where it hurts the most – in their wallets – and not by preventing state-authorized businesses access to a checking account at institutions that are subject to federal oversight. Legitimate cannabis businesses who are allowed access to a federally-regulated banking system will help bring the industry out of the metaphorical shadows and could also help make the Attorney General’s job of prosecuting criminals easier.

Remember, Al Capone was never convicted for being a bootlegger, and during Prohibition the U.S. Treasury Department authorized doctors to write prescriptions for booze.


liquor prescription form from prohibition days