One of the biggest issues facing cannabis business owners is how to finance their business and handle their cash flow once they get up and running. Many banks flat out refuse to work with cannabis businesses. The ones that will work with cannabis businesses require extensive monthly paperwork and charge high service fees.
Some desperate cannabis business owners have ended up lying to banks in order to access the financial system. Other cannabis business owners have been taken advantage of by third-party companies who claim to offer marijuana banking services but are really just scammers.
When a cannabis business owner is charged with bank fraud because they have lied to their bank, or been duped by a shady third-party marijuana banking business, Attorney Michael Hughes is here to help. As a hemp and cannabis producer himself, Attorney Hughes knows how easy it is to get tripped up by cannabis regulations. He defends entrepreneurs and investors who are facing criminal charges because they tried to earn a living in the cannabis industry.
Why Is Bank Fraud So Common In The Cannabis Industry?
Until the federal government ends the War on Drugs or makes some changes to federal banking laws, accessing the financial system will remain one of the most challenging parts of operating a cannabis business. It is hard for anyone outside the cannabis industry to grasp how big of an issue this really is. No other multi-billion dollar segment of the economy has problems getting bank services or is forced to operate on a cash-only basis.
Even in states like Oregon where cannabis businesses are state-licensed and heavily regulated, federal banking laws make doing business very difficult. The root of the problem lies with the federal Bank Secrecy Act and other federal financial regulations. Because marijuana is still classified as a Schedule I controlled substance, proceeds from cannabis businesses are viewed with a great deal of suspicion, if not open hostility. Traditional financial products other businesses use like loans and lines of credit are basically outlawed by the Act for legal cannabis businesses.
The Act, and other banking regulations, are enforced by the Financial Crimes Enforcement Network (FinCEN). FinCEN’s 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. It collects and analyzes financial data looking for suspicious and criminal activity. In the past, anything remotely tied to cannabis fell in this category.
As more states have loosened their restrictions on cannabis, FinCEN has had to reevaluate its hardline stance against cannabis businesses. Policy makers know that forcing an entire industry to operate on an all-cash basis is asking for trouble. Cash transactions make it harder for Uncle Sam to ensure he is getting his cut of the action and attracts criminals who know they can take advantage of the situation.
In 2014, FinCEN issued new guidance clarifying that banks can provide services to marijuana businesses without running afoul of federal regulations, so long as they abide by the following:
- Verify with state authorities that a business is duly licensed and registered.
- Review the license application and related documentation the cannabis business used to obtain its state license to operate its marijuana-related business.
- Request from the state licensing and enforcement authorities available information about the business and related parties.
- Develop an understanding of the normal and expected activity for the business, including the types of products to be sold and the types of customers to be served.
- Monitor publicly available sources for adverse information about the cannabis business and related parties.
- Periodically refresh information obtained as part of customer due diligence using methods and timetables commensurate with the risk.
The banks that are willing to put in the work necessary to meet these standards use the information they collect on cannabis businesses to file Limited Suspicious Activity Reports (LSARs) to FinCEN for all their cannabis business clients. The feds require SARs on all cannabis businesses so they can keep an eye on them, and get a heads up when they should take a closer look at any particular business. The result is a dystopian-style surveillance system with bankers acting almost like spies.
The number of banks willing to go to these lengths in order to work with cannabis businesses is growing as they realize how large the industry has grown, but it is still difficult for many cannabis businesses to access traditional financial services.
In desperation, some cannabis business owners have lied to banks about the nature of their business in order to obtain their services. This can be prosecuted as bank fraud.
Other cannabis business owners have been hoodwinked by third-party businesses that claim to offer marijuana banking services. These fly-by-night operators often set up shell companies or offshore companies that they run money through in an attempt to fool a traditional bank into working with them. This too is bank fraud. Even well-meaning cannabis business owners can be prosecuted for bank fraud if they were working with one of these crooked third-party companies.
The consequences of being convicted of bank fraud are quite serious. Steep fines and imprisonment are nearly impossible to escape.
The collateral consequences of a conviction are just as devastating. You may be barred from running, starting, or even working in a cannabis business after a conviction. It may also be difficult to find a job in other industries as well since financial crimes limit employability.
Putting up a strong defense is the only way to prevent a bank fraud conviction from haunting you for the rest of your life. If you have been charged with bank fraud, Attorney Michael Hughes can help you fight to clear your good name.
An Attorney Who Understands Your Side
As a cannabis and criminal defense attorney, Michael Hughes knows how easy it is to find yourself on the wrong side of the law, even if your intentions are good. Far too many people in the cannabis industry have made mistakes that led to bank fraud charges. Whether the fraud was deliberate or was the result of trusting the wrong people, Attorney Hughes can help defend you. Please reach out today to schedule an initial consultation.