Former federal prosecutor: “Legal Marijuana Dealers — And The Government — Need Bankers And Lawyers”
The title of this post is drawn from the headline of this notable new Forbes commentary by Matthew L. Schwartz, who for a decade served as a federal prosecutor and is now partner at Boies, Schiller & Flexner. Here are excerpts from an important piece:
It is not unusual for legal marijuana businesses to become entangled in government investigations. Although it wasn’t my focus, as a former federal prosecutor I sometimes investigated unlawful drug trafficking organizations. Following the drugs and money back to their source increasingly led to marijuana businesses in states that had legalized it.
In many cases, the “legal” marijuana business was knowingly involved in the unlawful distribution. But on more than one occasion, legitimate marijuana businesses were victims of circumstance. In one case, for example, a licensed grower in California had a handful of workers who were diverting a portion of the crop to a criminal organization. In another case, a dispensary in Colorado was purchasing unlawfully-produced marijuana. In both cases, the guilty were arrested and the innocent business owners were not, but the businesses were adversely affected – each was the subject of a government investigation, its premises were searched by law enforcement agents, and its bank accounts and property were subject to seizure…. Companies without stringent compliance programs are particularly at risk.
As a result, virtually every bank of any size has decided not to do business with legal marijuana companies, concluding that the so-called “regulatory risk” outweighs the benefits of doing business with them…. Major law firms, ever risk-averse, have also decided not to advise marijuana companies… [because] most major law firms have decided that the risk that they will be deemed an aider and abettor of criminal activity makes advising marijuana businesses untenable….
The lack of access to banks and lawyers is a problem not only for legal marijuana businesses, but for regulators and law enforcement, as well. Though marijuana remains a controlled substance, legalized marijuana is a reality in many states – and arguably an inevitability, even at the federal level – and it is in the government’s interest for companies in that market to have robust compliance programs. Likewise, the government has no desire for marijuana businesses to be conducted in cash: the use of cash makes it significantly harder for the government to trace the proceeds of the marijuana businesses, not to mention the fact that businesses that deal in large volumes of cash present opportunities for robbery and other crimes of violence. But for marijuana money to be both traceable within the legitimate financial system and subject to stringent compliance programs – both within the marijuana businesses and at the institutions that handle their money – means having access to banks and lawyers….
Until marijuana businesses have regular access to the financial system and can turn to a broad array of sophisticated lawyers for counsel, they will remain half-way in the shadows. This is by no means an argument for legalizing marijuana; it doesn’t have to be legal for marijuana businesses to have access to professional services. Last month, the Marijuana Business Access to Banking Act was introduced in the House of Representatives; among other things, it would prohibit banking regulators or criminal prosecutors from investigating or penalizing a financial institution for “providing financial services to a marijuana-related legitimate business.” Congress could easily pass similar protections for lawyers. Doing so would recognize a basic proposition: when a bank or a lawyer provides services to a legal marijuana business, it is not helping that business to break the law. To the contrary, lawyers and banks – especially sophisticated and responsible ones – help businesses to comply with the law. That helps the marijuana business and government alike.