Federal prosecutors should be “banging the drum the loudest” to get banks more involved in the nascent cannabis industry, providing visibility and transparency that would help expose any illicit activity, said a former U.S. Justice Department lawyer who’d helped draft guidance for financial crimes related to state legalization of marijuana.
The integration of marijuana businesses into the mainstream financial system would effectively deputize banks to help sniff out money laundering and other illegal activity within the industry, said John Vardaman, now the general counsel to Hypur, an Arizona-based electronic payments and banking compliance software company that helps financial institutions serve state-legal marijuana businesses.
At the state level, Vardaman said, increased access to banking services would help the marijuana industry pay taxes.
“The upshot is banks do this, they’re very good at it, because they have skin in the game. They could be liable if they have a customer who is engaging in financial misconduct and they’re not aware of it, or if they are aware of it [and] they don’t any take steps to stop it,” said Vardaman, speaking at the National Cannabis Bar Association conference in Washington. “So, if you think about that, wouldn’t you want a bank looking into the marijuana industry above and beyond any other industry?”
State-legal cannabis markets across the country are largely frozen out of the banking system, as financial institutions fear regulatory, compliance and enforcement hurdles tied to the federal government’s classification of marijuana as an illegal drug. Hypur offers an electronic cannabis payment platform.
The U.S. Justice Department under Attorney General Jeff Sessions hasn’t taken any overt steps to undermine state-legal markets, despite early rhetoric. Sessions in January revoked Obama-era guidance that had effectuated a hands-off approach to state-legalized cannabis businesses.
➤➤ Get the latest cannabis lawyering, compliance and commentary straight to your inbox with Higher Law, a new Law.com briefing. Learn more and sign up here.
Sessions’s withdrawal of the Cole memo—named after then-Deputy Attorney General James Cole, now a partner at Sidley Austin—deepened uncertainty that has hung over the nascent marijuana industry. The move raised the specter that marijuana companies would be criminally prosecuted and further meant banks would not rush to serve the nascent multibillion-dollar industry.
As time has passed, “the dust has settled,” Vardaman said, and the reality “that this was more of a symbolic move than a substantive one is really sort of taking heart.”
That outcome has also been of little surprise to Vardaman. He noted that Sessions’ memorandum withdrawing the Obama-era guidance urged prosecutors to use discretion and not squander “finite resources.”
“Now, the government often speaks in code,” said Vardaman, who’d served as a Treasury Department lawyer before joining the Justice Department in 2011. “They use terms to suggest something without saying something specifically. Well, let me tell you: When the Department of justice uses a term like ‘limited resources,’ what they’re telling you is ‘not a priority.’ You will never see the term ‘limited resources’ and ‘terrorism’ in the same sentence.”