Marijuana Banking and Laundering

Did you know the current money laundering laws in the US and Canada only came into affect in 1986 and 1991? It always seemed to exist but then in 1986 I was doing my best to fail out of high school and didn’t really pay attention to such things. The US had the the Banking Secrecy act of 1970 but was restricted to amounts over $10,000. That’s equivalent to $60,000 today and wouldn’t have been relevant to most of the population. However, $10,000 in 1970 is approximately $1300.00 today which would cover almost everybody. Anti-laundering laws in the US become interesting as States legalize marijuana use and new businesses establish themselves. The problem is that the federal government still classifies marijuana as a class 1 controlled substance. As a result, any profits made from these new businesses are classified as illegal, technically making it laundering when depositing them into banking institutions. Thus, banks are reluctant to take these deposits for fear of incurring massing money laundering fines. The same fines that have reduced local banking ranks to 40% since 1994 as they deal with the legislation and fined when the federal government finds issues with their processes.

In spite of this, the US government has found a work-around for the businesses dealing in the cannabis industry. The federal government will take your tax dollars although they classify the business as illegal profiting and tax at 70% instead of 30%. They accomplish this by not allowing operating write offs or business expenses due to the status of an illegal operation. Although, if this position were legally challenged the US government would find it difficult to defend itself due to the “unclean hands” precedent. This is where one party accuses another while at the same time benefiting from the same activity. This results in is the industry as a whole are trying to find alternative deposit solutions like state run banking or block chain technology. State run banking may have the same issues though as it must operate at the federal level.

Canada is dealing with some of the same issues although not as severe. In 2017, it was reported that BMO and TD were becoming the default marijuana banking institutions with strong support for the industry. Nevertheless, other large banks have declined to intervene due to the morality of trading the herb. RBC and Bank of Nova Scotia both declined to provide services in 2017 but agreed that as legislation evolved they would need to readdress.

The marijuana industry in Canada has been a golden child that perseveres all the laws and police resources. A testament to the free market who found value in the product and supported it in spite of the criminal risks. Over the decades of attempting to control the herb our governments had only accomplished the misappropriation of valuable tax payer income. Now in the US, their government is still robbing tax dollars from them and setting up the local banking opportunities to fail from potential fines. Even laundering legislation is said to cost $10million per conviction which is a staggering amount compared to any benefit. Going forward we should ask our governments to be less involved in the process of controlling our industries as it just adds cost to tax payers through bureaucracy, police, court systems, banking and the general anticipation of what the government will do which increases risk for potential investors or business owners.

 

How Uncle Sam Launders Marijuana Money

 

https://www.theglobeandmail.com/report-on-business/canadas-marijuana-industry-banks-on-bmo-and-td/article36504415/ 

 

https://www.fincen.gov/history-anti-money-laundering-laws