Cannabis companies who have gone through the process of finding bank services are familiar with the many hoops cannabis companies must jump through to answer one simple question, is this cannabis company a risk to the bank? However, many cannabis companies neglect to ask their bank a similar question, is this bank a risk to our business?
Just last week, Live Life Federal Credit Union was issued a cease-and-desist order by the National Credit Union Administration (NCUA) following Live Life’s failure to comply with regulatory requirements set out by the Financial Crimes Enforcement Network. Live Life was ordered to comply with multiple stipulations, including a requirement to automate all suspicious activity reports and engage with a third party to validate compliance, according to Marijuana Business Daily.
Just as with everything in the cannabis industry, compliance is key to keeping the doors open. If your bank is not compliant, it can jeopardize your operations by creating disruptions in payroll, paying vendors, and affecting your banking history. It also opens you up to liability for wire or bank fraud.
So, what can business owners do to protect themselves from the liability of a non-compliant bank? The NCUA’s cease-and-desist order provides some excellent guidance on what questions to ask, including:
- How many cannabis clients does the bank service?
- How many staff work with cannabis clients? Are they dealing with cannabis clients full-time?
- How does the bank deal with compliance?
- Are the bank’s compliance systems automated, or does the bank handle this paperwork manually?
- Does the bank use a third party to validate compliance?
Confirming that your bank is FinCEN and BSA-AML Compliant is a must for safe banking in the cannabis space. Until the federal government makes meaningful cannabis banking reforms, such as the Secure and Fair Enforcement Act introduced in the U.S. House of Representatives, maintaining compliance under the current regulations is vital to protecting your assets in the cannabis industry.
Cannabis operations are obviously a cash-intensive business, so the risks involved in banking are still substantially less than the risks associated with keeping that cash on-site, including losses from theft, employee safety, and customer safety.
As with any business dealings, you must also keep the proper perspective and fully vet who and what you deal and partner with. What are their best interests? Do those mirror yours? How are you benefitting them and vice-versa. Asking the above questions can mean the difference between a successful banking relationship and a financial nightmare.