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Pot problem

Posted by on Sep. 11, 2013 at 12:19 PM
  • 3 Replies

Pot problem

It may be legal to grow and sell marijuana in Washington. But using banks to borrow money or save the proceeds? Forget it.

By John Stang

It might be OK with the feds for Washington and Colorado to grow and sell marijuana within their borders. But borrowing and saving money to grow and sell pot amounts to something else.

The feds still have laws against money laundering and racketeering — meaning drug money cannot legally go into, come out of or stay within banks. Credit cards and debit cards run up against the same federal laws making them illegal to use for drug-related transactions. 

That had state legislators scratching their heads Tuesday in Olympia during a House Government Oversight Committee work session. 

"No way the banks can get involved with this type of transaction unless there are changes in the federal laws," said committee member Rep. Steve Kirby, D-Tacoma.

"It's not just risky, it's blatantly illegal, and you put your portfolio at risk," he added.

"The federal government made it quite clear. ...  This activity is illegal," said Denny Eliason, lobbyist for the Washington Bankers Association of using banks and credit cards to finance and save pot-related money. A bank cannot even receive a huge deposit of cash from a marijuana grower, processor or retail seller without violating federal banking laws.

Another wrinkle is how a Washington or Colorado marijuana businessperson will pay federal taxes when checks or credit cards are forbidden for drug businesses. Thick wads of cash could end up being sent to the Internal Revenue Service from marijuana business people and employees.

"We're in uncharted waters right now," Eliason said.

The Seattle Times reported that Gov. Jay Inslee and Attorney General Bob Ferguson submitted written testimony to Congress Tuesday about this same dilemma, arguing federal laws needed to be changed regarding legal pot businesses and banks. State legislators speculated Tuesday that the U.S. Department of Justice's recent conditional green light to Washington's and Colorado's fledgling marijuana industries might be a first step to getting the federal banking laws changed.

Under the present federal laws, pot-related businesses would have to operate on a cash-only basis since credit cards and debit cards are bank-related — kicking in electronic transferring, racketeering and money laundering laws. That means the state's marijuana businesses will likely have huge amounts of cash at their locations — attracting robbers.

Rep. Christopher Hurst, D-Enumclaw and chairman of the House Government Oversight Committee, is a police officer as well. "When I was in narcotics, there were people who made their living robbing other drug dealers. ... I think we are putting these businesses in too much peril if they have large amounts of cash around," Hurst said.

Marijuana is a federal Schedule I drug, which includes a requirement that no guns can be in the same room.

Legislators speculated that it could take years for Congress to revamp the banking laws to accommodate Washington and Colorado's marijuana businesses. Washington plans to begin accepting license applications on Nov. 18 and end the application period on Dec. 17. The licenses would be issued next March or April with the businesses supposedly opening in June 2014.

One question is whether banks can lend money to capitalize fledgling growers, processors and retailers.

And like other small businesses, marijuana operations and retailers are expected to fail at a significant rate. After 18 months, Colorado expects 50 percent of its roughly 1,000 retailers to fail. Washington is providing licenses for 334 retailers statewide. 

For exclusive coverage of the state government, check out Crosscut's Olympia 2013 page.

by on Sep. 11, 2013 at 12:19 PM
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by on Sep. 11, 2013 at 12:21 PM

WASHINGTON -- U.S. law enforcement agencies are in talks about steps they may take under federal law to allow legal marijuana businesses to have access to bank accounts, a Justice Department official said on Tuesday.

Deputy Attorney General James Cole said at a Senate Judiciary Committee hearing that the existing situation of marijuana shops operating on a cash-only basis created too many dangers, such as possible robberies or fraud.

The Justice Department is reviewing the issue with the Treasury Department's Financial Crimes Enforcement Network (FinCEN), which targets money-laundering, Cole said.

"It's important to deal with that kind of issue, and we're at the present time talking with FinCEN, and they're talking with and bringing in bank regulators to discuss ways that this could be dealt with in accordance with the laws that we have on the books today," he said.

Although the Justice Department in August gave states new leeway to experiment with legalized marijuana, the drug remains illegal under federal law. As a result, under anti-money-laundering rules, banks are prohibited from handling proceeds from marijuana sales.

That means marijuana shops have a hard time getting banking services, such as checking and savings accounts that most U.S. businesses consider essential.

Two states, Colorado and Washington, voted to legalize marijuana for recreational use in 2012, and about 20 states, plus the District of Columbia, allow the use of medical marijuana.

Cole did not say when U.S. agencies would complete their review, or what the possible outcomes were. FinCEN spokesman Steve Hudak said separately by phone that the agency was reviewing the latest developments.

Fearing tax evasion

Officials in Colorado and Washington are pushing the federal government to give banks and credit unions breathing room to take on marijuana businesses as clients.

"Cash-only businesses are very difficult to audit, leading to possible tax evasion, wage theft and the diversion of resources we need to protect public safety," Sheriff John Urquhart of Washington's King County testified at the Senate hearing.

If banking regulators do not agree to changes, supporters of marijuana legalization have said they will push Congress to amend federal law to allow banking services.

Senator Chuck Grassley of Iowa, the top Republican on the Judiciary Committee, said legalization supporters were overlooking the dangers of what he called a "dangerous and addictive drug."

"We already have a pretty good idea of how it works out, and the answer is: badly," he said, citing statistics about marijuana confiscated in his state that originated in Colorado.

Cole, in his testimony, said the Justice Department was faced with bad options before it said last month it would not sue to block the efforts in Colorado and Washington.

A federal lawsuit to block decriminalization would not have been very successful, he said. On the other hand, he said, the Justice Department did not want to sue over state regulatory regimes, for fear it would result in marijuana being both legal and unregulated in the two states.

"There are no perfect solutions here," Cole said. 

by Christy on Sep. 11, 2013 at 1:59 PM
1 mom liked this

Such a waste of time and money

by Ruby Member on Sep. 12, 2013 at 3:23 PM
1 mom liked this

?? I use a credit card when I buy mine.

my husband used a credit card when he bought seeds and all grow room materials.

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