Deep into the Weeds: Cannabis and Compliance

ACAMS Today

The U.S. cannabis industry occupies a legal gray area, with a large majority of states allowing medicinal and/or recreational use within their borders while still prohibited nationally under the Controlled Substances Act. While enforcement of the use of funds by marijuana-related businesses (MRBs) has been more relaxed than in the past, financial institutions (FIs) that may be knowingly or unknowingly dealing with MRBs must have airtight compliance processes in place to withstand regulatory scrutiny, as well as to be positioned to take advantage of a possible change in legal status.

When it comes to their risk tolerance, FIs have three basic choices: 1) zero tolerance; 2) open to the possibility, contingent to federal legalization; or 3) open to lending now. In addition, management needs to revisit its compliance program to ensure it remains compliant with federal law today and, equally as important, that the “know your customer” (KYC) program is consistent. Proactively assessing the compliance program minimizes the chances of serving as a conduit for illegal activity. It enables insight to implement controls tailored to the client, geography and product type. It also empowers personnel as gatekeepers of the firm to detect bad actors attempting to infiltrate the firm.

This FTI Consulting article, which first appeared in June-August 2021 issue of ACAMS Today, the magazine for the Association of Certified Anti-Money Laundering Specialists, provides a list of KYC elements that FIs should have awareness of when dealing with MRBs, as well as practical advice and potential red flags when FIs do business with MRBs, knowingly or unknowingly.

Reprinted with permission from the June–August 2021, Vol. 20 No. 3 issue of ACAMS Today magazine, a publication of ACAMS