A federal judge has dismissed a lawsuit filed by a Denver credit union against the Federal Reserve in its effort to provide banking services to marijuana businesses.
U.S. District Judge R. Brooke Jackson noted in Tuesday’s decision that marijuana remains an illegal drug under federal law, despite being legal under state law. “The courts cannot use equitable powers to issue an order that would facilitate criminal activity,” Jackson ruled.
Fourth Corner Credit Union, created specifically to serve marijuana businesses, sued the U.S. Federal Reserve Bank of Kansas City, whose territory includes Colorado, over its denial of the credit union’s master account — the account that ties all of its financial dealings to other banks.
Deirdra O’Gorman, Fourth Corner president and CEO, said in December that the Colorado banking commissioner granted the Fourth Corner Credit Union a state charter in November 2014. And the Federal Reserve Bank, which does not regulate or supervise financial institutions, should have granted the credit union a master account.
Fourth Corner attorney Mark Mason, a South Carolina – based attorney, argued that it’s not up to the Federal Reserve to regulate the credit union once it’s up and running. Federal law says that every financial institution shall be given access to a master account.
But Jackson wrote that the Federal Reserve is under no mandate to allow a master account that would facilitate activities that would violate federal law.
The case has made national news, as there are now 23 states with legal medical marijuana sales and four states and the District of Columbia with legal recreational marijuana sales, including Colorado. But getting these businesses banked has been nearly impossible because marijuana is classified at the federal level as a narcotic, and so much of the pot industry’s business is conducted via cash transactions.
The National Cannabis Industry Association said Tuesday’s ruling sends a message that Congress must act.
“There’s no shortcut, there’s no Band-Aid, there’s no work around to fix this industry-wide,” said Aaron Smith, executive director of the National Cannabis Industry Association.
“Forcing cannabis businesses to operate without banking access is a crisis, affecting public safety, law-abiding businesses, and the state officials in charge of regulating them,” he said.
Most banks don’t want to take marijuana business accounts for fear of being prosecuted under the federal Anti-Money Laundering Act, which says it is illegal to accept proceeds of a known illegal activity.
The Anti-Money Laundering Act (AML) applies to everyone who takes cash from a marijuana business, not just banks. And that means that ancillary businesses, such as consultants or engineers, are also losing their bank accounts.
“I regard the situation as untenable and hope that it will soon be addressed and resolved by Congress,” Jackson wrote.
Meanwhile, Fourth Corner has a pending law suit against the National Credit Union Administrations Office of Consumer Protection, which denied it federal insurance. The credit union’s charter was approved on the condition that it gets federal insurance.
Source: Denver Business Journal, Monica Mendoza
Photo: Deidra O’Gorman, president and CEO of Fourth Corner Credit Union, and attorney Mark Mason, on her left, talk with reporters Dec. 28 outside of the hearing in U.S. District Court in Denver. Judge R. Brooke Jackson dismissed the credit union’s law suit in which they sought a master bank account. (Monica Mendoza, DBJ)
Monica Mendoza covers banking and financial services, legal services, the economy and economic development, and sports business and contributes to the “Finance & Law” blog.