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Congress is making another attempt to provide a safe haven for the banking industry and companies providing services to cannabis companies. On September 21, 2021, the House of Representatives approved the incorporation of the Secure and Fair Enforcement Banking Act of 2021 (SAFE Banking Act).1 in the annual National Defense Authorization Act for Fiscal Year 2022 (NDAA).2 Two days later, the House of Representatives passed the NDAA by 316-113 votes. The NDAA is now in the Senate for scrutiny and will most likely be passed – in some form – later this year to set annual defense priorities and approve Defense Agency spending for 2022.
Members of Congress have introduced the SAFE Banking Act or similar laws in previous Congresses. Despite bipartisan support and widespread support from the business community, these efforts never saw the bill go into effect. Prior to being passed as part of the NDAA, the House of Representatives also passed the SAFE Banking Act three times.3 The Senate has yet to act on the NDAA, but it could be the vehicle for enacting the SAFE Banking Act.
The wording of the SAFE Banking Act has hardly changed since it was introduced in 2019.4th As we noted in our statement at the time, the law would provide custodians and insurers, as well as service providers who receive funds generated by cannabis companies, a safe haven from anti-money laundering laws. Although not without restrictions, the SAFE Banking Act would be a significant step towards legal reform for the cannabis industry aimed at freeing the industry from the cash economy and making it easier for it to access necessary financial and other services.
As summarized in our previous advice, the SAFE Banking Act would:
- Prohibit federal banking regulators from taking certain actions against custodians who provide services for “legitimate cannabis-related business” – generally defined as any person or company that handles cannabis products in accordance with applicable state law.5 Prohibitions include taking adverse or corrective regulatory action on a loan or terminating the institution’s deposit or stock insurance.
- Prohibit federal banking regulators from prohibiting, punishing, or otherwise preventing a custodian from providing financial services to a legal cannabis-related business or service provider (e.g., credit card company).
- Protect all service providers (e.g. insurance companies) and their officers, directors and employees from federal criminal prosecution solely on the basis of the provision of financial services for a legal cannabis-related company or the further investment of income from such services.
Notwithstanding the Safe Harbor provisions of the SAFE Banking Act, financial institutions would of course continue to be subject to regulatory requirements in banking with cannabis-related customers, including updated guidelines from the Financial Crimes Enforcement Network (FinCEN) and new guidelines and review procedures from the Federal Treasury Institutions Examination Council (FFIEC ) as required in Sections 5406 and 5407 respectively. Financial institutions relying on the Safe Harbor provisions of the SAFE Banking Act would also need to keep abreast of the cannabis laws that apply to the businesses they operate to determine whether a customer is a “legitimate cannabis-related business” is to be qualified. This can be tricky considering that state laws are detailed, evolving, and vary from state to state. Monitoring compliance may also require periodic confirmation that a cannabis company has renewed its required state license or registration.
The Senate will soon rule on the NDAA, with key procedural and amendment votes slated for the week of November 29th. A House and Senate defense package will be finalized shortly thereafter. While much is still uncertain about the entire defense law, important senators have made their rejection of the inclusion of the SAFE banking law clear. When asked about the incorporation of the SAFE Act into the NDAA, Senator Cory Booker (D-NJ) said, “It would be a backlash to erase the records of everyone waiting for some kind of justice. And if you do that, unfortunately, the pressure won’t be there to make it happen. “Senator Booker, along with Senate Majority Leader Chuck Schumer (D-NY) and Senate Finance Chairman Ron Wyden (D- OR), instead advocated a more comprehensive reform of cannabis laws. The House of Representatives passed a comprehensive reform measure in 2020. In this Congress, the Judiciary Committee of the House of Representatives passed an essentially similar measure and is waiting for the hearing. However, it remains unclear whether a the Senate can enforce comprehensive reform measures.
Financial institutions and other companies that could benefit from the passage of the SAFE Banking Act are encouraged to review its provisions to understand the implications for their businesses and to consider what actions are required to comply with the new law, including the amendment of policies and addressing operational changes to ensure compliance with the requirements of the Safe Harbor of the law.
1 Safe Banking Act of 2021, HR 1996, 117th Congress (April 19, 2021).
2 National Defense Authorization Act for Fiscal Year 2022, HR 4350, 117th Congress (23.09.2021), Dept. D, Title LIV, Sections 5401-5415. The full text of the NDAA, including the SAFE Banking Act under Title LIV, is available here.
3 The SAFE Banking Act also had predecessors under other names, such as the Marijuana Businesses Access to Banking Act (HR 2076, 114th Congress), which is available here.
4th See, e.g., Safe Banking Act of 2019, HR 1595, 116th Cong. (March 7, 2019).
5 As of the date of this notice, 19 states and the District of Columbia have legalized marijuana for recreational use, and 43 states and the District of Columbia have legalized it for at least some medicinal uses.
The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.
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