Judge bounces bank­ing law­suit

Al­low­ing credit union “would fa­cil­i­tate crim­i­nal ac­tiv­ity.”

The Denver Post - - FRONT PAGE - By David Migoya

A judge on Tues­day dis­missed a law­suit seek­ing fed­eral ap­proval for the first credit union for mar­i­juana in Colorado, say­ing that al­low­ing it “would fa­cil­i­tate crim­i­nal ac­tiv­ity.”

U.S. Dis­trict Judge R. Brooke Jackson said in a nine-page opin­ion that he was com­pelled to re­ject The Fourth Cor­ner Credit Union’s suit be­cause mar­i­juana re­mains il­le­gal un­der fed­eral law.

The U.S. Depart­ment of Jus­tice has is­sued guide­lines on how banks can work with le­gal mar­i­juana busi­nesses, making it clear that pros­e­cu­tors would not pursue in­ves­ti­ga­tions un­less cer­tain con­di­tions were not met. But Jackson said he could not take that tack.

“Th­ese guidance doc­u­ments sim­ply sug­gest that pros­e­cu­tors and bank reg­u­la­tors might ‘look the other way’ if fi­nan­cial in­sti­tu­tions don’t mind vi­o­lat­ing the law,” Jackson wrote. “A fed­eral court can­not look the other way.”

Colorado char­tered Den­ver­based Fourth Cor­ner as a credit union in Novem­ber, al­low­ing it to ac­quire a bank rout­ing num­ber and to ap­ply di­rectly to the Fed­eral Re­serve Bank of Kansas City,

the re­gional bank for the board of gov­er­nors of the Fed­eral Re­serve Sys­tem, for a mas­ter ac­count. The ac­count al­lows banks to trans­act busi­ness. The Fed­eral Re­serve turned down the ap­pli­ca­tion.

The fed­eral jus­tice guide­lines were is­sued in Fe­bru­ary 2014 through the Fi­nan­cial Crim­i­nal En­force­ment Net­work.

Fourth Cor­ner’s ar­gu­ments that the guide­lines were tacit ap­proval of potin­dus­try bank­ing “is some­thing of a sleight of hand,” Jackson noted.

The gov­ern­ment re­mains com­mit­ted to en­force­ment of fed­eral drug laws, Jackson said. And pros­e­cu­tors “ap­ply cer­tain pri­or­i­ties in making en­force­ment ac­tions, but it does not change the law.”

Credit union at­tor­ney Mark Ma­son, who helped in the found­ing of Fourth Cor­ner, was not im­me­di­ately avail­able for com­ment on Jackson’s rul­ing. The Fed­eral Re­serve would not com­ment.

The in­dus­try met the rul­ing with the same re­solve it has had since le­gal recre­ational mar­i­juana sales be­gan two years ago.

“The mar­i­juana in­dus­try will con­tinue ad­vo­cat­ing for re­spon­si­ble bank­ing so­lu­tions in or­der to pro­mote ac­count­abil­ity, trans­parency and pub­lic safety,” said Michael El­liott, ex­ec­u­tive di­rec­tor of the Mar­i­juana In­dus­try Group.

A sep­a­rate Fourth Cor­ner law­suit is pend­ing in fed­eral court in Den­ver against the Na­tional Credit Union Ad­min­is­tra­tion, which turned down the credit union’s ap­pli­ca­tion for share de­posit in­sur­ance, a re­quire­ment for a mas­ter ac­count. NCUA said it turned down Fourth Cor­ner on grounds in­clud­ing con­cerns over its abil­ity to mit­i­gate the risk of bank­ing only mar­i­juana busi­nesses.

As the Fed­eral Re­serve did, NCUA has asked the court to dis­miss the law­suit.

Jackson noted how bank­ruptcy courts can­not of­fer the same pro­tec­tion against cred­i­tors for a mar­i­juana busi­ness as for an­other type of busi­ness. In a lo­cal case in­volv­ing a med­i­cal pot dis­pen­sary, “the debtors can­not ob­tain bank­ruptcy re­lief be­cause their mar­i­juana busi­ness ac­tiv­i­ties are fed­eral crimes,” Jackson quoted a 10th Cir­cuit Bank­ruptcy Ap­pel­late Court opin­ion.

Tues­day’s de­ci­sion is the lat­est set­back in the ef­fort of credit unions to be­come the first le­gal bank­ing sys­tem for the mar­i­juana in­dus­try.

Many, al­though not all, mar­i­juana busi­nesses have dif­fi­culty ac­quir­ing and hold­ing bank ac­counts be­cause the prod­uct is il­le­gal un­der fed­eral law, which also gov­erns the na­tion’s bank­ing sys­tem.

As such, banks that do han­dle pot money, even though le­gal un­der state law, risk pros­e­cu­tion for money laun­der­ing. Also, fed­eral bank­ing reg­u­la­tors have said banks that do busi­ness with the pot in­dus­try could be held li­able for their trans­gres­sions even if bankers are un­aware of a busi­ness’ con­duct or as­so­ci­a­tions out­side of Colorado.

Fourth Cor­ner is the clos­est any­one has come to solv­ing a prob­lem most say can be cor­rected 0nly in Congress. Even Jackson agreed.

“I re­gard the sit­u­a­tion as un­ten­able and hope that it will soon be ad­dressed and re­solved by Congress,” the judge wrote.

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