Beware of Marijuana Banking Scams
Ongoing prohibitions against cannabis businesses create space for scammers. Don’t be fooled.
The stacks and stacks of cash which are the cannabis industry’s stock-in-trade, more so than seeds or sacks — and will be, as long as 96 percent of American financial institutions continue to refuse to do business with the marijuana industry— create opportunity for at least two distinct classes of criminals.
There are the classic “rip-and-run” gangs, who by now are well aware that a cannabis dispensary on vendor day or on payday will have more cash on hand than a literal bank. But there are also more entrepreneurial-minded wrongdoers, who capitalize on cannabis business-owners’ exhaustion with running high-volume businesses in all cash and offer them “solutions.”
That is, scams — schemes that either still break the law and leave the risk with the cannabis business owner, or outright criminal enterprises that resemble old-school Mafia-style “business help.”
As Los Angeles-based cannabis attorney Hilary Bricken noted at Above The Law this week, would-be fraudsters pitch “marijuana banking solutions” to the burgeoning industry with frequency, consistency and shamelessness a Nigerian scammer would admire.
“At least twice a week, one of my firm’s cannabis business lawyers will get contacted by an ancillary company trying to pitch us on referring our clients to them for ‘marijuana banking services,’ claiming they’ve cracked the code on marijuana banking,” Bricken wrote. “We routinely ignore these solicitations and all cannabis stakeholders should do the same.”
Such flimflam has a few specific calling cards, but the basics are universal. Though banks wield enormous power, and since participating in the scheme that triggered the Great Recession did not result in significant penalty, it’s fair to assume that a few big banks could start accepting marijuana deposits without much trouble.
That said, no company you’ve never heard of has that kind of power — and no company of any kind has yet to compel Congress to remove cannabis from Schedule I of the Controlled Substances Act.
For this reason, if the “banking-solutions” pitchman can’t or won’t identify the institution with which his would-be clients will store their money, it’s a shell-scam. The solutions man will take the money and stash it in any old bank, its source unidentified, for a fee —meaning the marijuana business would have been just as well off putting it in the local credit union, claiming it was lottery winnings or an inheritance from a previously unknown relative.
Large fees to a third-party are another signal of a scam. There is no reason, Bricken writes, for a third-party to require a payment to “unlock” a cannabis-friendly bank account. If the money is going overseas or even to another state, that’s a further sign that the arrangement violates what laws are in place.
To the outside, all these arrangements sound like nothing so much as money laundering, which is an additional crime on top of federal drug law violations, and one for which no state law provides cover.
According to Bricken, the Bank Secrecy Act, a 1970 law aimed at organized crime, which compels banks to report activity that may be connected to money laundering or fraud to federal authorities, further restricts banks’ ability to take marijuana money.
Whether because banks are risk-averse (and they’re not, as Wells Fargo’s actual fraud scams demonstrated) or just anti-cannabis, these Nixon-era rules apparently outweigh in bank officials minds’ the Obama-era FinCEN guidelines, which laid out a framework with which banks could take marijuana deposits.
The FinCEN rules suggested that as long as a cannabis business had a state license and was willing to subject itself to state scrutiny – to ensure it was not a fount of money laundering – all would be well.
These guidelines are in place even in the era of Attorney General Jeff Sessions, the erstwhile marijuana-industry bogeyman, yet banks don’t care. And until they do, there will be ample room in the market for unscrupulous players willing to take advantage of guileless or cash-tired business owners.
TELL US, have you ever been scammed?