United States: An Expert Analysis Of The SAFE Banking Act

On March 28, the House Financial Services Committee approved H.R. 1595, a bill designed to create protections for banks and insurers providing financial services to cannabis-related businesses. The 45–15 committee vote will advance the legislation before the House of Representatives and Senate in coming weeks. The Secure and Fair Enforcement (SAFE) Banking Act prevents federal banking regulators from punishing financial institutions that assist a "cannabis-related legitimate business" (CRLB) legally operating under state, local, or American Indian tribal laws. Even though CRLBs are licensed by states that have legalized medical and recreational cannabis, many operate on a cash-only basis because most financial institutions won't provide banking services for fear of potential racketeering and trafficking charges attached to handling monies generated by activity still illegal at the federal level.

Banking protections

The bill would create a safe harbor for depository institutions, including banks and credit unions, to the extent they would not be liable or subject to federal forfeiture action for providing financial services to a CRLB. Such businesses include not only manufacturers, producers, and any person or company engaging in a cannabis-related business pursuant to the law of a state or political subdivision, but also businesses that provide financial services to those organizations.

Key protections of the bill include prohibiting a federal banking regulator from 1) terminating or limiting the deposit insurance or share insurance of a depository institution solely because the institution provides financial services to a CRLB; 2) prohibiting or otherwise discouraging a depository institution from offering financial services to such a business; 3) recommending, incentivizing or encouraging a depository institution not to offer financial services to an account holder solely because the account holder is affiliated with such a business; and 4) taking any adverse or corrective supervisory action on a loan made to a person solely because the person either owns such a business or owns real estate or equipment leased to such a business.

Lending protections

The SAFE Banking Act prevents regulators from taking a corrective supervisory action on a loan made to a person or entity solely because the loan is affiliated with a cannabis-related business. Loans designed for leasing real estate and equipment to cannabis businesses are explicitly protected. The bill also prevents financial regulators from incentivizing banks not to offer services to account holders solely because the account holder is affiliated with a legitimate cannabis-related business.

Insurance protections

Congress is expected to include additional protections for insurance companies once the House of Representatives reviews the bill. Ohio Representative Steve Stivers has advocated previously for insurance companies to obtain similar protections for the same scope of services afforded financial institutions under the bill's banking provisions. Representative Stivers has proposed an amendment, which passed in a voice vote, that expands the legislation's protections to insurance companies. A joint statement praising Stivers's amendment has been issued by the American Property Casualty Insurance Association, The Council of Insurance Agents & Brokers, the American Land Title Association, the Reinsurance Association of America, and the Wholesale & Specialty Insurance Association.

Broader protection may be needed

The SAFE Banking Act is designed to address public safety concerns for marijuana businesses operating under the protection of state laws. Better access to insurance similarly protects the businesses and the public. While the SAFE Banking Act, if enacted in its current form, could be a significant step toward gaining access to badly needed financial services for CRLBs, it remains to be seen whether the bill provides enough protection for financial institutions to offer services widely. On one hand, the bill arguably addresses the issue of liability under anti-money-laundering (AML) laws, but on the other hand it doesn't appear to address liability under other federal laws such as RICO and the Controlled Substances Act. Without broader protections, financial institutions may continue to defer providing bank services to cannabis-related businesses.

It is expected banks and other financial institutions will be provided further guidance about how to work lawfully with legal cannabis businesses. The bill directs the Secretary of the Treasury to ensure new Financial Crimes Enforcement Network (FinCEN) guidance is consistent with the purpose and intent of the SAFE Banking Act. The bill currently has 152 co-sponsors in the House, making it the most supported cannabis reform legislation to be reviewed by Congress to date. Although no official date has been scheduled, the bill is expected to be reviewed by the House in the coming weeks.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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