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California bank’s merger could force FDIC to rule on hazy cannabis banking

A small California bank’s merger application could force the FDIC to take a firmer stand on marijuana banking.

On June 14, Oakland, Calif.-based Summit Bancshares Inc. received word from the Federal Deposit Insurance Corp.’s San Francisco Regional Office that the regulator would recommend denial of its application for merger with Faciam Holdings Inc., due to the bank’s business plan to service marijuana-related businesses, or MRBs, according to a shareholder letter. Marijuana is legal for both recreational and medicinal purposes in California, but it is still illegal under federal law.

The bank plans to continue with the merger anyway.

“The Board of Summit has decided to not withdraw the application and to require the FDIC to go on record to deny the application,” Board Chair Shirley Nelson wrote in the letter.

The bank’s board believes the matter is important enough to be decided by FDIC leadership, said Gary Findley, a lawyer with Gary Steven Findley & Associates and legal counsel for the bank. “It’s a policy decision,” he said in an interview.

This is the first time the FDIC has been asked to directly grant or deny a bank access to cannabis banking, according to Findley.

Current guidance from the Financial Crimes Enforcement Network, or FinCEN, requires banks to file a suspicious activity report whenever an MRB opens an account and every 90 days thereafter, even if marijuana is legal under state law.

Banks that provide services to MRBs could be prosecuted for money-laundering or drug trafficking under federal laws, according to Morgan Fox, media relations director for the National Cannabis Industry Association, a trade group for marijuana businesses.

According to a brief published by the National Association of Federally-Insured Credit Unions, FinCEN data showed that 633 depository institutions provided banking services to MRBs as of March 31. This is an increase of 147 depositories from FinCEN’s September 2018 data.

To Read The Rest Of This Article By Carolyn Duren on S&P Global

Published: July 19, 2019

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