Bank Lawyer's Blog

The Marijuana Minefiled Continues To Claim Banks

No matter how many times commentators like this curmudgeon warn banks that decide to dip their toes in the toxic waters of banking marijuana businesses, some banks not only don't "get it," they don't get it that they don't get it. At least, they don't until the regulators whack them upside the head.

The latest slow learner is apparently Millennium Bank, a small ($73 million) bank in Des Plaines, Illinois. According to the American Banker's Kevin Wack (paid subscription required), in March 2016, that bank entered into a consent order with the FDIC and Illinois banking authorities that "a source familiar with the matter" claimed "stemmed from the bank's involvement in serving pot businesses." As consultant Steven Kemmerling notes, there is no "template" for banks serving marijuana businesses to navigate the mysterious waters of the FinCEN "guidance" issued in March 2014, which purported to give financial institutions a path to serving marijuana businesses that were engaged in state-legal, federal-illegal activities. The consent order itself does not mention marijuana, and its numerous requirements could be interpreted as an indictment that the bank in question did not have even a basic BSA program required to meet applicable law and regulation. Kemmerling anticipates additional consent orders "as regulators continue to refi9ne how to safely bank marijuana." In other words, the smoke has not yet cleared on how to break federal criminal laws without, you know, getting your writs slapped.

The fact that the consent order (found here) nowhere uses the word "marijuana" indicates that the bank regulators are not anxious to admit that they are tacitly permitting (according to the article by Mr. Wack) 301 banks to engage in activities that are literally illegal. As Alabama Law Professor Julie Anderson Hill pointed out in an excellent law review article that we discussed last year, the regulators who fudge on these activities face another potential risk.

If the Federal Reserve provided payment services to a cannabis credit co-op, the Federal Reserve and its employees would be engaging in money laundering. They might also be conspiring to manufacture and distribute marijuana, aiding and abetting the manufacture and distribution of marijuana, and acting as accessories after the fact for the manufacture and distribution of marijuana. 

When marijuana advocates ask the bank regulators for "clarification," they are praying for rain in Death Valley. What's needed is action from the US Congress, action that would make banking state-legal marijuana businesses also legal under federal law. At that point, more "clarification" on BSA procedures might actually be useful. Don't expect Congressional action this year.

Incidentally, all those banks that are chomping at the bit to get their hands on drug money might want to consider the long-term effects of legalized recreation marijuana use. Trail blazer Colorado is experiencing some kick back from being the Mile High State.

************************************************************************************************************************************************************************************************

I am giving a one-hour webinar for BankersHub on July 19 on the banking and credit union regulators' expectations for technology service agreements. You can find information here.

Pot, Meet Kettle

Since shortly after the onset of the financial meltdown and housing market collapse in 2008, a populist narrative has been that mortgage lenders and servicers have deprived defaulting borrowers of their rights by "robo-signing" documents and outright fraudulent manufacturing of note and mortgage assignments and similar practices in foreclosure actions. The narrative has a factual basis.

However, not all of the fraud may have been perpetrated by lenders. Recently, allegations have been made that at least one Florida lawyer falsified note assignments to make it appear that the notes had been assigned to a bank other than the one that initiated the foreclosure proceedings.

The allegations against Kalogianis center on promissory notes, the document in which a borrower promises to repay the lender. Promissory notes often change hands as mortgages are sold and resold. Many lenders went out of business after the housing crash. Because it was not always clear whom a borrower owed, promissory notes often were stamped with a "blank endorsement'' — whoever the promissory note was endorsed to would be legally entitled to foreclose and collect any money due.

"It's like a blank check,'' Weid­ner said.

In cases defended by Kalogianis, the companies seeking to foreclose said they filed promissory notes with blank endorsements. But at some point, the motion says, the notes in four of the cases were altered to show they had been endorsed by "Bank of New York, as trustee.''

In the fifth case, a blank endorsement was altered to show Wells Fargo had signed it, the motion says.

One company, BAC, lost its case against a Kalogianis client in 2014 when Kalogianis argued at trial that only Bank of New York could foreclose because it was the one that had endorsed the promissory note. (The case has since been reopened.)

Kalogianis denies the allegations and asserts that the lender falsified documentation and "was trying to 'turn the tables'' on him rather than lose the case."

"It is the plaintiff's own improper conduct … that should be reviewed,'' he said.

Another impediment for the lender is that there is no eyewitness who saw the alteration of the assignments, and there exists no clerk's office video which would reveal the alteration. The lender asserts that it must have been Kalogianis who altered the assignments because no other person who might have had access to the documents had a motive to falsify it. I'm not sure that's a winner. Remember, just like on "Cops," all suspects are presumed innocent until found guilty in a court of law. Moreover, if Kalogianis can prove his allegations that the lender engaged in other document fraud, then a judge could determine that any falsification of the assignments to show the Bank of New York as the assignee may just as well have been made by the lender rather than Kalogianis, perhaps as a desperate "Hail Mary" maneuver.

The Tampa Bay Times reporter does devote considerable space to recounting the colorful history of Mr. Kalogianis, including a couple of previous ethical complaints, his unsuccessful run for US Congress, and the fact that he worked his way through law school as a male stripper. So many of us worked our way through law school as strippers that I fail to see what bearing that might have on the lender's allegations.

Other than the allegations of a couple of clients of Kalogianis, both of whom alleged that the lender in their cases had "committed fraud," there is no similar recounting of the colorful past of the lender or any of its legal counsel. Perhaps they are all Carmelite nuns and monks who spent their law school years and beyond grappling with the dark night of the soul and had no time or inclination for strip bars or the US Congress, nearly identical fora in the popular imagination.

Certainly, the lender's motion in this case might be more persuasive if, as was the case with a motion brought by another foreclosing lender against Kalogianis, he was allegedly caught on camera.

This week, Bayview Loan Servicing, which is foreclosing on a Kalogianis' client on behalf of Bank of America, obtained a video of a man it says is Kalogianis looking at court files in the Pasco clerk's office. The video appears to show him removing a small object from an accordion folder, stamping a page in a court file and returning the object to the folder.

Kalogianis' attorney's defense is "nothing to see here" and "I'm rubber, you're glue, whatever you say bounces off me and sticks to you."

"I can't see anything incriminating other than a lawyer doing a diligent search, going through files looking for mortgage fraud,'' Cohen said of the video. "After all, it would not be unusual to find mortgage fraud on the part of Bank of America and its legal agents in that they've already stipulated to being responsible for tampering with evidence resulting in payment of billions of dollars of fines to avoid a possible criminal prosecution.''

Cohen said that Kalogianis has won "many cases'' in which promissory notes had not been stamped or signed by any lender.

"Why in the world would he want to do something that could potentially hurt his client by putting a stamp on a note?'' Cohen asked "Simply stated, there was no need for Constantine to stamp anything to win the case.''

Forging or altering public records, including court records, can be a felony punishable by up to five years in prison.

As I have discussed many times in the past, the last point is important. Anyone, lender, borrower, or their respective counsel, who falsifies public records ought to get the book thrown at them from a criminal law perspective. Winning or losing a foreclosure case should be collateral damage. At this point, we have nothing to judge but allegations and press reports, but we'll be following this one to see what, if anything, shakes out.

Regulatory Abuse: Let's Make It More Transparent

Last week's release of a report by the FDIC's Inspector General that outlined the allegedly thug-like behavior of some FDIC lawyers and supervisory personnel against banks that dared to engage in tax refund anticipation lending, a business that the Care Bair found distasteful on moral grounds (notwithstanding that the line of business was legal), generated the expected smoke, blown up the public's backside by all the usual suspects. A couple of articles in the American Banker (paid subscription required) by reporter Lalita Clozel nicely outlined the sturm und drang for those of us with short attention spans.

The agency allegedly used a number of strong-arm tactics -- including rigged examination reports, selectively leaking information to a competitor, and hampering a firm's acquisition plans -- in order to force the banks from offering such loans.

The inspector general's report concluded that the actions "involved aggressive and unprecedented efforts to use the FDIC's supervisory and enforcement powers, circumvention of certain controls surrounding the exercise of enforcement power, damage to the morale of certain field examination staff, and high costs to the three impacted institutions."

Among the criticized actions of the FDIC were the actions of an FDIC attorney, who allegedly "abusively threatened" banks in person and on the phone. I'm not sure what "abusively threatening" a person entails in this case, but in my 41+ years of practicing law, most of it representing financial institutions, I've been threatened on rare occasions by government attorneys, and invariably the person doing the threatening is what is often referred to in legal circles as a "classical parum canis asinum" ("punk ass little bitch"). People with actual courage don't threaten, they simply "do." With a few notable exceptions, the overwhelming majority of bank regulatory agency attorneys I have dealt with over the years have not been "abusively threatening," and among those few that have issued threats, some of have done so under what they thought was the protection of anonymity.

Clozel sets forth a bullet point list that summarizes many of the other criticized actions of the FDIC against the banks in question and against the FDIC's own examination staff. The FDIC disputes almost all of the allegations of the inspector general, although it does assure the IG that it will take several steps "to improve both internal and external communication." In other words, when the boys and girls in D.C. tell the field staff to screw a bank, they'll make sure that it's communicated clearly. The FDIC also alleged that it will update its "appeals process" so that banks that are being shot at by FDIC supervisory and legal staff can appeal up the food chain to the officials who set the rein of terror in motion in the first place, so that they can say that the agency paid lip service to due process while they all sit around and laugh at the appeal.

The FDIC also claimed that it "does not condone" the "aggressive behavior of at least one employee" and that this employee "has since left the agency." No doubt to join ISIS. It's comforting to know that when it comes to taking action on abusive action of one of its employees, the FDIC is always quick to throw under the bus those who are no longer employed by the agency.

In a Congressional hearing, at which the IG testified about the matter, Republican and Democrats split predictably. The Republicans were "troubled" by the alleged abuse, while the Democrats were "troubled" by tax refund anticipation loans themselves. As we've seen with both parties, depending on the issue, each believes that in some cases, the ends justify the means.

Fred Gibson, the FDIC's Inspector General, expressed an additional concern that many share, and that may apply with even more force to the CFPB. He said that the FDIC should have released guidance, rather than create "rules by enforcement." This concern was echoed by Rep. Sean Duffy, the Chairman of the House Subcommittee that conducted the hearing.

"It is hard enough to comply with rules that are put out that people are trying to read and try to comply with but it is even harder when you have a regulatory body of our financial industry that tries to enforce first and give guidance later. We should know what the rules are, the rules of the game should be clear."

If you make the rules of the game clear, then (A) people can challenge them on the basis that they are arbitrary or lack substantial support, or (B) the agency is then bound by the rules in lieu of personal taste (or, in the case of tax refund anticipation loans, distaste). That takes all the found of regulating.

This all was nice theater, and you have to give the Mr. Gibson and his staff a hat-tip for spitting into the wind. Nevertheless, if anyone thinks this will change the FDIC's conduct going forward, your smoking some of that legal/illegal Colorado hemp. The only thing that will do that is a change in the White House in November. Then again, Sheila Bair, who started this "trickle down" abuse in 2008 (according to the IG's report) was a Bush II appointee.

Ex Post Facto Expertise

Several years ago, I expressed some amusement (in a "gallows humor" sense, I admit) about the fact that the CFPB was sending attorneys to classes to obtain basic knowledge about bank law after they were hired. Ideological purity, I assume, was the primary job qualification. Therefore, I take it as a perversely encouraging sign that the Adjustment Bureau's former General Counsel and Acting Deputy Director (a different position than "In Real Life Deputy Director") last week announced that she was quitting the agency and jumping feet first into the dung heap of the financial services business.

Meredith Fuchs, who recently stepped down as acting deputy director of the Consumer Financial Protection Bureau, is joining Capital One as the bank’s senior vice president and chief counsel on regulatory issues, according to a report from TheHill.com.

Fuchs served as general counsel at the CFPB before she was named acting deputy director in July 2015 after Steve Antonakes stepped down as deputy director.

The revolving door between the regulator and the regulated is so common in the fever-ridden Potomac Tidal Basin that it hardly raises an eyebrow in a cesspool that might soon be ruled by a man possessed of aeronautically engineered hair and the debonair demeanor Al Bundy. Still, there is something just a bit askew when the resume of the person who was the General Counsel and then Acting Deputy Director of an agency with such extensive power and authority over financial services lists a single job in the financial services industry after she leaves that agency. Perhaps you can find such a job there.

I'm sure that Capital One is looking for "insight" into the attitudes and workings of the CFPB and, when ethical waiting periods have expired, access and even credibility, when necessary, to perhaps lessen the impact of the next blow from the CFPB's cudgel. I'm sure that Ms. Fuchs will provide it. Her resume marks her as an extremely bright and talented lawyer. Let's hope  that when the door swings back to the regulatory side and she re-enters government service, she has a lot more hands-on experience with the financial services businesses that she's regulating than she had the first time around the block. Maybe she'll start a trend at the CFPB: know something about the business before you start regulating it. The regulated might want to see if things improve with an approach other than on-the-job training.

Fourth Corner Painted Into A Corner

This past week, a federal district court judge in Colorado slapped down, hard, Fourth Corner Credit Union. In the process, the judge was equally hard on the federal government that has done a half-baked job in dealing with the problem of state-legal marijuana businesses inability to to obtain access to the nation's financial system because their activities largely remain illegal under federal criminal laws.

As regular readers may recall, Fourth Corner Credit Union is a state-chartered credit union in Colorado that was formed in 2014 by (in the lofty rhetoric of the credit union's attorneys) "ten courageous citizens" to provided banking services to the "compliant, licensed cannabis and hemp businesses and to thousands of persons, businesses and organizations that supported the legalization of marijuana." In order to effectively operate, however, Fourth Corner needed a "master account" from the Federal Reserve Bank of Kansas City. The FRB-KC turned down Fourth Corner's application for such an account on several the grounds, including that federal law preempts state law and that the FRB KC won't grant a master account to a financial institution that is engaged in the facilitation of illegal activities (like the laundering of the proceeds illegal drug sales). Fourth Corner sued for a mandatory injunction by the court that would compel the FRB KC to grant the master account. The district court denied the motion, dismissed (with prejudice) the credit union's complaint, and awarded the FRB KC its reasonable costs.

That had to hurt.

Although the court declared that it did not need to reach the issue of federal preemption, it observed in a footnote that "[i]t is clear, however, that Congress has the power to prohibit cultivation, distribution and use of marijuana notwithstanding compliance with state law." In other words, even though I didn't have to decide the issue, if I had, I would have upheld federal preemption of state law.

That blasted the "Supremacy Clause" of the US Constitution (Article VI, Paragraph 2)! It's so inconvenient.

In the course of its opinion, the judge blistered the backsides of federal regulators, with special emphasis on FinCEN and the US Justice Department for their "guidance" on this issue. Fourth Corner alleged that such guidance provided federal "authorization" to serve marijuana-related businesses ("MRBs"). The judge didn't buy it (anymore than I did).

The problem is, the FinCEN guidance and Cole memorandum do nothing of the sort. On the contrary, the Cole memorandum emphatically reiterates that the manufacture and distribution of marijuana violates the Controlled Substances Act, and that the Department of Justice is committed to enforcement of that Act. It directs federal prosecutors to apply certain priorities in making enforcement decisions, but it does not change the law. The FinCEN guidance acknowledges that financial transactions involving MRBs generally involve funds derived from illegal activity, and that banks must report such transactions as “suspicious activity.” It then, hypocritically in my view, simplifies the reporting requirements.

In short, these guidance documents simply suggest that prosecutors and bank regulators might “look the other way” if financial institutions don’t mind violating the law. A federal court cannot look the other way. I regard the situation as untenable and hope that it will soon be addressed and resolved by Congress."

Since next year is a presidential election year, "soon" is not likely to be prior to 2017. Until then, to repeat ourselves, any bank that serves marijuana related businesses "is playing with fire and not wearing an asbestos suit."

playing with fire and not wearing an asbestos suit. - See more at: http://www.banklawyersblog.com/3_bank_lawyers/2015/10/over-the-summer-while-i-was-downing-cold-beers-by-the-barrel-the-federal-reserve-bank-of-kansas-city-and-the-ncua-finally-ac.html#sthash.qKIhqoJx.dpuf

playing with fire and not wearing an asbestos suit. - See more at: http://www.banklawyersblog.com/3_bank_lawyers/2015/10/over-the-summer-while-i-was-downing-cold-beers-by-the-barrel-the-federal-reserve-bank-of-kansas-city-and-the-ncua-finally-ac.html#sthash.qKIhqoJx.dpuf

playing with fire and not wearing an asbestos suit. - See more at: http://www.banklawyersblog.com/3_bank_lawyers/2015/10/over-the-summer-while-i-was-downing-cold-beers-by-the-barrel-the-federal-reserve-bank-of-kansas-city-and-the-ncua-finally-ac.html#sthash.qKIhqoJx.dpuf

The Fed On MJ Banking: Nyet

Over the summer, while I was downing cold beers by the barrel rather than blogging, the Federal Reserve Bank of Kansas City and the NCUA finally acted on the applications of Fourth Corner Credit Union for, respectively, a "master account" for access to the Federal Reserve System and for insurance of share accounts. In both cases, the answer was not only "No," but "Hell, No!" Fourth Corner sued both the NCUA and the Fed. last week, the Fed filed a Motion to Dismiss Fourth Corner's complaint that ought to send a chill down the spine of every bank in Colorado, Washington, Oregon and Alaska that thinks it can "work around" the federal banking regulators on the Supremacy Clause when it comes to banking a state-legal, federal-illegal marijuana business.

In broad strokes, the Fed alleges that federal law, in this case the Controlled Substances act, trumps state law on marijuana use by virtue of the Supremacy Clause of the US Constitution. This should be "Hornbook Law" to any bank regulatory attorney. The manufacture, sale, and distribution of marijuana is prohibited by the Controlled Substances Act. Therefore, "any affirmative action that Colorado has taken to facilitate the distribution of marijuana is preempted by federal law."

In the present case, Colorado attempted to grant TFCCU a charter that would, in effect, intentionally allow TFCCU to aid and abet violations of federal law by offering banking services to businesses engaged in the manufacture and/or distribution of marijuana. Such an act is preempted by federal law and is void and without effect...The Court would not aid other such attempts--such as if Colorado enacted a scheme to allow trade in endangered species or trade with north Korea in derogation of federal laws, and then chartered a credit union to handle finances for companies conducting such illegal trade...TFCCU is not an entity that can be recognized under federal law" and the credit union's complaint must be dismissed.

Beyond the "master account" and insurance of accounts applications at issue here, the Motion to Dismiss contains a broad condemnation for any existing financial institution--credit union or bank--that thinks that it is somehow safely avoiding federal criminal law prosecution and/or bank regulatory agency enforcement action because it follows the "FinCEN Guidance" issued in early 2014 that, in turn, followed the "Cole Memorandum" guidance provided to US Attorneys on prosecutorial discretion in the area state-legal marijuana businesses. The Fed contends that such "guidance" is not a protection from criminal prosecution (which the guidance itself states, if read carefully). Even if it affords such protection, the Fed makes clear that the Fed would not be bound by it.

The Fed also makes clear that it considers any financial institution that engages in providing financial services to a state-legal marijuana business to be engaging in aiding and abetting a criminal activity under federal law, and that federal law controls. Under that analysis, the Fed should, if it is consistent, take enforcement action against any Fed-member bank that is so engaged. I fail to see why the OCC, FDIC, or NCUA would take a contrary position.

An anonymous (naturally) critic from Dogpatch, U.S.A., attempted to leave a comment on the blog a few months ago that criticized my support of (the critic's phrase) "federal infallibility" regarding state marijuana laws. The poor soul apparently conflated "Papal Infallibility," a theological doctrine of the Roman Catholic Church, with the constitutional principle of "Federal Supremacy. The issue at stake is not who is "right" or "wrong" regarding whether the manufacture and distribution of marijuana for recreational use should or should not be illegal, it is whose law prevails when state and federal law conflict on this matter. My view is that federal law prevails and that any financial institution (and its directors, officers, and employees) that "banks"  a state-legal marijuana business is running a serious risk of being hammered by different federal agencies for violating federal criminal laws.

If your credit union's or bank's business plan is "I feel lucky today," more power to you. I think that you're playing with fire and not wearing an asbestos suit.

The Underbelly Of The Mt. Holly Settlement

The settlement of the Mt. Holly disparate impact case before it could be decided by the US Supreme Court were suspicious. At the time, it was thought by many that the US Justice Department had helped to engineer that settlement so that its (and HUD's and the CFPB's) use of that questionable doctrine in fair lending claims could continue for a while longer. The last thing the Feds wanted was for the SCOTUS to decide the matter, because they were worried (correctly) that it would strike down its use. At the same time, the banking industry wanted the SCOTUS to render a decision, because it thought that the court was more likely than not to strike down the doctrine's use in the fair lending context. The last thing that banks wanted was for the parties to the case to settle before the SCOTUS could render its decision (which is exactly what happened).

Recently, a rock has been overturned that has exposed a bunch of creepy-crawlers that work not for the federal government, but for the big banks that wanted the SCOTUS to rule in the Mt. Holly case. According to a former senior executive of Chase, that bank tried to get him to use his board position with a non-profit housing organization to "scuttle" the funding of the settlement. Moreover, the former executive, Wayne Trotman, at the time the mid-Atlantic market president of Chase, alleges that when he refused to breach his fiduciary duty as a member of the board of directors, the bank retaliated by firing him.

The fact that Mr. Trotman is an African-American adds not only to the radioactivity of the alleged wrongful conduct, but also substantial irony to those actions, if Mr. Trotman's allegations are true. While Chase counters that Trotman's claims are "baseless," Trotman's lawyers claim that they have "substantial evidence" to support them.

Obviously, the first thing that Trotman has to prove is that Chase pressured him to use his board position to scuttle the settlement. According to the linked article, which cites Trotman's Complaint, he claims that he was instructed to do so by Chase's Associate General Counsel, via email, even after he refused on the grounds that it would breach his fiduciary duty. The Complaint later states that another Chase attorney told him that he should not honor the request (which was also the position of his supervisor). Apparently, the ball started rolling in Jamie Dimon's office after he (and the heads of other large banks) received an email from Tim Pawlenty of the Financial Services Roundtable uirging the bankers to find ways to derail the settlement long enough for the SCOTUS to render a decision. There does not appear from the kinked article to be any order from Dimon that Trotman do anything, but, then, that's what subordinates are for: read the CEO's mind and "get 'er done" while retaining deniability for those residing at the top of Mt. Olympus.

The harder nut to crack for Mr. Trotman may likely be proving the causal connection between his decision to be an honorable man and not to breach his fiduciary duties, and his subsequent termination by Chase. It's impossible to determine that connection solely from the linked article, although I assume that the "substantial evidence" referenced by Trotman's lawyers indicates that they think that they can carry the water on that claim. The man worked for Chase for 19 years, received a "meets expectations" review shortly after the incident (although Chase substantially cut his bonus from the previous year, in which he received the same rating), then six months later received a mid-year performance rating of "poor" and was fired 14 days later without being provided an opportunity to improve. On its face, it looks like there might be fire with this smoke.

On the other hand, we haven't seen Chase's formal responsive pleading. In one press report, a Chase spokesperson told a reporter that Trotman 's position was eliminated in a "reorganization of markets." That spokesperson also claimed that Chase would "fight this in court." I guess that beats fighting it in the streets.

Obviously, it's too early to tell what the outcome of this lawsuit might be. The smart money in these situations is on a cash settlement with nondisparagement and confidentiality provisions in the settlement agreement, so that the "reputational risk" is mitigated and the whole sordid affair is swept under a rug.

Still. When it comes to picking a champion inducer of the gag reflex, it's often tough to choose between Big Banking and Big Government.

Changing of the Guard at DOJ

The recent confirmation of Loretta Lynch as the none-too-soon successor to the current Commissar Attorney General of the United States, engendered a lot of speculation about whether or not the exit of "Fast and Furious" Holder will also spell the end of Operation Choke Point. In a Senate hearing, Ms. Lynch was less than enlightening on this point.

In response to questions by Senator Mark Lee, a Chock Point critic, she sounded positively tepid.

Lynch told the senator that should she be confirmed, she would work with him to ensure that law-abiding Americans aren’t targeted by the initiative.

“I look forward to hearing your concerns and working with you on them,” she said.

Let's hope that when she uses the term "working with you" she doesn't really mean "working you over." Time will tell.

On another issue, however, she differs markedly from her boss, the Department of Justice, and FinCEN, which have been falling all over themselves to aid the heirs to Cheech and Chong to light up their bongs. Unlike Barack, Loretta loathes the demon weed.

A federal prosecutor in New York, Ms. Lynch told the Senate Committee on the Judiciary she disagreed with the president’s no-big-deal take on pot, saying, “I certainly don’t hold that view and don’t agree with that view of marijuana as a substance.”

“I think the president was speaking from his personal experience and personal opinion, neither of which I’m able to share,” Ms. Lynch said. “But I can tell you that not only do I not support the legalization of marijuana, it is not the position of the Department of Justice currently to support the legalization. Nor would it be the position should I become confirmed as attorney general.”

A stated opposition to "legalizing" marijuana could be read as merely opposing legalization at the federal level. In addition, personally opposing legalization, even at the state level, does not necessarily translate into abandoning the current position of the DOJ as embodied in the "Cole Memorandum" and its spawn at the DOJ and FinCEN. That position appears to be that as long as a state legal marijuana business doesn't run afoul of eight listed activities which the DOJ thinks are "really, really bad" (as opposed to being merely "really bad"), then federal law enforcement will look away. In the case of banks that service such "legal/illegal" businesses, as long as they file special super secret SARs and perform initial and ongoing due diligence with a level of detail that would confound the NSA, the Feds will cut them a break, as well.

 

Pot's proponents claim that we should not take Ms. Lynch seriously. They note that she was testifying before a committee chaired by the marijuana-repulsed Chuck Grassley. I guess their point might be that she was "spinning" (i.e., committing perjury).

 

Assuming, however, that she was actually delivering her honest opinion to Senator Grassley, I think that Ms. Lynch's arrival on the scene may bode ill for the "three monkeys approach" to the future enforcement of federal drug laws against businesses that are engaged in state-legal-federal-illegal marijuana businesses. "Looking the other way" might prove to be a thing of the past for the DOJ, even before a Republican AG takes office in 2017 (should a Republican win the White House in 2016).

 

Moreover, the rogue banks in Colorado, Oregon, and elsewhere, who, in banking marijuana businesses, have been operating under the "don't-ask-don't-tell" benevolence of the FDIC and other federal banking regulators who take their cues from the head of the Executive branch (although they would deny that allegation until the end of time), may find that the examiners who have been giving them "tacit approval" to bank marijuana businesses as long as they don't make that fact public, are suddenly attacked by fits of rectitude and begin to take federal drug trafficking laws seriously again. If that happens, good luck with holding the agencies to their "tacit" approval.

Feds To Tribes: Don't Bogart That Roach, Roll Some More

At the same time that the federal government is trying to drive Native American tribes out of the payday lending business, it is encouraging them to get into the pot business. As long as the file those Cheech & Chong SARs that were created out of whole cloth.

Indian tribes can grow and sell marijuana on their lands as long as they follow the same federal conditions laid out for states that have legalized the drug, the U.S. Justice Department said Thursday.

[...]

Oregon U.S. Attorney Amanda Marshall said that the Justice Department policy addresses questions raised by tribes about how legalization of pot in states like Oregon, Washington and Colorado would apply to Indian lands.

“That’s been the primary message tribes are getting to us as U.S. attorneys,” Marshall said from Portland. “What will the U.S. as federal partners do to assist tribes in protecting our children and families, our tribal businesses, our tribal housing? How will you help us combat marijuana abuse in Indian Country when states are no longer there to partner with us?”

How will we help you combat marijuana abuse? By telling you that it's OK to grow it? Makes sense to me.

Here's the rub: most tribes don't want anything to do with it.

But many in Indian Country are wary of compounding existing drug and alcohol problems by growing and selling pot.

The Yakama Nation in Washington state recently banned marijuana on the reservation and is trying to halt state regulated pot sales and grows on lands off the reservation where it still holds hunting and fishing rights. The Hoopa Valley Tribe in Northern California has battled illegal pot plantations on its reservation that have damaged the environment.

In South Dakota, the Oglala Sioux Tribal Council this year rejected a proposal to allow marijuana.

Oglala Sioux tribal Councilwoman Ellen Fills the Pipe, chairwoman of the council’s Law and Order Committee, said Thursday she needs to review the federal policy more thoroughly but that given her long background in law enforcement, she opposes loosening marijuana laws.

“For me, it’s a drug,” Fills the Pipe said. “My gut feeling is we’re most likely going to shoot it down.”

In Oregon, former Klamath Tribes chairman Jeff Mitchell said communities everywhere deal with drug and alcohol issues, and tribes are likely to proceed carefully.

“I have confidence in tribal government that they will deal with it appropriately and they’ll take into consideration social and legal aspects, as well as other implications that go along with bringing something like that into a community,” Mitchell said.

Obviously, the tribes have more common sense than the feds, and much more than a majority of voters in states that want to jump on board the cannabis gravy train and ride it 'til it derails in a cloud of smoke.

Moreover, as US Attorney Mitchell helpfully observes, the activities of the tribes in this respect would violate federal criminal laws. Which is why, other than for a few outliers, the banking industry in states like Colorado and Washington, continues to refuse to have anything to do with the marijuana business.

Maybe between casino gambling and pot, the tribes ultimately will have revenge on the people who took their land and put them on reservations, further weakening an already deracinated popular "culture" that seems, in many respects, to be revolving quickly, in an increasingly tight concentric circle, around the drain hole of history.

Wouldn't that be ironic?

MJ Law 101

Being hooked up with a Colorado-based firm, I've given a lot of thought (and blog space) to the intersection of law (particularly banking law) and marijuana. As a result of these deep thoughts I'd like to say...uh...ummm..yeah...

What?

Dude!

It turns out I'm not the only one hanging out at corner of Bank and Bong Streets. So has professor Sam Kamin of my former place of abasement, The University of Denver's Sturm College of Law. According to a recent article by the editor of the The Denver Post's "The Cannabist" column, Professor Kamin will teach a course entitled "Representing the Marijuana Client." The description of the course does not describe whether the emphasis will be on representing clients who are under the influence of marijuana, are engaged in the state-lawful, federal-unlawful marijuana-related business, or are, themselves, marijuana. Taken literally, a "marijuana client" could be a joint, a roach, an edible, or merely a pipe bowl of stems and seeds.

Among the topics addressed in the course description will be "banking," and we assume that does not refer to a type of turn performed by an airplane, but, rather, the legal issues surrounding a commercial bank providing services to a marijuana-related business. As we recently pointed out, that aspect of the course can summed up rather quickly: it's illegal under federal law.

See, we saved potential students some time and money. We here at bank lawyers blog are all about mentoring.

On the other hand, as Kamin rightly points out, the issues involved are many and complex.

When I was on the Amendment 64 task force and just thinking about an edible — what can be in it, who’s determining what’s in it, what the dosage is, how you indicate the dosage, how you make sure it’s safely packaged, how it can be advertised,” he said. “Every small piece of it has so many regulatory issues, so if you’re working in that area, running a MIP (marijuana-infused product manufacturer) or something, the state, local, federal regulations of that are mind-boggling.”

As they are if you're trying to bank one of those businesses.

We wish Professor Kamin and his students well, because, this is an issue that is not going to simply disappear in a cloud of smoke. Moreover, it's not an issue confined to Colorado, but one that affects a growing number of states. Therefore, Kamin's closing statement is very cogent.

“It’s an expertise our students will have and others won’t,” he said. “There’s a lot of demand for this — and we’re trying to position our students well to fit in there.”

Yes, when it comes to marijuana, there has always been a lot of demand. As long as the students who take the course do not (even casually) partake of the subject matter, they might actually be able to render some useful advice to those in need of it.