Banks Say No to Marijuana Money, Legal or Not

http://www.nytimes.com/2014/01/12/us/banks-say-no-to-marijuana-money-legal-or-not.html?ref=business&pagewanted=all&_r=0

by danso • 13 years ago

85 87 13 years ago

nytimes.com

argumentum• 13 years ago

Bitcoin to the rescue .. ?

polarix• 13 years ago

The BTC ATM market is ready to heat up in a big way.

gargarplex• 13 years ago

Are your initials GP?

smtddr• 13 years ago

First thing that came to mind. This is one way bitcoin helps people; when banks start refusing to allow you to use your money how you want.

Remember when wikileaks couldn't get donations because "pressure" was put on paypal, mastercard & visa not to process those payments? Bitcoin.

Wanna donate to the piratebay? Anonymous? ...bitcoin.

Megacorps wanna donate to a political campaign without being found out later on? ....bitcoin.

kungfooguru• 13 years ago

Yea, put your companies capital into a volatile, non-FDIC insured, commonly robbed medium. Genius.

maqr• 13 years ago

It's really important to understand that bitcoin is not anonymous by default, and it might well be less anonymous than cash by default. I know there are solutions to anonymizing BTC, but for the average person who bought some BTC from a service online and used it to send a transaction to a political campaign or TPB or wherever, I wouldn't call it any more anonymous than paypal.

Crito2• 13 years ago

How do these businesses cheaply, regularly, and reliably turn large amounts of cash into bitcoins, without going through somebody that is spooked by the Federal Government?

Asking their customers to do it for them is unrealistic. Their target audience is not "HN techies", but rather "general population". Maybe in the future having the customers do it will be a realistic solution, but maybe in the future it will be fully legalized anyway...

lukifer• 13 years ago

It would be a smart move on the part of stores to operate aggressively-priced LocalBitcoins sales on the side, to reduce their cash on hand.

natrius• 13 years ago

Raise prices for dollar purchases and discount Bitcoin purchases. After three weeks of that, 90% of customers will be paying with Bitcoin.

debian69• 13 years ago

lol but hsbc says yes to organised drug money!

spikels2• 13 years ago

So true but HSBC's standard cartel account minimum balance is a billion dollars.

wavefunction3• 13 years ago

Not just HSBC, Wells Fargo and Bank of America among others.

Apparently domestic pot growers don't murder and rape enough to warrant service.

dublinben• 13 years ago

More seriously, they don't have the kind of capital that warrants that level of service. Unsavory characters with billions of dollars are almost always able to find willing banking partners. The same isn't true of those with thousands of dollars.

1qaz2wsx3edc• 13 years ago

tl;dr; Banks are federally insured, marijuana is still illegal at the federal level. Policy must change.

danso• 13 years ago

This is a critical distinction, and one that applies to virtually every kind of rule and policy that affects our lives. Does anyone seriously think that bankers have a moral objection to taking in money from legal pot growers? That the banking profession is in the pocket of the tobacco industry? They are reluctant because of the strange legal situation that the federal government has allowed to exist...and yet it's so tempting to yell at the banks for being unfair. Cathartic, yes, but if the situation is to be remedied, they aren't the ones who have the most leverage to effect change.

guard-of-terra• 13 years ago

"The Controlled Substances Act, enacted in 1970 classifies marijuana as a Schedule I drug"

I wonder what people who underwrote it are doing now.

(Most of them are dead for good, sure)

lucb1e• 13 years ago

Reading this, all I can imagine is them saying to each other in a satisfied voice: "Who's making laws now, eh?"

Just like with Visa blocking Wikileaks months ago and banks presently blocking Bitcoin (the Rabobank in the Netherlands leaked memo a few weeks ago that they should not facilitate Bitcoin traders), I'm not sure I like these practices. Not to mention PayPal's draconian policy.

Controlling people's money is a nice power to have... (So, Bitcoin anyone?)

pyduan• 13 years ago

In this case: the federal government. The banks didn't randomly decide they were against marijuana, they're just reluctant because while marijuana is legal for medicinal or recreational use in a few states it's still a Schedule I drug at the federal level, which makes it legally tricky to handle the proceedings from the marijuana business.

Eliezer• 13 years ago

I don't think much of Bitcoin but even I tend to read this and think, "Well, screw the banks, we have Bitcoin."

javajosh• 13 years ago

If FDIC insurance is the issue, then simply offer uninsured accounts. I don't see why this is an issue.

justincormack• 13 years ago

Its not the issue, the issue is that these are, Federally, proceeds of crime, and could be seized by Federal law enforcement and the banks charged for money laundering offences.

minimax2• 13 years ago

Not sure that really helps. They are worried about their security because they don't want to get robbed. If I can break in and hold a gun to your head until you irreversibly transfer me all your bitcoins then you have basically the same security problem.

If your response is that they should keep all their bitcoins in a safe place then maybe we can think about what sorts of safe places you can keep items worth tens of thousands of dollars and then I think you basically end up back at banks.

pfisch• 13 years ago

Safety Deposit boxes and banks are not necessarily the same entity.

wyager3• 13 years ago

The store owner owns the private keys. The stores themselves only get access to the pubkeys. Or they use a service that holds all the keys for them.

Unlike with physical cash, you can easily put any arbitrary amount of physical separation between the place the transaction occurs and the place the money is "stored".

mjolk• 13 years ago

Yes, because your landlord accepts bitcoin. Or, if you have a home, the bank.

bertil2• 13 years ago

I won’t describe Hacker News reflex to offer BitCoin as a solution to all woes as ‘smart’, but most (e-)commerce actually use solutions that convert BitCoins to dollars as the transaction happen (or within the next 10 minutes). The problem here is to hide to the bank (or rather give them plausible deniability towards Federal authority) that the money came from the sale of Mary-Jane. I doubt a shell company would suffice — however, the problem isn’t to get dollars sent to your account.

jonnybgood• 13 years ago

I don't think that's the appropriate attitude to take. If you want Mary Jane legalization and tolerance in the mainstream, you need the banks. In other words, relying purely on BTC will only hinder the progress towards federal legalization for the simple fact BTC is not mainstream.

Freestyler_32• 13 years ago

If im getting the banks right, they are kind of saying you should launder your clean money before they can take it.

brownbat• 13 years ago

Yeah, they're cash heavy. They'd probably willingly exchange it for something lighter weight at a reasonable fee, so long as they could get cash back out again when they needed to.

Someone really just needs to set up a BTC ATM in these places, see what happens. Maybe convince the owners to take bitcoin, off chance it creates a thriving use case for both, and demonstrates the ability/limits of BTC as a banking substitute.

auntienomen2• 13 years ago

Bitcoin's not a very good solution for these guys. The fluctuations in the value of BTC could really screw up their cash flow. "Uh, sorry guys. China made a minor change in thier banking laws, and we're a little short of cash at the moment. We can't pay you this week, but it's probable that we'll be able to pay you next week."

FellowTraveler• 13 years ago

This isn't true. A business can receive Bitcoin and convert it all to gold daily. They can sell some of this gold for cash to pay their expenses.

They can also start a separate company, say, an investment company, to take the gold and store it, or convert it to dollars or stocks.

There are lots of solutions made possible by Bitcoin, none of which are impacted in the slightest by the investment volatility of Bitcoin.

toblender• 13 years ago

You beat me to it. I think Bitcoin has managed to infect our minds...

patio112• 13 years ago

Does using Bitcoin avoid the trip to the local government tax agency with $51,000 in hard currency? They'll accept payments in anything, as long as anything is US dollars.

Does using Bitcoin help assist someone who has a debit card purchase marijuana? Bear in mind that this person is likely non-technical. They're also physically present at a marijuana distributor, and sufficiently difficult processes will cost them a 30 minute car drive to another marijuana distributor, who transacts via cash and an ATM or using the ATm->distributor's account loophole.

Does using Bitcoin help Totally Not A Marijuana Dispensary LLC avoid the scrutiny of its bank's compliance department such that they can maintain a business bank account, write checks to employees and vendors, demonstrate a credible revenue/expense history and thereby secure credit, and otherwise plug into the mainstream financial system? For example, will large wire transfers coming in from an identifiable company in Tokyo, or their cutouts, raise less flags than dealing in equivalent amounts of cash, like every pizzeria, car wash, laundromat, video arcade, etc in America?

The last one might not be obvious, so as someone who has extensive experience with American and Japanese banks doing routine wire transfers between each other: this reads as Very Effing Exotic to risk/compliance officers and even if you're utterly aboveboard you'll be asked to explain yourself a lot. I get to have a quick chat with the manager of my bank branch for every single wire, and let's just say it is a very good thing that I have a US passport, an accountant on speed dial, a stack of invoices and contracts, sterling credit, and the interconnected stack of social privileges which let me convince skeptical people that I'm an "international professional" rather than "drug dealer" in five minutes of conversation.

arohner• 13 years ago

They'll accept payments in anything, as long as anything is US dollars.

Sometimes, not even then: "One dispensary owner told me about taking seven thousand dollars in cash to the Washington Department of Revenue, to pay his monthly tax bill. He was turned away, because the teller refused to deposit his “drug money.”"

http://www.newyorker.com/reporting/2013/11/18/131118fa_fact_...

drewblaisdell• 13 years ago

I would have expected you to think a little more creatively than this! Bitcoin is a replacement for banking, in this case, for legal marijuana businesses. It just might not be the (best|most practical|answer) for these businesses at this point. Also, the issues you present are problems created by existing financial institutions. Bitcoin doesn't exist to solve problems caused by $BANK, or to create a buffer between $BUSINESS and $BANK: it exists to replace $BANK.

To think that your curated list of issues that Bitcoin does not solve is in any way a reason that there aren't many other issues it does solve is fallacious.

acd• 13 years ago

Well a small supergroup of financial companies rules the world through central banking creating money out of thin air.

Check page 4/36 http://arxiv.org/PS_cache/arxiv/pdf/1107/1107.5728v2.pdf

elviejo• 13 years ago

not all banks... just ask HSBC ;-) "Matt Taibbi: After Laundering $800 Million in Drug Money, How Did HSBC Executives Avoid Jail?"

http://www.democracynow.org/2012/12/13/matt_taibbi_after_lau...

silveira• 13 years ago

This. They should rewrite the headline, "Banks Say No to Marijuana Money... Legal".

Alex3917• 13 years ago

Don't forget Wells Fargo!

falsestprophet• 13 years ago

Banks aren't the only place to safely store money and transmit money. Is there any reason an armored car service can't pick up marijuana industry cash and sell these businesses cash equivalent securities that are not at risk of being stolen (like short term federal or Colorado bonds)?

It could be that insurance companies would not cover armored car services for marijuana industry clients, but presumably it would be possible to raise rates to cover expected losses (FBI data shoes that only 7 armored cars were robbed in 2010).

edit: This sounds vaguely like a valid business plan. One could start a Colorado-only Colorado-regulated bond broker-dealer. This broker dealer could cooperate with armored car services to move cash from marijuana industry clients to the broker's bank (or to the State of Colorado as payment for bonds). Marijuana industry clients would be unburdened from carrying large physical cash positions and free from a great deal of counter party risk because the marijuana industry clients would own liquid bonds.

gloverkcn3• 13 years ago

The problem is that armored car companies currently have no have no ability offer that service. All pickups are settled through settlement accounts at banks. You cannot take deposits without falling under federal regulatory compliance.

The state needs to pass laws creating or making possible the creation of a state approved depository. This could begin to undermine the power of the fed and start a. It states rights battle

adekok• 13 years ago

You cannot take deposits without falling under federal regulatory compliance.

It sounds like there's a need for a "safety deposit box delivery" service. They'll deliver a safety box to you, which you fill with whatever makes you happy. You close it, and they pick up the filled and locked box. It then gets stored in a secure vault.

That would avoid a lot of fear surrounding the personal transport of money.

It sounds to me like a business ready for disruption.

zachrose• 13 years ago

Why can't a (possibly new) armored car company offer that service?

Strictly speaking, they wouldn't be in the business of settling accounts at banks. They would be in the business of selling securities for cash. I could drive around in a car and provide the same service, only I'd want the security of an armored car to transport the cash. I would drive the cash to the bank and deposit it in my perfectly legitimate business account.

One thing I don't understand: what kind of securities would these be? They would have to be sold on the spot, yet somehow more secure than cash.

sxp• 13 years ago

While they are active, however, these accounts may have informal restrictions placed on them — some self-imposed — so they do not draw the scrutiny of bankers who may file suspicious-activity reports or would be required to report deposits over $10,000 in cash. The account holders may make only small deposits, and only at night and at certain branches. Mr. Kunkel of Seattle has such an account.

That's not a good thing to admit to a newspaper. Even if the federal rules allow legal marijuana sales, he could still be in trouble for structuring: http://en.wikipedia.org/wiki/Structuring

socrates1998• 13 years ago

The irony that banks take a stand against these small time shop owners is ridiculous, they are all guilty of laundering billions of dollars.

I can see smaller credit unions being genuinely concerned, but big banks? Really?

It allows them to claim they follow the rules without actually hurting their bottom lines.

sergers• 13 years ago

i live in vancouver BC canada.

nearly every medical marijuana dispensary i have been to have been accepting DEBIT/INTERAC/MASTERCARD/VISA etc without any issue for about 2 years now

refurb• 13 years ago

The thing that helps in Canada is that the medical marijuana legislation was done at the federal level. Banks don't have to worry about violating any laws in regards to working the with medical marijuana businesses.

memracom• 13 years ago

Reading between the lines, it seems that US Federal law is driving the creation of an alternative banking system. This would not be a bad thing considering the amount of concentration in the banking system and how that led to the recent big banking bust.

asdkl234890• 13 years ago

Well there is no such thing as federally legal marijuana yet, right?

Crito2• 13 years ago

There actually is, but in an extremely limited form.

There are currently four living people that receive medical marijuana from the federal government. They were grandfathered in after the Compassionate Investigational New Drug program was closed to new applicants in 1992.

http://en.wikipedia.org/wiki/Compassionate_Investigational_N...

Zenst• 13 years ago

Sad fact is this will either impact or open up a new market to some 3rd party to offer what the banks will not. Then once estabilished and working the banks will either compete or borg the company. Profit for banks has a dynamic moral, wait and see.

llcoolv• 13 years ago

pun aside, but don't these precautions seem a bit too paranoid or is it just me? :D

auntienomen2• 13 years ago

Imagine that you're known to be regularly moving around in an unarmored car with $50K. Would you take a chance that you get the robber who won't just shoot you dead?

JosephHatfield• 13 years ago

Just saw a recent news post reporting the executives at High Times are about to start a private-equity fund called the HTG Fund that will provide and cash and credit to cannabis-related businesses. Wonder if they'll also be able to provide advice on handling large amounts of cash.

Freestyler_32• 13 years ago

advice on handling large amounts of cash.

I will always be willing to accept gifts.

Hey if there is a topic about drugs on a tech forum, I don't think the established ethics apply.

briandear• 13 years ago

The irony here is that HSBC escaped criminal prosecution for laundering cartel money. There was a recent rolling stone article about it. The solution might be for these places to use offshore banks, but then you add another layer of complications.

VladRussian2• 13 years ago

the moment somebody comes with a real solution for marijuana sellers may happen to be an "Ice Age" style crack in the banking business. Forcing people to invent ways to workaround the system may be not good for the system in the long run.

patio112• 13 years ago

It's curious how HNers can simultaneously say "Serves those banksters at HSBC right -- finally, the government decides to fine them a billion dollars for laundering drug money" and then "Pfft, getting your bank accounts shut down for being in marijuana is a silly problem to have -- here, I'll describe a foolproof money laundering strategy which could get seen through by an eight year old. That should keep things square with the banks and their regulators, wink wink."

gaius• 13 years ago

To be completely fair, HSBC didn't launder anything - they were used to launder money, and were fined for not detecting it. I do wonder if the average HNer hasn't really thought this through. It's no different from the govt fining Google because they didn't flag up people discussing drugs in their GMail.

anonbanker• 13 years ago

they should all start banking in Canada. Water's fine here.

chaostheory• 13 years ago

TDLR

Though 20 states and the District of Columbia allow either medical or recreational marijuana use — with more likely to follow suit — the drug remains illegal under federal law.
As a result, banks, including state-chartered ones, are reluctant to provide traditional services to marijuana businesses. They fear that federal regulators and law enforcement authorities might punish them, with measures like large fines, for violating prohibitions on money-laundering, among other federal laws and regulations.

Banks Say No to Marijuana Money, Legal or Not

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