11 minute read
Chairman’s Column
Anger and nervousness — those were my emotions in September when I first heard about the Wells Fargo fiasco and considered the potential backlash to the community banking industry. It’s hard to fathom a bank taking advantage of the people it purports to serve and violating the very trust that serves as a pillar of our organizations. The resultant consumer sentiment and negative spotlight shone brightly on our industry is both disappointing and disgusting. Add national reporting that mostly doesn’t distinguish between a systemically risky megabank and a community bank, and skyscraping frustration levels ensue. My nervousness arises from the realization that we’ve been down a road very similar to this one, and the last time it didn’t end well with the passage of the Dodd Frank Act (reminds me of the Pig Trail on ice)! I believe every Arkansas banker would agree that when we make mistakes, even do something wrong, there’s a price to pay. It’s the same notion that existed in my home as a child and the same I’ve tried to impress upon my two daughters. It’s called accountability. I know enough bankers in Arkansas and across the country to know that we, as an industry, believe in accountability. When any of us make decisions, we expect to be held accountable and, in fact, our business model demands it. We are all held accountable, and we all should be. That said, a reaction we don’t need now is a policy response that results in increased regulatory demands or inhibits the passage of bills containing tailored regulatory relief for community banks. In Arkansas, we are integral parts of the communities we serve and have built relationships on integrity and trust over many decades. We operate from a position of strength because of trust-built relationships and an intimate knowledge and understanding of our communities. It’s a strength that only stems from walking, talking, investing and serving a community day in and day out. Empowered by that fact, it’s imperative that we continue to work diligently to ensure that policymakers and the public understand exactly what we do, and why our industry is so consequential to the success of our state and, ultimately, the entire country. I greatly encourage you to take part in the ABA’s advocacy efforts today! There are numerous ways to get involved and play a part. Whether it’s via email or social media, written communications or face-to-face meetings, the channels are in place and the Arkansas Bankers Association is ready to assist you and your team. Please consider joining other Arkansas bankers March 20-22, 2017, as we participate in the American Bankers Association Government Relations Summit in Washington, D.C. We’ll receive timely and relevant industry updates while meeting with our delegation concerning key industry issues in 2017 and beyond. I hope to see you there! In closing, I want to wish you a very Merry Christmas! This time of year is incredibly special Accountability & Serving Our Communities
CHAIRMAN SEAN WILLIAMS President & CEO First National Bank of Wynne
and always leads me to reflect on the many things in life for which I am thankful. In America, in Arkansas, and in banking, we sometimes focus much of our time and effort on the challenges before us (see comments above!). In spite of challenges, we are unquestionably a blessed people, nation and industry. It is a privilege to be a member of the Arkansas banking community, and I am thankful for great friends across our state and the privilege to serve as your chairman.
ABA EMERGING LEADERS SECTION COUNCIL BLAKE FLETCHER | PRESIDENT Stone Bank, Little Rock JOHN ANDERSON | VICE PRESIDENT Malvern National Bank, Little Rock
EDUARDO ABRIL | GROUP 4 First State Bank of DeQueen, DeQueen NATALIE BARTHOLOMEW | GROUP 3 First National Bank of NWA, Rogers JOHN BOLLINGER | GROUP 3 Simmons Bank, Fayetteville BRANDON GENTRY | GROUP 1 Cross County Bank, Wynne ROBERT HARGIS | GROUP 5 The Citizens Bank, Monticello
BURT HICKS | GROUP 5 Simmons Bank, Pine Bluff BLAKE JOHNSON | GROUP 1 Evolve Bank, Jonesboro MATT LAFORCE | GROUP 2 First Security Bank, Searcy JAMES LYLE | GROUP 5 McGehee Bank, McGehee RYAN MOORE | GROUP 1 Centennial Bank, Jonesboro
GEORGE PURVIS | SEC./TREAS. Cornerstone Bank, Eureka Springs
HUNTER NORTON | GROUP 3 First Security Bank, Fayetteville BEN RIDINGS | GROUP 2 Bank of the Ozarks, Little Rock RACHEL SCHWARTZ | GROUP 4 Farmers Bank & Trust, Texarkana SANDY STARNES | GROUP 2 The Citizens Bank, Batesville HUNTER WINDLE | GROUP 4 The Malvern National Bank, Malvern
ABA Professional Development Webinars... Provide the option of training as many employees as you wish for one price, all from the convenient location of your home institution!
WEDNESDAY, JANUARY 4 Negotiation Skill Building To Improve Business Development 1:30 p.m.-3:30 p.m.
THURSDAY, JANUARY 5 Getting Ready for CECL 10:00 a.m.- 12:00 p.m. Lending To Local Government Units 1:30 p.m.-3:30 p.m.
FRIDAY, JANUARY 6 Plan To Fail Well – Incident Response 10:00 a.m.- 12:00 p.m.
MONDAY, JANUARY 9 Basic Business Entities & Other Commercial Borrowers 10:00 a.m.- 12:00 p.m. Scrubbing and Submitting 2016 HMDA Data 1:30 p.m.-3:30 p.m.
THURSDAY, JANUARY 12 Dealing With Subpoenas, Summonses, Etc. 10:00 a.m.- 12:00 p.m. Handling Loan Applications: What Can Go Wrong? 1:30 p.m.-3:30 p.m.
TUESDAY, JANUARY 17 Problem Loan Workout in Today’s Economy 9:00 a.m. – 3:00 p.m. The New HMDA Rule: Implementation Challenges 1:30 p.m.-3:30 p.m.
WEDNESDAY, JANUARY 18 20 Legal Account Ownerships, Legal Documentation & More 10:00 a.m.- 12:00 p.m. Online Deposit Account Opening 1:30 p.m.-3:30 p.m.
TUESDAY, JANUARY 10 Best-Ever Compliance Checklist for Consumer Loans 1:30 p.m.-3:30 p.m.
WEDNESDAY, JANUARY 11 Open Accounts for Nonresident Aliens 10:00 a.m.- 12:00 p.m. CRA Nuts & Bolts: Five Steps To Pass the Exam 1:30 p.m.-3:30 p.m.
THURSDAY, JANUARY 19 Will Your Front Line Cost You Millions? 10:00 a.m.- 12:00 p.m. Implementing the New Beneficial Ownership Rules 1:30 p.m.-3:30 p.m.
TUESDAY, JANUARY 24 Right of Set-off 10:00 a.m.- 12:00 p.m.
WEDNESDAY, JANUARY 25 Safe Deposit Box Access When Your Renter Dies 10:00 a.m.- 12:00 p.m. Creating the Right ERM Program for YOUR Community Bank 1:30 p.m.-3:30 p.m.
THURSDAY, JANUARY 26 Loan Underwriting Mistakes 10:00 a.m- 12:00 p.m. Compliance Perspectives: A Monthly Update 1:00 p.m.-2:00p.m. Advertising Compliance 1:30 p.m.-3:30 p.m.
FRIDAY, JANUARY 27 ACH Rules Update 10:00 a.m- 12:00 p.m.
MONDAY, JANUARY 30 Flood Insurance Review and Update 1:30 p.m.-3:30 p.m.
TUESDAY, JANUARY 31 Commercial Loan Write-Up/Loan Committee Presentation Skills 9:00 a.m. – 3:00 p.m.
THURSDAY, FEBRUARY 2 Onboarding Your New Hire 1:30 p.m. - 3:30 p.m.
Banking and Medical Marijuana in Arkansas– It’s Still Illegal
This November Issue 6, titled “The Arkansas Medical Marijuana Amendment of 2016,” was approved by a majority of Arkansas voters and will amend the Arkansas Constitution to allow the use and distribution of medical marijuana. However, the first sentence of the Amendment acknowledges that “marijuana use, possession, and distribution for any purpose remain[s] illegal under federal law...” Regardless of the change to the Arkansas Constitution, banks remain prohibited from offering banking services to those who operate medical marijuana dispensaries and cultivation facilities, and third parties that do business with such parties. Controlled Substances Act Marijuana is still a Schedule I Controlled Substance under the Controlled Substances Act, so any activity related to the use and sale of marijuana is illegal. The Bank Secrecy Act (“BSA”) prohibits any bank from knowingly assisting in processing the proceeds of an illegal transaction and requires the reporting of known or suspected criminal violations of federal law or a suspicious transaction related to a violation of the BSA through a Suspicious Activity Report (“SAR”). While 28 states and the District of Columbia have legalized the use of marijuana, either for medical purposes or for recreation, Congress has not removed marijuana as a Schedule I Controlled Substance or provided an exemption for banks offering services to marijuanarelated businesses. FinCEN Guidance The only guidance for banks is from the Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”), the organization responsible for overseeing SARs. On February 14, 2014, in conjunction with a memorandum by James M. Cole, the Deputy Attorney General for the Department of Justice (“DOJ”) (the “Cole Memo”), FinCEN released a guidance memorandum addressing how banks can provide services to marijuana-related businesses consistent with their BSA obligations. FinCEN reiterated that while marijuana remains illegal, the DOJ’s enforcement actions pursuant to the Cole
8 The Arkansas Banker | December 2016 Memo should focus on the following priorities: Preventing the distribution of marijuana to minors; Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels; Preventing the diversion of marijuana from states where it is legal under state law in some form to other states; Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity; Preventing violence and the use of firearms in the cultivation and distribution of marijuana; Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use; Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and Preventing marijuana possession or use on federal property. If a bank wishes to offer services to a marijuana-related business, FinCEN recommends that banks conduct customer due diligence, including: (i) verifying the business is duly licensed and registered to sell marijuana; (ii) reviewing the license application and related documents submitted to the licensing authorities; (iii) requesting the available information about the business and related parties from the licensing and enforcement authorities; (iv) developing an understanding of the normal and expected activity for the business, including the products to be sold and the type of customers to be served; (v) ongoing monitoring of publicly available sources for adverse information about the business and related parties; (vi) ongoing monitoring for suspicious activity; and (vii) refreshing information obtained as part of ongoing customer due diligence. Banks doing business with known marijuana-related businesses in which one of the Cole Memo priorities is not implicated will
still have to file a “Marijuana Limited” SAR, stating that the SAR is being filed solely because the customer is engaged in a marijuana-related business, and file continuing activity reports thereafter. If the bank determines at some point the marijuanarelated business implicates one of the Cole Memo priorities or violates state law, it will need to file a “Marijuana Priority” SAR, and a “Marijuana Termination” SAR if the bank deems it necessary to terminate the relationship with the marijuanarelated business. Even with the guidance from the DOJ and FinCEN, banks continue to refuse to provide services to marijuana-related businesses in states where marijuana use has been approved by state government because providing such services is illegal. To complicate matters further, an employee, landlord, vendor, or other third party contractor of a marijuana-related business is receiving the direct proceeds of an illegal activity, which is illegal. If a bank knows the funds received by such third parties are from a marijuana-related business, a bank would be participating in the illegal activity by allowing the funds to flow through the bank. Therefore many banks simply refuse to open accounts or close existing accounts with such third parties. Prosecution of Medical Marijuana Since medical marijuana was approved in California in 1996 the DOJ has continued to prosecute marijuana-related businesses, including medical marijuana dispensaries and cultivation facilities. However, in 2014 Congress passed a rider to an appropriation bill which restricted funds from the DOJ for any effort to restrict certain states from implementing their own laws authorizing the use, distribution, possession, or cultivation of medical marijuana. Because of the appropriation rider, the 9th Circuit Court of Appeals upheld a ruling that denied the DOJ’s right to prosecute a medical marijuana facility, provided the facility could show it complied with the applicable California law regarding the use and distribution of medical marijuana. U.S. v. McIntosh, 833 F.3d 1163, 1179 (9th Cir. 2016). Unfortunately this decision doesn’t give any relief for Arkansas banks wishing to offer banking services to marijuana-related businesses. First, the appropriations rider needs to be extended past 2016 and amended to include Arkansas for the DOJ restriction to be applicable in Arkansas. Second, since the decision was made in the 9th Circuit, it would not be applicable Daniel J. Beck is an attorney with Quattlebaum, Grooms & Tull PLLC, where he primarily practices in the areas of banking law and real estate. Daniel can be reached at dbeck@QGTlaw.com. ABOUT THE AUTHOR to courts in Arkansas at this time. Finally, there has been no legislation that would apply an exemption to the regulatory authority of the Federal Reserve, the OCC or the FDIC regarding this issue. Conclusion A majority of the states in the Union have authorized some form of marijuana use, but there is no concrete exemption for providing banking services to marijuana-related businesses. While it is not known whether the President-elect and his new administration wish to increase or decrease the prosecution of medical marijuana use and distribution, it is unlikely that the momentum for legal medical marijuana will stop at the state level. At some point Congress will need to act to change the laws concerning marijuana and banking. This issue will be addressed when it is deemed to be a priority by Congress. Bankers will have to actively engage their representatives if they wish to provide banking services to this new industry in the near future. “ ” Regardless of the change to the Arkansas Constitution, banks remain prohibited from offering banking services to those who operate medical marijuana dispensaries and cultivation facilities, and third parties that do business with such parties. Click here to learn more about Banking and Marijuana!
