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FinCEN, Banking And Cannabis Payments

by Kimberly Baylies on June 21, 2021

Banking, Payment Processing and FinCEN Compliance: Bankcard International Group Helps Cannabis Entrepreneurs Overcome Bureaucratic Barriers

Cannabis payments mean FinCEN scrutinyState legalization of medical or recreational marijuana sales unleashed a host of problems with the law for cannabis companies. Payment processing, banking, and FinCEN triggers are among the biggest obstacles to the proper functioning of any cannabis business. 

If you take into account states that allow marijuana derived CBD for medical use, there are only two states that have not legalized some form of cannabis. Despite this, gaining access to banking and payment services remains complicated. 

Now medical and recreational cannabis dispensaries had to start abiding by a new regulatory environment. In particular, they had to follow guidelines published by the federal government’s watchdog for monitoring financial crime: The Financial Crimes Enforcement Network (FinCEN).

FinCEN is a bureau within the United States Department of the Treasury. Its primary task is to fight money laundering - domestic and international, the financing of terrorism, as well as other serious infractions. One way they do this is by collecting and analyzing financial transaction information. 

Institutions that want to provide banking services in the cannabis space must comply with the guidelines set by the Financial Crimes Enforcement Network (FinCEN). Providing this detailed and continuous information creates legal, procedural, and financial challenges for legal cannabis businesses and the banks that choose to serve them. 

In order to provide services to cannabis and other marijuana related businesses (MRBs), banks first must perform in-depth customer due diligence. Then, they must comply with detailed reporting obligations for each and every transaction with the business. 

Before banks can serve a MRB, FinCEN Guidance requires that they conduct extensive customer due diligence. They are also tasked with confirming that the MRB holds all the proper state licenses.

Finally, banks must monitor each business continuously for suspicious activity. FinCEN requires banks and financial institutions to file Suspicious Activity Reports (SAR) for all transactions involving MRBs. 

That means even if there is no “suspicious activity” found while monitoring the business, all transactions are considered suspicious activity. This is simply due to the fact that under federal law, cannabis is illegal. The requirements of SARs reporting have created a level of official scrutiny that most other businesses are unlikely to face. Because of this, banks are often reluctant to provide financial services for licensed cannabis operations.

Near the end of 2019, there were 747 banks serving the cannabis industry. But those numbers declined during 2020. Only 684 credit unions and banks filed SARs reports for working with cannabis businesses.

Two things seem to be responsible for the decline in banks serving the industry. First, the pandemic impacted dispensaries greatly with various levels of lock-down and social distancing. Second, the Financial Crimes Enforcement Network (FinCEN) issued revised reporting requirements to exclude hemp-only businesses. So some of the decline is likely to be due to some banks not needing to file reports if they only work with hemp-only businesses.  

Credit card processing remains illegal for the cannabis industry.Cannabis payment processing lets dispensaries go cashless.

If a merchant service provider is offering “legal” credit card processing services, you best start asking some questions. Federally regulated entities, card brands, and payment rails do not condone cannabis payments. 

If you're being told that you can process credit cards transparently you can be sure there is nothing transparent about it. ISO’s offering cannabis credit card processing are circumventing the system in one way or another. They are either mis-coding the business with a false MID, or they are using a looped system where they mask the nature of the purchase. 

This may work for a short time. But inevitably, the acquirer will perform an account audit and discover the true nature of the business. In most cases, they freeze the merchant account and seize all funds. In some cases for larger operations, charges have been brought against the owner.

Mis-coding the business type, lying about the nature of the business, and masking the source of funds are forms of bank fraud and money laundering.

It is imperative that owners of recreational marijuana or medical dispensaries do not lie about the nature of their businesses.

If you do, you risk prosecution for money laundering and bank fraud. 

Banking reform and cannabis legalization are on the horizon.

Key battles in the war on cannabis are being won. As more states legalize marijuana sales, the federal law will eventually change. Cannabis business growth in the U.S. has become an irresistible force. The federal government is no longer an immovable object.

The SAFE Banking Act is working its way through Congress. 

The House passed the SAFE Banking Act on April 21, 2021. If passed, banks will be free of some of the risks involved with banking the cannabis industry. This could make banking the industry less daunting. However, it will not change their obligation to comply with all FinCEN and/or regulatory guidance.

Senate lawmakers are working on a bill to federally legalize marijuana.

Three Democratic Senators are on a mission to end cannabis prohibition altogether. Senate Majority Leader Chuck Schumer (D-NY), Sen. Cory Booker (D-NJ), and Senate Finance Committee Chairman Ron Wyden (D-OR) are working on a proposal that would deschedule marijuana and bring federal marijuana legalization. They hope to have a bill ready sometime this year.

But that doesn't mean there aren't transparent payment options for the cannabis industry. 

Accept cannabis payments in store and online with ease.In order to run your cannabis business efficiently, you must locate financial services prepared to work with your industry. By doing so, you will effectively eliminate the risk of prosecution and help you avoid government scrutiny.

Bankcard International group has worked diligently to bring payment solutions that work to cannabis merchants in states where growing, processing and selling marijuana has won voter approval.

We have built strong relationships with respected banks and government entities. We have been able to create these strategic alliances by being transparent and honest. We hide nothing. We make sure to stay strictly within the law. The best way for any cannabis business to build this same type of relationship with their bank is to do the same. Stay within the law and be transparent in all of your financial dealings.

AT this time, we have three cannabis payment options that are reliable and compliant ways to accept payments for cannabis.

The first is True PIN Debit. 

This is the first merchant account that is bank backed for plant touching cannabis businesses. This allows your customers to purchase cannabis using their bank issued PIN Debit card. Together, the bank and the processor worked with Federal Regulators and the nation’s leading legal team to create a legal solution.

There is complete transparency between the banks, the processor, and the debit network.Cannabis business owners know exactly who their bank and processor are. And they know who you are. 

Our banking partners have taken every step to adhere to the highest level of compliance. Through these efforts, we can be sure PIN Debit remains a sustainable and growth focused payment solution.

ACH payments for cannabis 

ACH payments are not only legitimate, they're widely used in the cannabis industry. The Clearing House is able to do this because they operate independently of the federal government. They only must adhere to state law, allowing them to process payments in legal states.

 Transparency is a consistent theme. Both the funding bank and the processing bank must have a compliant cannabis program.

ACH payments are fast and convenient. They can be facilitated online, over the phone, through an app, or even at the time of purchase.

Cashless ATM

Cashless ATMs are a legitimate cannabis payment solution, as long as there is full disclosure with ALL banks, processors and parties involved. Again, these transactions run on private rails without oversight from the federal government. 

As long as the funding bank and the accepted debit networks approve the use of the ATM in cannabis facilities, it is compliant.

E-check payments

Accepting Echecks is another legitimate way to accept payments for cannabis. Customers are able to order online and pay online by entering their checking account information. This is a great way to keep cash out of dispensaries. All the payment transactions happen behind the scenes. This allows busy dispensaries and delivery operations to focus on providing the product. It's also convenient for return customers and frequent buyers. Regulars can choose to store their payment information securely in the payment gateway. This way they won't have to enter it every time they order.

Having trouble with what should be the simple task of opening a bank account?

Cannabis Payments: Learn how to accept contactless payments and mobile wallets in your dispensary.

Finding the right financial services for your cannabis company is serious business. At Bankcard International Group, we take providing our merchants the best service very seriously. 

Bankcard International Group specializes in servicing high risk merchant account businesses. We pride ourselves on the fact that we never resort to legally suspect methods or take shortcuts.

We have established exclusive relationships with legitimate and enlightened banking services equipped to serve the industry. 

It is imperative that cannabis merchants strive to meet the requirements of transparency in banking. Banks serving the industry work hard to maintain compliance with FinCEN’s guidelines. Doing things the right way benefits cannabis business owners and their entire community.

Access to banking and cannabis payment services create a safer business climate for everyone. And it helps to build customer confidence in your approach to doing business. 

If you're having trouble opening a transparent business bank account, give us a call. We can help. If you’re ready to explore reliable, compliant cannabis payment services, click the button below.

Discover our Compliant Solution

Topics: Cannabis, cannabis dispensary, cannabis delivery