Are Cashless ATMs the next target for Federal crackdown on cannabis payments “work-arounds” that break Anti-Money Laundering laws?
If the last year's lawsuit against a former CEO and Payments Manager for a major CA delivery company for accepting credit cards is any indication, then yes. The CEO recently pleaded guilty to allegations of conspiring to commit bank fraud. No, accepting credit cards for cannabis is not the same as a cashless ATM, however, many cashless ATM providers and businesses could be accused of the same allegations.
The allegations include masking the true nature of the transaction by creating fake business names and products. This is deliberately concealing the business type and owner from the bank who's processing the transaction. It conceals the fact that the transaction is for cannabis by making it look like they are for legal products such as creams, drinks, and outdoor gear.
Are we about to see a repeat of the great Cashless ATM shut down of 2014?
Every business wants to provide their customer the ability to purchase with whatever means is the most convenient for them. Whether it's with cash, credit cards, debit, or ACH withdrawal. Cannabis businesses are no different. But you don't have that luxury, do you?
None of us are strangers to the quandaries of an all cash business plan. Cannabis companies have been forced to find alternative ways to accept payments in the quest to be successful and please customers. The Cashless ATM is one of the oldest and most accepted ways that cannabis businesses have been able to provide customers with a way to make purchases using a card.
In 2014, hundreds of dispensaries had their Cashless ATMs shut down without so much as a word. Why did they get shut down? Simple, the program that was shut down had no transparency with the bank funding the transactions. This put the banks at risk and potentially could have been construed as money laundering. The businesses hid the nature of the accounts from the banks and processors supplying the ATMs. As soon as the banks became aware that their ATMs were set up and used to facilitate payments for cannabis, they shut them down.
With increased oversight there’s a good chance we're going to see an increased interest in how cannabis companies are accepting payments by financial institutions and the federal government in the months to come.
Why is that? Why would they turn all eyes towards the cashless ATM for cannabis solution? Because they know that cannabis business owners and payment processing salesmen are known for trying to find “creative” ways to accept payments.
What is wrong with the Cashless ATM solution for cannabis payments?
The problem is that Cashless ATMs CAN be set up to conceal the true nature of the transaction. Sometimes the machine and account set up to conceal the name of the business using it. They hide the type of transaction being routed through the machine. And they hide the type of purchase and/or product being purchased from the bank. Isn’t this exactly what the recent lawsuit is also alleging?
These acts flagrantly violate provisions of the Money Laundering Control Act of 1986 (the “MLCA”). Under AML regulations, transactions that are meant to “disguise or conceal the source, nature, location, ownership, or control” of criminal proceeds, or “facilitates… unlawful activity” violates the law. These actions warrant Federal criminal charges that can result in up to 20 years in prison and/or fines of at least $500,000.
These tactics and payments work-arounds are on the Feds' radar.
Cashless ATMs, that are not properly established, put both cannabis businesses and the banks that serve them at risk for federal criminal charges.
Many cannabis businesses are not aware that their cashless ATM provider does not have a transparent relationship with their networks. This puts those businesses risk bank fraud and money laundering charges. Cannabis companies may not think it’s that big of a deal to install this solution. Maybe they just don't see the potential gravity of it. But in reality, using these solutions exposes them to risk of being charged for Federal crimes and risk the loss of their cannabis licenses.
Financial institutions risk fines and criminal charges for breaking KYC protocols and non-compliance with the Bank Secrecy Act and AML laws. It could even cost them their FDIC backing.
Not to mention the administrative red tape that comes with serving the cannabis industry with baking services. Anti-money laundering obligations require banks to file a Suspicious Activity Report for every transaction where the monies involved were “derived from illegal activities”. If they don’t know they’re processing transactions, they can’t comply.
Not all Cashless ATMs are Created Equal.
Yes, there are cashless ATM services that are above board working in full transparency with the the funding bank and the networks. However, there are more that are not and those providers are working on a short fuse before they are shut down. Sure, you could just go on “business as usual”, and cross that bridge when you get there. Or you can take a proactive approach and look into the more compliant solutions available to you.
The fallout from last year's bank fraud lawsuit is likely to usher in a new era of Federal scrutinization. Violations may no longer only garner a slap on the wrist. While dispensaries are used to getting their processing solutions shut down, the chance for federal prosecution is an entirely new concern.
This case could be the grounds to slap more offenders with federal criminal charges instead of the customary shut down of the solution.
If you are not sure whether or not your Cashless ATM is legitimate simply:
- Check you customer's receipt - is your business information 100% accurate?
- Look at the descriptor on your bank statement from a transaction on your solution - what is the DBA?
- Do you know who the bank is that funds your transactions?
If the answer to these questions is no then you may want to start looking for a compliant solution or risk having your card processing capabilities shut down without notice. Not to mention held funds and any other repercussions.
What are compliant options for cannabis businesses to accept payments?
Our PIN Debit solution for cannabis payment processing is a truly transparent and compliant solution. Former Federal regulators and the best payments legal teams in the country were brought in to help structure the program to ensure it meets the highest level of compliance.
The nature of your business and it's transactions are fully disclosed to both the banks and the processor. In addition you will have the confidence of knowing exactly what bank and processing platform you are working with. All financial institutions involved have taken all steps necessary to meet FinCEN guidelines and BSA AML laws and regulations. It is 100% compliant and approved by the served debit networks.
Cannabis businesses are issued a bank-backed merchant account to process PIN debit payments. The customer’s statement will show accurate business descriptors. There is no concealing or disguising of sources or products.
ACH-Automated Clearing House Transactions
Automatic debit payments over the Automated Clearing House railways. For eCommerce, or Card-Not-Present payments, ACH is the next best thing to PIN Debit. With just their account number and bank routing number customers can transfer payments directly to the merchant. The ACH operates independent from the Federal government. They must only abide by state laws and regulations and make sure that both the funding and depository bank are compliant and aware they are serving a cannabis business. That makes it a perfect option for states with legalized cannabis. ACH payments are also convenient for frequent buyers since the account information can be securely stored -within the payment gateway.
Compliant solutions lay the groundwork for the future of cannabis payments.
There’s no argument that accepting credit cards for cannabis remains the most sought after payment solution. At Bankcard International Group, we work tirelessly towards that dream. But we also know that the work we put in now to lay the groundwork for compliant solutions will set the stage for fair access to financial services in the future.
Sometimes you have to choose the harder path. While it may be easier and quicker to opt for one of the payment “work-arounds'” available, it’s a very risky path. The right way will create more value for your business and support the reputation of the cannabis industry.
The more cannabis businesses choose to take the high road, the better it is for the industry as a whole. The more cannabis businesses choose to operate legitimately within the confines of their limited resources, the more it shows the federal government that compliant processes are achievable for the cannabis industry.
This is what we have to do until there is a change on a Federal level. Once there is a change on a Federal level, Card brands will support cannabis payments. Banks operating compliant cannabis programs with compliant PIN Debit programs will simply need to activate it. And we’ll be ready.
If you’d like to find out more about compliant cannabis payment processing call B.I.G. today! You can also check out our comprehensive guide to the cannabis payments industry.
We have a team of ETA Certified Payments Professionals that are among the industry’s most experienced and knowledgeable advisors. We promise to be honest, treat you with respect, and only offer legitimate solutions that support your success.