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Feds Push Banks to Spy On Legal Marijuana Dealers

The government has forced banks and financial institutions to enlist as foot soldiers in the war on drugs.
 
 
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Federal regulators ignited a firestorm of controversy recently when they ordered banks located in the North Coast area of California to spy on transactions of customers who are suspected of making money in the marijuana business. In a bid to crack down on California's marijuana industry, regulators have ordered banks to look out for suspicious activity by those running such operations, but that is leaving legal -- under state, but not federal law -- medical marijuana businesses out in the cold.

Although DEA and FBI officials are not specifically targeting medical marijuana, they say they are looking for drug traffickers and money launderers, and they regard any marijuana-related banking activities with suspicion. The banks are not being ordered to not do business with dispensaries, but are instead closing accounts rather than put up with the hassles of investigating and reporting those transactions.

 

Banks in the North Coast region, including Savings Bank, Wells Fargo, the Exchange Bank, and Ukiah Bank, as well as other financial institutions in the Sacramento and San Joaquin areas are scrambling to comply with the government's order as the feds continue their onslaught against the legal marijuana trade.

 

The enforcement action is the result of the North Coast's widespread reputation for marijuana production and also includes the arrest of citizens in the area operating legal medical marijuana businesses under California state law. California voters passed Proposition 215 in 1996, legalizing the medical use of marijuana for patients whose doctors have recommended they use it.

 

According to the

Santa Rosa Press-Democrat

, the policy took effect last month when the largest bank in Mendocino County informed shareholders that federal banking regulators would now require the North Coast banks to scrutinize deposit accounts because the area had been designated a high-risk area for money laundering, particularly from those in the medical marijuana business.

 

"This area in general has been targeted by Washington because the amount of cash that comes out of here," said Charles Mannon, chief executive of the Ukiah Bank.

 

Mike Johnson, an entrepreneur in the marijuana industry who requested that this article not identify the name of his business, felt the squeeze from the federal regulators when Wells Fargo and the Umpqua Bank closed his accounts last year. "They think we're all drug dealers," Johnson said.

 

Those in the trade familiar with the feds' regulation policy complain of how the government has forced banks and financial institutions to enlist as foot soldiers in the war on drugs. The new requirements force banks to expend unnecessary time and money probing clients' accounts for evidence of illegal activity associated with the marijuana business, they say.

 

To bypass the stringent rules, several banks closed the accounts of medical marijuana dispensaries. Bank officers said that since medical marijuana is a violation of federal law, they are required under the Bank Secrecy Act to report on businesses involved in the state authorized medical marijuana industry.

 

Last year, Exchange Bank issued a policy which prohibits medical marijuana businesses from opening up accounts because of the time-consuming scrutiny they would have to undergo and because of the expense of having to purchase pricey monitoring systems.

 

"State and federal law are in conflict with each other," said Bill Schrader, president of Exchange Bank. "If there are suspicious activities under federal law, we have to report it."

 

The extensive monitoring of bank accounts works this way: If a bank agent or its anti-laundering system detects suspicious activity, the feds have required banks and credit unions to file a report with the Financial Crimes Enforcement Network (FINCEN), which operate massive databases available to the FBI and DEA.

 

 
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