Banks Say No to Marijuana Money, Legal or Not | Hacker News Reader

Banks Say No to Marijuana Money, Legal or Not

nytimes.com

85 pointsdanso87 comments

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

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

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.

And that right there is why legalization will be an unsure thing in this country for at least the next decade.

If you are going into the marijuana business get good legal advice and have a competent defense lawyer on retainer.

There could quite easily be a crackdown if the next president wants to revert things or is too heavily beholden to the parts of federal law enforcement that benefit from the drug war.

What about the sales tax that is being collected? Is there any precedent for that?

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.

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

If you can have two identities (say, one shell Mary-Jane seller, and one profit-making landlord) then the bank would easily accept the landlord’s account. I doubt such structure are allowed, or would pass Federal scrutiny according to Colorado banks, otherwise, the problem would be solved already.

The other possibility is that this solution is obvious, but lobbying for bank accounts is part of making Mary-Jane a more acceptable trade.

A recent Planet Money podcast talked about this problem and the pot store owner in Colorado they interviewed had done more or less that. His store was owned by shell company that had a bank account, but he was unwilling to go into too much details on the exact legal setup. I got the feeling it was a bit of legal grey area and that the bank was happy with it only as long as they could honestly claim ignorance.

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".

I think in your scenario the store owner is still at risk of being physically coerced into transferring his bitcoins to an assailant, no?

Which isn't really a significant risk if the store owner doesn't hang around. I mean, someone could also hold me at gunpoint and take me to the bank, which isn't a great idea. If I wanted to emulate that, I could put my wallet in a safe deposit box.

Then they kidnap your family so you go to the bank yourself and withdraw the bitcoins.

I think you're failing a bit in criminal imagination, which is probably not a bad thing altogether.

How is that any worse security than keeping money in a bank account?

That's my point. Bitcoin doesn't solve any sort of problem that isn't already solved via traditional fiat currencies.

They could do the same thing if I had USD in the bank.

s/bitcoins/online banking username and password/

How does one pull money out of an online banking account using only the credentials?

By logging in and initiating a transfer?

You could store the BTC on an address that requires multiple signatures.

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

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.

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.

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

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.

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."

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.

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

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.

> 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_...

Interesting legal/tax follow question? Does he still owe the tax money? I presume that argument won't go down well with the tax man, but could be interesting if he got to court.

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.

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."

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.

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.

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

> 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.

How do you insure such a black box?

It is in need of disruption, but there are alot of laws surrounding taking cash from people for something other than a product/service.

The problem you'll run into with the black box scenario is that the customer has no access to the funds unless you bring them the box which makes it a poor place to keep working capital funds that businesses use. Even if you start giving loans based on the box you start hitting legal restrictions, and compliance issues.

I worked for years in the financial industry focusing on services for the under/unbanked which relies on a lot of cash handling.

Every way you can think about how to get around the law has been used in the past to launder money and/or evade taxes.

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.

When someone hands you cash and you are giving them something not a product/service (i.e. can't be a monetary instrument or a promise of in anyway providing the money back to the customer) then you are acting as a bank.

So a new company can offer the service, but the aren't an armored car company they are a banking company and are required to get a banking charter.

You can try create services that somehow skate the line (which is what all of the check cashing, payday advance, and title loan companies do, but they are classified as MSBs), but an AG (Attorney General) in any state where you are operating can come after you. The feds will also come after you if they think you are illegally taking deposits which can involve criminal charges.

FWIW, in the UK:

- There is an important difference between MSBs and banks: banks can take deposits.

- Loan companies (e.g. payday advance, as you mention) are different: they need a Consumer Credit Licence and are regulated by the OFT/FCA.

To your main point: I don't understand how (even in the US) my accepting cash in exchange for 'not a product/service' would mean I'm acting as a bank. Would I be breaking the law if I were to sell you a single share of, e.g. Google stock, in exchange for cash?

>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

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...

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

Don't forget Wells Fargo!

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

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.

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.

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?)

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.

lol but hsbc says yes to organised drug money!

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

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

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

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.

Bitcoin to the rescue .. ?

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

Are your initials GP?

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.

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

When the subject at hand is about companies that don't have an option?

I don't see what problem bitcoin solves for these businesses. The first example in the article is having to take $51,000 in cash to pay the company's taxes to the state. Bitcoin does not solve this in any fashion. I really struggle to find the problem that bitcoin solves in this situation.

"Commonly robbed" is an exaggeration.

That's the beauty of it - you don't need to use bitcoin to store your capital. Just use it to get money from your customers to a hard-currency account, which I would guess is easier with BTC than with large quantities of physical cash.

There's risk in the movement of a day's cash flow by BTC, but probably not much higher than the risk of transferring cash in your personal car.

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.

Exactly right but these buyers & sellers don't care about anonymity too much. It is the banks who are worried.

If governments were really devious they would replace their cash with a non-anonymous cryptocurrency like BitCoins. That would make it hate for the underground economy to avoid the police or taxation.

The services online aren't broadcasting the names of the people using their addresses- so it's basically anonymous to the common person.

It's true that without using a mixer (aka "money launderer") Big Government could seize the service to get your name... but what about https://localbitcoins.com/ ?

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...

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.

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

You presume every shop in the town/city will accept this BitCoin plan. If not, then punters will just switch to the shop that operates with dollars, and accepts the risks/drawbacks the shops in this article do, and you're business will fail.

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

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.

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.

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.

> 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.

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.

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.

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

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...

"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)

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.

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

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.

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

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?

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

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