Congress is making another run at providing a safe harbor to the banking industry and companies that provide services to cannabis businesses. On September 21, 2021, the House voted to include the Secure and Fair Enforcement Banking Act of 2021 (SAFE Banking Act)1 in the annual National Defense Authorization Act for Fiscal Year 2022 (NDAA).2 Two days later, the House passed the NDAA by a vote of 316 to 113. The NDAA is now before the Senate for consideration and is highly likely to be passed this year—in some form—in order to set annual defense policy priorities and authorize Defense agency spending for 2022.
Members of Congress have introduced the SAFE Banking Act or similar legislation in prior Congresses. Despite bipartisan support and broad support by the business community, these efforts have never resulted in the bill becoming law. Prior to passing it as part of the NDAA, the House also passed the SAFE Banking Act on three prior occasions.3 The Senate has yet to act on the NDAA, but it may be the SAFE Banking Act’s vehicle for enactment.
The text of the SAFE Banking Act has changed little since it was first introduced in 2019.4 As we noted in our Advisory at the time, the Act would provide a safe harbor from anti-money laundering laws to depository institutions and insurers, as well as to service providers that receive money generated by cannabis businesses. Although not without its limitations, the SAFE Banking Act would be a significant stride toward legal reform for the cannabis industry, intended to bring the industry out of a cash economy and allow it to access necessary financial and other services more easily.
As summarized in our prior advisory, the SAFE Banking Act would:
- Prohibit federal banking regulators from taking certain actions against depository institutions that provide services to a “cannabis-related legitimate business”—generally defined as a person or business that handles cannabis products in compliance with applicable state law.5 The prohibitions include taking adverse or corrective supervisory action on a loan or terminating the institution’s deposit insurance or share insurance.
- Prohibit federal banking regulators from prohibiting, penalizing or otherwise discouraging a depository institution from providing financial services to a cannabis-related legitimate business or service provider (e.g., credit card companies).
- Protect all service providers (e.g., insurance companies), as well as their officers, directors and employees, from prosecution under federal law solely on the basis of providing financial services to a cannabis-related legitimate business or further investing any income derived from such services.
Notwithstanding the SAFE Banking Act’s safe harbor provisions, the financial institutions would of course remain subject to prescriptive regulatory requirements when banking cannabis-related customers, including updated guidance from the Financial Crimes Enforcement Network (FinCEN) and new guidance and examination procedures from the Federal Financial Institutions Examination Council (FFIEC), as required under Sections 5406 and 5407, respectively. Financial institutions relying on the safe harbor provisions of the SAFE Banking Act would also need to stay informed on state cannabis laws applicable to the businesses they serve in order to determine whether a customer qualifies as a “cannabis-related legitimate business.” This can be difficult, considering that state laws are detailed, evolving and vary from state to state. Monitoring for compliance may also require periodic confirmation that a cannabis business has renewed its required state license or registration.
The Senate will act soon on the NDAA, with key procedural and amendment votes scheduled for the week of November 29. Final passage of a conferenced House-Senate defense package will occur shortly thereafter. While much remains uncertain about the overall defense bill, key senators have made clear their opposition to the inclusion of the SAFE Banking Act. For instance, when asked about the inclusion of the SAFE Act to NDAA, Sen. Cory Booker (D-NJ) stated, “It would be a setback for expunging the records of all of the people who are waiting for some kind of justice. And unfortunately, if you do that, the pressure won’t be there to get it done.” Senator Booker, together with Senate Majority Leader Chuck Schumer (D-NY) and Senate Finance Chairman Ron Wyden (D-OR) have argued instead for a more comprehensive reform of cannabis laws. The House of Representatives passed a comprehensive reform measure in 2020. In this Congress, a substantially similar measure passed the House Judiciary Committee and is awaiting floor action. It remains unclear, however, if a comprehensive reform measure can pass the Senate.
Financial institutions and other businesses that may benefit from the SAFE Banking Act’s enactment are encouraged to review its provisions to understand its effect on their businesses and consider what actions may be required to comply with the new law, including amending policies and addressing operational changes to ensure compliance with the requirements for the Act’s safe harbor.
1 Safe Banking Act of 2021, HR 1996, 117th Congress (April 19, 2021).
2 National Defense Authorization Act for Fiscal Year 2022, HR 4350, 117th Congress (Sept. 23, 2021), at Div. D, Title LIV, §§ 5401-5415. The full text of the NDAA, including the SAFE Banking Act under Title LIV, can be found here.
3 The SAFE Banking Act also had predecessors under different names, such as the Marijuana Businesses Access to Banking Act (HR 2076, 114th Congress), available here.
4 See, e.g., Safe Banking Act of 2019, HR 1595, 116th Cong. (Mar. 7, 2019).
5 As of the date of this Advisory, 19 states and the District of Columbia have legalized marijuana for recreational use, and 43 states and the District of Columbia have legalized it for at least some form medical use.
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