1. Presentation to the Ohio Credit Union League -- July 14, 2017
Banking & Compliance Marijuana-Related Businesses
Presentation to the Ohio Credit Union League -- July 14, 2017
Presentation to Ohio Credit Union League -- July 14, 2017

2. AGENDA
Presentation to Ohio Credit Union League -- July 14, 2017

3. OHIO MEDICAL MARIJUANA CONTROL PROGRAM
Presentation to Ohio Credit Union League -- July 14, 2017

4. Ohio Medical Marijuana Control Program
HB 523 was signed by Governor Kasich in June 2016, legalizing marijuana in Ohio for specific medicinal purposes.
Effective Sept. 8, 2016
Ohio Revised Code, Chapter 3796
Ohio Administrative Code, Chapter 3796
O.A.C. 3796:1 Definitions
O.A.C. 3796:2 Cultivators
O.A.C. 3796:5 Administration and Enforcement
Presentation to Ohio Credit Union League -- July 14, 2017

5. Ohio Medical Marijuana Control Program
Major components
Licensure of cultivators, processors, and retail dispensaries (cultivators/processors by Commerce, dispensaries by Pharmacy). O.R.C
Registration of patients and caregivers (by Pharmacy). O.R.C
Licensure of labs for marijuana testing (by Commerce). O.R.C
Physicians must obtain certificates from State Medical Board in order to prescribe medical marijuana. O.R.C
Presentation to Ohio Credit Union League -- July 14, 2017

6. Cultivation and Sale of Medical Marijuana
Holder of a valid cultivator license may cultivate medical marijuana and then sell to a licensed processor. O.R.C
The licensed processor then delivers/sells the processed medical marijuana to a licensed retail dispensary. O.R.C
The dispensary shall then sell to a verified patient presenting a recommendation from their physician. O.R.C
Presentation to Ohio Credit Union League -- July 14, 2017

7. Forms and Medical Conditions
O.R.C
Forms:
Oils, tinctures, plant material, edibles, patches
Any form approved by Pharmacy
Vaporization is permitted
Smoking is prohibited
O.R.C (A)(6)
Medical Conditions:
Only for the treatment of “qualified medical conditions”
Includes: AIDS, Alzheimer’s, Crohn’s and Parkinson’s diseases, multiple sclerosis, cancer, chronic and severe pain, and others
Presentation to Ohio Credit Union League -- July 14, 2017

8. Employer Provisions O.R.C. 3796.28 Employers:
May prohibit employee’s use of medical marijuana
May refuse to hire or take adverse employment action for a person’s use of medical marijuana
May establish or enforce a drug testing policy
Presentation to Ohio Credit Union League -- July 14, 2017

9. Ohio Medical Marijuana Control Program
By the numbers:
12 Level I Cultivators. O.A.C. 3796:
12 Level II Cultivators. O.A.C. 3796:
40 Processors. O.A.C. 3796:
60 Dispensaries. O.A.C. 3796:
It is anticipated that demand will likely outstrip supply under current regulatory regime.
Presentation to Ohio Credit Union League -- July 14, 2017

10. Ohio Medical Marijuana Control Program
What is happening now:
June 30, 2017: 100+ Tier I Cultivator applications submitted
September 2017: Final rules for processors, dispensaries, testing labs, patients, and caregivers
Processor license – rules filed with JCARR (mirror cultivator rules)
Dispensary license – rules in-process, not yet filed with JCARR
Application deadlines: TBD
September 2018: Full program will be operational
Presentation to Ohio Credit Union League -- July 14, 2017

11. FEDERAL REGULATORY GUIDANCE FOR MRBs
Presentation to Ohio Credit Union League -- July 14, 2017

12. Federal Regulatory Guidance for MRBs
Background:
Marijuana remains a Schedule I drug under the Controlled Substance Act
Historically, federal government defers to states to prosecute local crimes, including marijuana drug crimes
Federal comity: if the state has a strong and effective regulatory and enforcement system, the federal government is loathe to interfere
Presentation to Ohio Credit Union League -- July 14, 2017

13. Federal Regulatory Guidance for MRBs
Former Deputy Attorney General James M. Cole issued two DOJ Memorandums (“Cole Memos”) to outline guidance for all federal enforcement activity
2013 Cole Memo: addresses marijuana crime policy
2014 Cole Memo: addresses financial crime policy
Presentation to Ohio Credit Union League -- July 14, 2017

14. 2013 Cole Memo
“Applies to all federal enforcement activity, including civil enforcement and criminal investigations and prosecutions, concerning marijuana in all states.”
A “guide to the exercise of investigative and prosecutorial discretion.”
Does not alter federal law and the criminality of marijuana at federal level
distribution of marijuana to minors
funding of criminal enterprises
diverting of legal marijuana to states where it is not legal
using marijuana activity as pretext for other criminal activity
illegal use of firearms or violence in cultivation and distribution of marijuana
drugged driving and other adverse public health consequences
the cultivation of marijuana on public lands and
the use or possession of marijuana on federal land 14
Presentation to Ohio Credit Union League -- July 14, 2017

15. 2013 Cole Memo: Preconditions
Preconditions for deference to state authorities requires legal marijuana regulatory regime.
Dept. of Justice more likely defer to state law, IF
The state has a strong and effective regulatory and enforcement system to control cultivation, distribution, sale, and possession of marijuana.
The state administers the system in compliance with the state’s laws and regulations.
The state does not interfere with eight federal priorities.
Presentation to Ohio Credit Union League -- July 14, 2017

16. 2013 Cole Memo: Eight Federal Priorities
2013 Cole Memo seeks to prevent the:
Distribution of marijuana to minors
Funding of criminal enterprises
Diverting of legal marijuana to states where it is not legal
Using marijuana activity as pretext for other criminal activity
Illegal use of firearms or violence in cultivation and distribution of marijuana
Drugged driving and other adverse public health consequences;
The cultivation of marijuana on public lands
The use or possession of marijuana on federal land
Presentation to Ohio Credit Union League -- July 14, 2017

17. 2013 Cole Memo: Comity and Deference
“The federal government has traditionally relied on states and local law enforcement agencies to address marijuana activity.”
Federal authorities should “focus their enforcement resources and efforts, including prosecution, on persons or organizations whose conduct interferes with any one or more of these priorities, regardless of state law.”
Presentation to Ohio Credit Union League -- July 14, 2017

18. 2014 Cole Memo: Financial Institutions
Addresses financial crimes where marijuana-related crimes are a predicate:
BSA
Money laundering
Unlicensed money transmitter
Financial institutions exposed to civil or criminal liability under federal law for banking marijuana- related activity.
Presentation to Ohio Credit Union League -- July 14, 2017

19. 2014 Cole Memo: Financial Institutions
Applies 2013 Cole Memo guidance to financial institutions
Investigations and prosecutions of financial institutions guided by eight federal priorities
“In determining whether to charge individuals or institutions with any of these offenses based on marijuana related violations prosecutors should apply the eight enforcement priorities described in the [2013 Cole Memo].”
Presentation to Ohio Credit Union League -- July 14, 2017

20. 2014 Cole Memo: Prosecution Appropriate
Specifically spells out application of guidance
If provide banking services to a MRB knowing
Legal marijuana is being diverted to prohibition states
Funds are being used to conduct other criminal activity
Alternatively, if “willfully blind” to such activity
By failing to conduct customer due diligence
Prosecution may be appropriate
Presentation to Ohio Credit Union League -- July 14, 2017

21. 2014 Cole Memo: Prosecution Inappropriate
Also, specifically spells out where prosecution is inappropriate.
If a financial institution offers services to a MRB whose activities:
“Do not implicate any of the eight priority factors, prosecution for these offenses may not be appropriate.”
Presentation to Ohio Credit Union League -- July 14, 2017

22. 2014 Cole Memo: Scope of Guidance
Cole Memos do not:
Change federal legal status of marijuana
Bar investigation or prosecution even absent one of the federal priorities
But guidance repeatedly, and specifically, directs federal enforcement where the eight federal priorities are affected.
Presentation to Ohio Credit Union League -- July 14, 2017

23. Rohrabacher-Farr Amendment
Limits DOJ’s spending relating to enforcement activity targeting legal marijuana state regulatory regimes
“None of the funds made available in this Act to the [DOJ] may be used to prevent [states] from implementing their own [ ] laws that authorize the use, distribution, possession, or cultivation of medical marijuana.”
Ohio is an enumerated state in recent Amendment.
Consolidated Appropriations Act, 2017, Pub. L. No. 115–31, § 537 (2017).
Presentation to Ohio Credit Union League -- July 14, 2017

24. Rohrabacher-Farr Amendment
Lack of monetary support strictly limits DOJ enforcement activity vis-à-vis medical marijuana
Affects every federal law enforcement agency
DEA, ATF, FBI, US Marshals Service
Affects federal agencies that depend on law enforcement agencies to assist in regulatory matters
FinCEN
The Amendment expires annually (Sept. 30, 2017) and must be reauthorized each year.
Presentation to Ohio Credit Union League -- July 14, 2017

25. FinCEN Guidance with Banking MRBs
Intended to be comprehensive
Financial institution obligations
Enhanced due diligence
Regulatory structure specific to MRBs
Additional filing requirements
Financial institution must develop BSA/AML compliance system that accounts for MRB guidance from DOJ
Eight federal priorities from Cole Memos
Presentation to Ohio Credit Union League -- July 14, 2017

26. FinCEN Guidance: Customer Due Diligence
“Thorough customer due diligence is a critical aspect of making this assessment.”
A financial institution should include CDD that includes:
Verifying business is duly licensed and registered
Reviewing state license application for MRB
Requesting available information from state licensing and enforcement authorities
Developing an understanding of the normal and expected activity for the business, including the types of products to be sold and the type of customers to be served
Ongoing monitoring for adverse information about the business and related parties
Ongoing monitoring for suspicious activity, including for any of the FinCEN red flags
Refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk
Presentation to Ohio Credit Union League -- July 14, 2017

27. FinCEN Guidance: SARs Generally
In 2014 Guidance, FinCEN notes that Suspicious Activity Reports need to be filed when financial transactions:
Involve funds derived from illegal activity or is an attempt to disguise funds derived from illegal activity or
Are designed to evade regulations promulgated under the BSA or
Lack a business or apparent lawful purpose.
Presentation to Ohio Credit Union League -- July 14, 2017

28. FinCEN Guidance: Legal MRBs
Legal MRB transactions still required to have a SAR
But SARs are a regulatory tool designed to help federal and local law enforcement
Monitor use of financial system to help uncover crime
Help law enforcement focus limited resources on activity that government actually wants to prevent
State legal marijuana is not a target of interest to law enforcement at federal, state, or local level
What is a regulator to do?
Presentation to Ohio Credit Union League -- July 14, 2017

29. FinCEN Guidance: MRB SARs
Suspicious Activity Reports meet MRBs
Marijuana-Limited SAR
Does not implicate a federal priority
Marijuana-Priority SAR
Credit Union reasonably believes violates a federal priority
Marijuana-Termination SAR
Should indicate type of Marijuana SAR in ALL CAPS
Presentation to Ohio Credit Union League -- July 14, 2017

30. FinCEN Guidance: Marijuana-Limited SAR
Marijuana-Limited SARs should be limited to the following content:
Identifying information of the subject and related parties;
Addresses of the subject and related parties;
The fact that the filing institution is filing the SAR solely because the subject is engaged in a marijuana-related business; and
The fact that no additional suspicious activity has been identified.
Presentation to Ohio Credit Union League -- July 14, 2017

31. FinCEN Guidance: Marijuana-Priority SAR
Marijuana-Priority SARs should include the following content:
Identifying information of the subject and related parties;
Addresses of the subject and related parties;
Details regarding the enforcement priorities the financial institution believes have been implicated; and
Dates, amounts, and other relevant details of financial transactions involved in the suspicious activity.
Presentation to Ohio Credit Union League -- July 14, 2017

32. FinCEN Guidance: Marijuana-Termination SAR
Filed where the financial institution believes it can no longer maintain an effective BSA/AML compliance program by servicing the MRB.
Presentation to Ohio Credit Union League -- July 14, 2017

33. FinCEN Guidance: Red Flags
FinCEN provides guidance on how to categorize between the three MRB SARs.
Generally includes the following categories:
Use of a state-licensed MRB as a front for criminal activity
Insufficient documentation to demonstrate that it is engaged in a lawful MRB business
Based on public searches, principals or MRB are currently or have engaged in bad acts
Concealment of activity
Hiding MRB activity
Activity inconsistent with size and type of business, nature of business, or banking activity
Presentation to Ohio Credit Union League -- July 14, 2017

34. FinCEN Guidance Detailed and robust
FinCEN has touted success of guidance
FinCEN Marijuana Banking Update through Q1 2017
Presentation to Ohio Credit Union League -- July 14, 2017

35. In real time . . . 368 Institutions and 28,651 SARs from 50 states
Data as recent as March
50 + District of Columbus and Puerto Rico
“Marijuana Banking Update,” FinCEN, March 30, 2017, available at
Presentation to Ohio Credit Union League -- July 14, 2017

36. 20,288 Marijuana-Limited SARs filed
As of March 2017…
20,288 Marijuana-Limited SARs filed
2,007 Marijuana-Priority SARs filed
7,326 Marijuana-Termination SARs filed
FinCEN Marijuana Banking Update through Q1 2017
Presentation to Ohio Credit Union League -- July 14, 2017

37. In real time . . . A few examples: Salal Credit Union
Partner Colorado Credit Union
Maps Credit Union
Numerica Credit Union
Obee Credit Union
Presentation to Ohio Credit Union League -- July 14, 2017

38. OHIO REGULATORY GUIDANCE
Presentation to Ohio Credit Union League -- July 14, 2017

39. Ohio Regulatory Guidance
Division of Financial Institutions
OAC safe harbor from criminal prosecution.
As long as banking MRB is compliant with HB 523 and has paid applicable Ohio taxes.
Includes credit unions. O.R.C
Presentation to Ohio Credit Union League -- July 14, 2017

40. Ohio Regulatory Guidance
Credit Union may ask Commerce or Pharmacy for:
Status of MRB’s license
Affiliated businesses or individuals
Copy of application
Information relating to sales and volume of product
Compliance with or past/pending violation of Ohio Medical Marijuana Program
Presentation to Ohio Credit Union League -- July 14, 2017

41. BSA/AML COMPLIANCE PROGRAMS
Presentation to Ohio Credit Union League -- July 14, 2017

42. BSA/AML Compliance Programs
Risk Assessment
Four Pillars of a Successful Program
Customer Identification Program (CIP)
New FinCEN Rule – 2018
Compliance & MRBs
Avoiding Pitfalls
Presentation to Ohio Credit Union League -- July 14, 2017

43. Risk Assessment
An effective BSA/AML program must be risk-based and tailored to the specific credit union.
2 step process:
Identify specific risk categories
Conduct detailed analysis
Starting point for examiners
What would you prefer – assessment crafted by credit union or by examiners?
Presentation to Ohio Credit Union League -- July 14, 2017

44. Four Pillars of BSA/AML Compliance Program
BSA compliance officer
Policies, procedures & controls
Training
Independent testing
Presentation to Ohio Credit Union League -- July 14, 2017

45. Pillar 1: BSA Compliance Officer
Purpose: Oversight
Experience matters!
Deep understanding of BSA/AML regulations
Manages communications with regulators
Keys:
Appointed by board
Direct line of communication to the board/senior management
Presentation to Ohio Credit Union League -- July 14, 2017

46. Pillar 2: Internal Policies, Procedures & Controls
Developing a “culture of compliance”
Requirements
Written
Approved by board
Noted in board minutes
Conforms to BSA/AML risk profile
Presentation to Ohio Credit Union League -- July 14, 2017

47. Pillar 3: Training
For ALL personnel whose duties require BSA knowledge
Should be:
Specifically tailored
Annual
Documented
Frequently updated
Orientation and continued training
General compliance and MRB specific
Presentation to Ohio Credit Union League -- July 14, 2017

48. Pillar 4: Independent Testing
Goal: assess adequacy/effectiveness of BSA/AML compliance program
Keys to success:
Completed by someone outside the credit union
Annual
Results reported directly to the board
Review all pillars of compliance program
Presentation to Ohio Credit Union League -- July 14, 2017

49. Customer Identification Program (CIP)
Part of the USA Patriot Act
Keys:
Approved by board
Specifically tailored
Customers must be informed
Presentation to Ohio Credit Union League -- July 14, 2017

50. Goals of Successful CIP
MUST:
Obtain basic identifying data
Verify customer identity
Retain records used to verify identity
Include check of key government lists (e.g., SDN)
Additional aspects:
How to handle discrepancies
Terms for banking while ID is verified
What to do if credit union believes ID is unknown
Presentation to Ohio Credit Union League -- July 14, 2017

51. New FinCEN Due Diligence Rule May 2018
Designed to help in:
Identifying & verifying customers
Identifying & verifying beneficial owner
Understanding nature & purpose of customer relationship
Conducting ongoing monitoring
Presentation to Ohio Credit Union League -- July 14, 2017

52. Compliance & MRBs Enhanced due diligence (EDD) Going above and beyond
FinCEN Guidance on customer due diligence
Going above and beyond
Working with regulators
Risk v. reward
Presentation to Ohio Credit Union League -- July 14, 2017

53. Avoiding Pitfalls Document, document, document!
Ensure sufficient resources
Consult counsel (internal and external)
Show thoughtfulness in compliance steps
Remain vigilant
Put yourself in regulator’s shoes
Presentation to Ohio Credit Union League -- July 14, 2017

54. IS IT RIGHT FOR YOU?

55. Is it right for you? Big market opportunity
But reward must be balanced against increased risks and costs
Reputational risk of banking MRBs
Marijuana use and sale remains a federal crime
Financial transactions for MRBs can form the basis of a civil or criminal violation under the BSA and related AML statutes
Banking for MRBs will require very strict adherence to federal guidance and BSA/AML reporting requirements specific to MRBs
Presentation to Ohio Credit Union League -- July 14, 2017

56. Is it right for you? Does your leadership want to be involved?
Does your constituency want to be involved?
Is it right for your credit union?
Presentation to Ohio Credit Union League -- July 14, 2017

57. Is it right for you? Can you invest the resources?
Assess current compliance program
Requires building a new MRB-compliance program
Important to monitor MRBs on an ongoing basis
Update as guidance and regulation changes
Closely follow Ohio and federal legislative and administrative authority regarding financial services for MRBs
Additional regulatory scrutiny
Presentation to Ohio Credit Union League -- July 14, 2017

58. Thank You! QUESTIONS?
The presentation represented herein is intended for general information purposes only and does not and is not intended to constitute legal advice.
Presentation to Ohio Credit Union League -- July 14, 2017

59. Albert G. Lin ICE MILLER LLP 250 West Street Columbus, OH 43215
(614)
Steven D. Forry
ICE MILLER LLP
250 West Street
Columbus, OH 43215
(614)
Presentation to Ohio Credit Union League -- July 14, 2017