Risk & Compliance

Pot Bank Loses Legal Battle With Fed

Colorado court backs the Federal Reserve's denial of credit union's application to serve marijuana businesses.
Matthew HellerJanuary 7, 2016
Pot Bank Loses Legal Battle With Fed

A Colorado judge has ruled the U.S. Federal Reserve acted properly in denying approval to a credit union seeking to become the first financial institution to serve the state’s marijuana industry.

The Fourth Corner Credit Union sued the Fed’s Kansas City branch in July for rejecting the bank’s application for a master account that would allow it to transact business. The lawsuit claimed Fourth Corner should have “equal access” to the financial system even though marijuana is still illegal under federal law.

But U.S. District Judge R. Brooke Jackson on Tuesday dismissed the case, saying that issuing an order directing the Fed to grant the master account “would facilitate criminal activity.”

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The Denver Post said the decision is “the latest setback in the effort of credit unions to become the first legal banking system for the marijuana industry.” According to the New York Times, nearly all banks have refused to open accounts for the hundreds of marijuana businesses in Colorado and other states with similar laws, leaving the businesses to operate in an all-cash economy with the significant dangers that can bring.

However, Jackson did indicate sympathy for the industry, saying, “I regard the situation as untenable and hope that it will soon be addressed and resolved by Congress.”

“Jackson’s decision may put more pressure on Congress to move federal banking reform into law in the coming year,” Leafly reported.

Colorado granted Fourth Corner a state license in November 2014 on the condition that it receive approval from the Fed before opening for business. In its suit against the Fed, the credit union cited U.S. Department of Justice guidelines on how banks can work with legal marijuana businesses.

But Jackson said the guidelines “simply suggest that prosecutors and bank regulators might ‘look the other way’ if financial institutions don’t mind violating the law. A federal court cannot look the other way.”

The judge also cited a recent ruling in which an appeals court said marijuana businesses could not seek bankruptcy relief because “their marijuana business activities are federal crimes.”

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