Treasury Secretary Steven Mnuchin said on Wednesday that he will not take administrative action to protect banks that service marijuana businesses from being penalized by federal regulators, stating that it’s up to Congress to resolve the problem.
During a hearing before the House Appropriations Financial Services and General Government Subcommittee, Rep. Charlie Crist (D-FL) pressed the secretary to use his authority to instruct regulators not to punish banks for working with state-legal cannabis businesses.
“We have limited abilities [under existing guidance] to direct this issue,” the Mnuchin replied. “I would encourage Congress one way or another, without me making a policy view of dealing with this issue. The conflict is a problem. In which direction it is resolved I leave that to Congress and other experts.”
Later in the hearing, Rep. David Joyce (R-OH) pressed Mnuchin on the issue, requesting that Treasury keep Congress updated on problems related to dealing with marijuana businesses under federal prohibition.
The secretary again acknowledged that the ongoing conflict between federal and state marijuana laws creates “significant problems” for the Internal Revenue Service (IRS) and financial regulators. And he continued to implore Congress to take action.
“I’m not making a policy view on this because that’s not in my lane as to the conflict between state law and federal law. What I would say is my lane—and again I’ll repeat this because I think it’s important—this creates significant problems for the IRS,” he said, adding that federal officials have had to create “cash rooms” to store deposits from marijuana companies that don’t have access to traditional financial services.
“That creates significant risk in the communities for collecting this amount of cash. It’s problematic.”
Mnuchin, who’s been repeatedly asked to weigh in on cannabis banking issues in various hearings, said financial regulators are facing “significant issues” because of the existing legal conflicts. While the Financial Crimes Enforcement Network (FinCEN) can issue guidance clarifying its policies, he said it was incumbent upon Congress to resolve the problem legislatively.
“I would encourage Congress to deal with this one way or another, without me making a comment,” he said. “This is now an industry that is growing, that has a lot of cash and, as one of your colleagues made the comment, if this were somewhere else in the world with all this cash we’d have a very different view of it.”
Joyce followed up by stating that he’s surprised that more marijuana businesses haven’t been targets of crime given the large volumes of cash they operate with and asked the secretary whether he believes allowing these firms to access banking services would create transparency that could expose drug cartel activity.
Mnuchin didn’t directly answer the question but said, “I’m acknowledging that this creates problem for us and should be addressed.”
“Without legislation, we have limitations in what we can do on this issue. There is a conflict between federal and state law, and we don’t have the ability at Treasury to fix that conflict,” he said. “As long as that conflict exists, this is a business that generates lots of cash and obviously that creates concerns for us, both in our standpoint of money laundering and our standpoint of just the IRS in collecting it.”
At one point during the hearing, Rep. Mark Amodei (R-NV) chimed in to say that “the biggest money launderers” for federally illegal marijuana businesses are tax collectors.
“The irony is incredible,” he said.
While Mnuchin didn’t endorse any particular piece of legislation, there is a House-passed bill to resolve the problem that’s currently sitting in the Senate. Sen. Cory Gardner (R-CO) said last month that lawmakers are “close” to making a deal to advance the Secure and Fair Enforcement (SAFE) Banking Act.
In the meantime, certain banks continue to accept cannabis business accounts, federal data shows, though the number of firms being reported under current guidance has dipped, likely because regulators clarified that hemp companies are lawful and that financial institutions working with them don’t have to file tracking reports since the crop was federally legalized under the 2018 Farm Bill.
Written by Kyle Jaeger