The Department of Justice sent a memo to the congressional lawmakers about a marijuana banking bill that’s expected to be taken up imminently, saying the legislation as drafted could “significantly complicate law enforcement investigations and prosecutions” of crimes involving other drugs or money laundering.
However, the agency did suggest that the Secure and Fair Enforcement (SAFE) Banking Act is fixable from its perspective and offered guidance on how to resolve various issues. And Senate sources told Marijuana Moment on Friday that since receiving the memo earlier this year, lawmakers have effectively addressed DOJ’s concerns as a product of bipartisan negotiations over a forthcoming cannabis reform package.
The memo, first noted by Punchbowl News, is reportedly the result of a request from Republican senators for DOJ to analyze the bill.
“Because marijuana would remain illegal under federal law, Congress should ensure efforts to provide access to financial services for state-legal businesses does not unintentionally erect obstacles to prosecution of other illicit activity or activities involving money laundering of proceeds of other illegal drugs or sales of marijuana that do not comply with state requirements,” DOJ wrote.
The SAFE Banking Act “purports to exempt the proceeds of ‘cannabis-related legitimate businesses’ from certain money laundering statutes,” it said. “This exemption is drafted broadly and could create an immunity shield around activities of cannabis businesses that involve other illicit drugs or activities.”
To address the issue, DOJ said that the exemption “should be limited to the proceeds of ‘cannabis-related legitimate businesses’ derived from marijuana-related activities in compliance with state law.”
Another key concern, according to the department, is a possible implication for money laundering prosecutions that it says may be inadvertently shielded in the House-passed legislation, which is expected to be a major component of a bill that Senate Majority Leader Chuck Schumer (D-NY) is finalizing for the lame duck session, that’s been referred to as “SAFE Plus.”
“The bill would essentially create a possible defense to a money laundering charge—and an extra burden of proof for investigators and prosecutors, who would have to show that a targeted marijuana-related business or the activity from which the proceeds derived had not operated in accordance with applicable state laws,” DOJ said.
“This could significantly complicate law enforcement investigations and prosecutions,” it continued. “For example, a marijuana-related business could be laundering proceeds from fentanyl sales on the side, or from marijuana sales conducted outside of the state regulatory framework.”
Despite the concerns, a DOJ official said in an email obtained by Punchbowl that the department “believes it can effectively implement the legislation” if some minor changes are made.
The memo itself says that DOJ “would be happy to work with Congress on ways” to improve the bill.
A reporter from the outlet clarified that while the document is just coming to public attention now, it was first circulated to lawmakers in the spring. As such, it’s not clear what impact it will have on the latest state of negotiations on cannabis banking during the lame duck session.
One point to clarify after a few folks have asked: the memo is not new and has circulated since at least spring 2022. But Senate staff were discussing it as recently as *Monday per emails we’ve seen. https://t.co/GxpQV3Nrgx
— Brendan Pedersen (@BrendanPedersen) December 2, 2022
Advocates have eagerly awaited the text of SAFE Plus. It’s possible that it could be unveiled as an amendment to the National Defense Authorization Act (NDAA) ahead of a House Rules Committee meeting on that large-scale legislation that’s scheduled for Monday.
The House has already included the original SAFE Banking language in its versions of NDAA this year and last year. While the Senate refused to sign off on passing the reform as part of the bill in 2021, chamber leaders’ shifting posture toward the measure has left advocates more hopeful that the legislation could be the vehicle to enact it this time around.
Meanwhile, the DOJ memo also suggests smaller, technical changes to the bill.
One surrounds the use of the term “legitimate” to describe cannabis businesses.
“Using the word ‘legitimate’ does not take account of the fact that the bill does not legalize marijuana under federal law,” the Department said. “As a result, we recommend striking ‘legitimate’ from the bill’s text. If a replacement adjective is needed, ‘state-sanctioned’ or ‘locally sanctioned’ is preferable to ‘legitimate.’
DOJ also takes issue with language that appears to cover cannabis businesses that are sanctioned at the county or municipal level without being licensed by states.
Additionally, the department has technical concerns on issues related to suspicious activity reports (SARs) that banks must file regarding cannabis clients as well as a proposed Government Accountability Office study on SARs.
It remains to be seen if the content of the SAFE Banking Act itself will be changed to address DOJ’s issues, but the sponsors have separately faced pressure from certain advocates to revise the language in ways that would provide for more targeted industry equity that they say is currently lacking.
Rep. Ed Perlmutter (D-CO), the House sponsor of the legislation, said on Tuesday that he sees signs that the Senate will finally act on the banking reform during the lame duck session—but he is cautioning that he’s “been disappointed before.”
Talks on the omnibus bill have been intensifying in recent weeks, with Schumer discussing the proposal with key bipartisan senators, while at the same time working to address the DOJ issues. But as Perlmutter noted, time is running short, and advocates say it’s critical that the Senate act soon given that Republicans will have the majority in the House following this month’s election.
The majority leader met last week with Senate Banking Committee Chairman Sherrod Brown (D-OH) and bipartisan lead SAFE Banking Act sponsors Sens. Jeff Merkley (D-OR) and Steve Daines (R-MT). He had a follow-up conversation with Daines on Thursday, and the Republican senator told Politico that those talks have been “productive.”
Daines said that senators have been specifically addressing “questions [around] fairness, as it relates to income qualifications for a mortgage and so forth” to protect workers in the cannabis industry from being denied financial services as a result of their employment. The senator would “like to see some of those changes,” he said.
Brown relatedly said last week that the House-passed standalone banking legislation “is very inadequate,” adding that his “main focus is to protect the workers in this industry.”
Perhaps a sign that the issue has been resolved, Brown said more recently that he “hopes” the banking reform legislation will be included as an amendment to NDAA. Sen. Rand Paul (R-KY), a proponent of ending prohibition, also told Politico that he believes there’s enough support for the SAFE Banking Act, “even as a standalone.”
That said, not everyone is fully on board. Sen. Chuck Grassley (R-IA), for example, told Politico that he continues to have concerns that the reform bill could have negative implications for prosecuting money laundering cases, so he’s a “no” on passing it as a standalone. However, he seemed to keep the door open to enacting it as part of a larger bill, saying that “it depends on what otherwise might be in the legislation.”
Schumer said in October that Congress is getting “very close” to introducing and passing the marijuana banking and expungements bill, citing progress he’s made in discussions with a “bunch of Republican senators.”
Sen. Cory Booker (D-NJ), meanwhile, said following the election that Democrats who want to enact cannabis reform must either do it “now” during the lame duck session or wait until “many years from now” when his party has a shot at controlling Congress again.
For some advocates, support for the so-called “SAFE Plus” package will be largely contingent on what happens with the banking language, as they’re discontent with the current provisions that have passed the House in some form seven times now.
Specifically, they’d like to see the bill amended to provide funding for Minority Deposit Institutions (MDIs) and Community Development Financial Institutions (CDFIs) that lend commercial loans to minority-owned businesses.
They’re further calling for changes to require banks that work with the cannabis industry to demonstrate non-discrimination in lending, as Supernova Women Executive Director Amber Senter wrote in a recent op-ed for Marijuana Moment.
These amendments align with some of the SAFE Banking Act recommendations that Cannabis Regulators of Color Coalition (CRCC) outlined in a paper sent to legislative leaders in August.
The Independent Community Bankers of America (ICBA), meanwhile, sent a letter to Senate leadership on Monday, calling for a floor vote on the SAFE Banking Act “without further delay” by the year’s end.
“This legislation enjoys strong, bipartisan support, would resolve a conflict between state and federal law, and addresses a critical public safety concern,” ICBA, which commissioned a poll demonstrating that support earlier this year, said. “We urge its enactment without further delay.”
Another poll released on Monday found that three in four American voters—including bipartisan majorities—support ending federal marijuana prohibition, expunging prior convictions and allowing banks to work with state-legal cannabis businesses.
Read the full DOJ memo on cannabis banking below: