DOJ Rescinds the Cole Memo—What It Means for Your Financial Institution

Bank Law Monitor

Jan 04, 2018

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Reiterating that Congress considers marijuana to be a "dangerous drug" and marijuana activity to be a "serious crime," Attorney General Jeff Sessions today issued a memo to all U.S. attorneys rescinding various memoranda related to enforcement of federal marijuana laws issued during the Obama administration. Included in the rescinded memos was the prominent "Cole Memo," which discouraged federal prosecution of anyone in compliance with the marijuana laws of their state. As we previously discussed, the Cole Memo specifically provided the justification on which many banks and credit unions decided to offer financial services to marijuana and marijuana-related businesses. While the full effects of Sessions’ memo remain unclear, today certainly appears to mark a shift in the federal government's stance on state-legalized marijuana, and the future of marijuana banking is as hazy as ever.

Various state officials and representatives quickly fired back today in response to the Department of Justice's decision to rescind these memoranda. For example:

Washington State Governor Jay Inslee stated: "Make no mistake: As we have told the Department of Justice ever since I-502 was passed in 2012, we will vigorously defend our state's laws against undue federal infringement."
Seattle Mayor Jenny Durkan, who was a former U.S. attorney herself, made clear that the "Seattle Police Department will not participate in any enforcement action related to legal businesses or small personal possession of marijuana by adults. Federal law enforcement will find no partner with Seattle to enforce the rollback of these provisions."
Washington House Representative David Sawyer stated: "In anticipation of this short-sighted move by the Trump Administration, I have sponsored legislation together with colleagues from both sides of the aisle that would prohibit the use of public resources to assist the federal government in any activity that will impede or interfere with our state's marijuana market."
Oregon Governor Kate Brown stated that "[the] reports are deeply concerning and disruptive to our state's economy" and that "[m]y staff and state agencies are working to evaluate reports of the Attorney General's decision and will fight to continue Oregon's commitment to a safe and prosperous recreational marijuana market."
Colorado Governor John Hickenlooper stated that "Colorado has created a comprehensive regulatory system committed to supporting the will of our voters" and that "[t]oday's decision does not alter the strength of our resolve in those areas, nor does it change my constitutional responsibilities."
U.S. Senator Cory Gardner (R-Colorado) tweeted that "the Justice Department has trampled on the will of the voters in CO and other states", and he even took the Senate floor to vent his frustration.

In his memo, Sessions reiterated that the federal Controlled Substances Act generally prohibits dealing in marijuana, and that such activities may serve as the basis for prosecution of other crimes, such as those under the Bank Secrecy Act. Under his memo, rather than relying on the "priorities" previously designated in the Cole Memo, Sessions provided his U.S. attorneys with the following guidance: "In deciding which marijuana activities to prosecute under these laws with the Department's finite resources, prosecutors should follow the well-established principles that govern all federal prosecutions." Essentially, Sessions reverted back to "pre-Cole Memo" marijuana prosecution priorities, which require U.S. attorneys to weigh all relevant considerations in deciding which cases to prosecute.

Going forward, enforcement of the federal marijuana laws will likely vary depending on the priorities of the individual U.S. attorneys. The acting U.S. Attorney for the Western District of Washington, Annette L. Hayes, today confirmed the general ideas within Sessions' memo, but clarified that "our enforcement efforts with our federal, state, local and tribal partners focus on those who pose the greatest safety risk to the people and communities we serve." The interim U.S. Attorney for the Eastern District of Washington, Joseph Harrington, has apparently not yet commented on Sessions' memo as of the time of this post.

At this time, it is unknown to what extent Sessions' decision to rescind the Cole Memo will impact banks and credit unions. Many financial institutions that initially chose to offer financial services to marijuana businesses did so in an effort to thwart crime and promote public safety by offering a haven for these cash-heavy businesses. Today's news undoubtedly changes the risk profile associated with offering financial services to the marijuana industry, and financial institutions may now be even more hesitant to do so. For the banks and credit unions that have not yet "taken the plunge," today's decision may ultimately reinforce their decision to stay out of the market.

For the banks and credit unions that have already chosen to offer financial services to marijuana and marijuana-related businesses, they will likely need to reassess their risk appetite. At the very least, each financial institution currently offering financial services in the marijuana industry should examine its internal policies and procedures in light of this new risk environment. These policies and procedures (which are probably based on the Cole Memo and FinCEN guidance), will now likely need to be revised, recalibrated, and reapproved. Also, the management and governing bodies of banks and credit unions will now presumably need to revisit their decisions to offer financial services in light of this new environment, and if so, to whom and to what extent those financial services will be offered.

Problematically, the impact of today’s developments on federal and state regulatory agencies and their regulations is currently unanswered. For example, many question the status of previous guidance from FinCEN and the U.S. Department of the Treasury's expectations of banks and credit unions under the Bank Secrecy Act. Because the FinCEN guidance was based on now rescinded memoranda, many believe the FinCEN guidance will be rescinded, as well. These types of ambiguities are leaving many financial institutions in a regulatory limbo. We will be continuously monitoring this situation for any further updates or guidance from the federal and state regulators of banks and credit unions.

Here are links to helpful resources on today's news: