Pot Credit Union Would "Facilitate Criminal Activity," Judge Rules

Fourth Corner Credit Union's Alex Mason, right, and members of his team at the federal courthouse in Denver.
Fourth Corner Credit Union's Alex Mason, right, and members of his team at the federal courthouse in Denver.
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We first told you about the Fourth Corner Credit Union back in November 2014, with our William Breathes noting that it was "set to open" — possibly as soon as January 1, 2015 — "and even has the backing of Governor John Hickenlooper, who calls it the 'end of the line' for the banking issues that have kept dispensaries in the dark ages."

But as we pointed out in a July 2015 update, things haven't worked out that way.

This past summer, FCCU filed a lawsuit against the U.S. government for obstructing its opening; the Federal Reserve Bank of Kansas City rejected its application for a master account because cannabis remains illegal on the federal level.

Now, U.S. District Judge R. Brooke Jackson has tossed the suit for pretty much the same reason, writing in a nine-page opinion that approving the credit union "would facilitate criminal activity."

In July, we noted that Fourth Corner Credit Union describes itself as "the first of its kind.... the only credit union in the world constructed from the ground up to serve the interests of the legalized cannabis and hemp industries and their supporters."

Its mission statement reads:

The Fourth Corner Credit Union is dedicated to providing compliant banking services to those who share a common bond of support for the legalized cannabis and hemp industries. Driven to help our members flourish, join us in "Growing a More Perfect Union.”

The Kansas City branches' rejection of the master account application prevented this goal from becoming a reality.

The reasons the bank's decision was important are laid out in the following excerpts from the lawsuit, which is shared below along with another, still-pending complaint against the National Credit Union Administration, which said no to FCCU's "application for share deposit insurance, a requirement for a master account," according to the Denver Post. By the way, the italics below are in the original paragraphs.

Every depository institution must have (and does in fact have) access to the Federal Reserve payments system, either by having a master account, or by having access through a correspondent. Without such access, a depository institution is nothing more than a vault. Cash deposited at a financial institution is transported to the Federal Reserve branch. It is credited to the depository institution’s account and the cash becomes an electronic credit. Credits and debits from transactions with other depository institutions are settled in the institution’s account at the Federal Reserve Bank where an institution’s master account is maintained. In basic terms, an account at the Federal Reserve is the depository institution’s bank account. 

The Fourth Corner Credit Union's Facebook profile pic features an optimistic grand-opening date.EXPAND
The Fourth Corner Credit Union's Facebook profile pic features an optimistic grand-opening date.
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The Kansas City-related complaint makes it clear that the issue of marijuana businesses lacking access to traditional banking services due to cannabis remaining illegal at the federal level isn't unique to the Fourth Corner Credit Union or even to Colorado. Here's another key passage.

If the District of Columbia is counted as a state, there are 24 states that have legalized medical cannabis for distribution, taxation and regulation. Five of those states have gone further to legalize cannabis for adult use. An additional 15 states have legalized the use of low THC hemp based CBD oil for medical purposes. Furthermore, 20 states have allowed industrial hemp growing and cultivation with regulations that violate federal law.35 In total, there are only eight states (AR, ID, KS, LA, OH, PA, SD, WY) whose laws do not currently conflict with the federal Controlled Substances Act in some manner.... It is clear that the Federal Government's stance on cannabis prohibition is not honored by all but eight states. The majority of those states have pending legislation to change their position as well. None of these state licensed, regulated, and taxed businesses have meaningful and stable access to traditional banking services. The few MRBs that have bank accounts are at constant risk of their accounts being closed all of the sudden. The majority of MRBs are forced to operate in cash only, and to suffer the high cost of handling and safeguarding this cash. The public is at risk in having hundreds of millions of dollars of cash flowing about the streets of Colorado. The ‘seed-to-sale’ state and municipal regulation of cannabis works — until the point of sale when a sale generates cash. 

With these matters in mind, FCCU requested that the U.S. District Court in Colorado "issue a declaration directing Defendant, Federal Reserve Bank of Kansas City...to grant...a master account at FRB-KC."

Instead, Jackson turned his thumbs down, writing, "These guidance documents 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."

Shortly after Jackson weighed in, the National Cannabis Industry Association expressed its dismay.

"This ruling sends a message loud and clear — Congress must act," NCIA executive director Aaron Smith said in a statement. "There's no shortcut, there's no Band-Aid, there's no work-around to fix this industry-wide.

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"Forcing cannabis businesses to operate without banking access is a crisis, affecting public safety, law-abiding businesses," he added, "and the state officials in charge of regulating them. It's time for Congress to do its job and fix the problem."

Jackson, too, feels that only the legislative branch can resolve the issue. His opinion contains the following passage: "I regard the situation as untenable and hope that it will soon be addressed and resolved by Congress,"

Look below to see the original FCCU lawsuit against the Federal Reserve Bank of Kansas City, followed by the complaint aimed at the National Credit Union Administration.



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