Most folks worry about audits and examinations at their Financial Institution. Me? I have always welcomed them. Back when I was head of Operations for a Community Bank, I knew that I couldn't catch everything, no matter how hard I tried. Having an auditor or examiner come in and look at our world closely - and with intent - was a welcome opportunity to find any shortfalls and to course correct if necessary.
With that said, I completely understand how nerve racking it would be to have a finding related to cannabis banking.
First and foremost, keep in mind the intent of such an event is to give you and your institution an opportunity to identify and manage any risks and ensure your company's policies or established regulations are being followed. A finding is simply drawing your attention to an increased risk that you should work to mitigate (or adjust your policy to accept), or letting you know where a regulation is not being adhered to.
So what are some of the findings you might see around cannabis banking?
The one that seems to be most common is the lack of a strong BSA/AML program; this might result in multiple findings. If you are banking cannabis, intentionally or unintentionally, you should have a strong program that focuses on four key components:
- Initial Due Diligence. Make sure you understand exactly who you are doing business with. This is Know Your Customer and Beneficial Owner all day long.
- Transaction Validation. Monitor transactions in order to substantiate that they are legal transactions under State laws, and watch for those which might be a result of illicit activity.
- FinCEN Filing. File the required reports (CTRs and SARs) completely and in a timely manner.
- Ongoing Due Diligence. Make sure that you continue to watch the business for any unexplained anomalies, or unusual activity, and that they are continuing to meet the State level requirements for them to be participating in this space.
An example we've seen is that you have some cannabis-related accounts, but you aren't doing the work around due diligence, monitoring or filing because you've decided you aren't "actively" banking cannabis. Or you have no reference in your existing policies about cannabis accounts.
That's really not an option. If they're on the books, you're banking them - even if it's just tolerating existing accounts. You need to have the compliance and operations structure around them regardless.
Another example of a finding might be incomplete or inadequate transaction monitoring. Many BSA/AML systems are looking at core system data and can detect cash deposit patterns. With this approach, you'll know if something is an anomaly, but do you really know whether or not that cash came from a legal sale? Some institutions will work around this by manually validating that sales reports match deposit amounts, which can be time consuming and tedious, as well as prone to error or oversight, resulting in a finding.
Green Check clients are able to use our compliance rules engine to validate each and every sale against state compliance rules and accept only those deposits that have been fully verified. Being able to automate this transaction validation is a tremendous time saver and creates a reliable process that doesn't change when your senior BSA Analyst takes a vacation. This is also something we've heard from examiners as cannabis banking programs grow - they are actually recommending, or in some cases mandating, automated solutions so that key details are not missed.
A final example of a finding that you might see is for not filing CTRs and SARs in a timely or consistent manner. You'll want to make sure that as cash deposits come into your institution you are keeping up with filing those extra CTRs. You'll also need to make sure that as you complete ongoing reviews you're filing Limited SARs regularly and Priority or Termination SARs when necessary. For Green Check clients we support this by auto filling those reports for filing when deposits are received, initial due diligence is done, or through your ongoing review cycle. Once reviewed and approved they can be exported for discreet or batch filing to FinCEN.
Now that we've dug into what type of findings you might see around cannabis banking, I hope this takes some of the fear of the unknown away. These are things you know how to fix. These are features of any strong BSA/AML program, and these are processes that a partner like Green Check can help you with.