- - Friday, February 21, 2014

ANALYSIS/OPINION:

The Obama administration recently released departmental “guidance” saying banks may “provide financial services to marijuana-related businesses operating legally under state law.”

Let’s be clear: No federal trump card exists that can erase bank liability for handling of drug money.

Put differently, there is no conceivable way to remove criminal and civil liability for complicity in money laundering by departmental “guidance.” Thus, any bank that wants to avoid federal, state and private liability has only one choice: Say no to drug money. Here is why.

For all the hoopla, narcotics distribution is still drug trafficking, even if you dress it up as legal. Processing drug money is still complicity.

Foreseeable liability for bank involvement is enormous. Congresses led by both Republican and Democratic majorities over 40 years have crafted anti-money-laundering and anti-drug statutes to prevent infection of the U.S. banking system with illegal proceeds.

Relevant laws include the Bank Secrecy Act (1970), Money Laundering Control Act (1986), Anti-Drug Abuse Act of 1988 (co-authored incidentally by then-Sen. Joe Biden), Annunzio-Wylie Anti-Money Laundering Act (1992), Money Laundering Suppression Act (1994), Money Laundering and Financial Crimes Strategy Act (1998), Title III of the USA Patriot Act (2001), and Intelligence Reform and Terrorism Act of 2004.

The new federal “guidance” is notable for what it does not say. It does not assure banks that they will not be prosecuted under these laws, and does not answer the tough questions.

If banks process marijuana monies — all cash, since the credit card companies sensibly do not want anything to do with it — how do they distinguish between large cash sums derived from marijuana and sums from other illicit drugs, such as cocaine, heroin and methamphetamine?

How do they separate cash deposits of “legal pot” traffickers from those “passed along” by illegal traffickers in neighboring states? If they get the call wrong once, they are then de facto processers of illicit proceeds — that is, liable.

Add this conundrum: If a Colorado bank processes pot money from Colorado, but bank patrons sell to users in other states — a la “drug tourism” — how does the bank avoid felony liability in other states?

If another state proves that a Colorado bank is accepting monies illegal under that state’s laws, wouldn’t that be a handy way to balance a state budget?

What about liability for international trafficking, when Mexican pot shows up in bank deposits? Or interstate liability when non-legalizing states seek damages from banks for facilitating international trafficking on their roads and rails?

In short, there is no way to protect against such lawsuits, nor should there be.

Then on the interstate front, consider lawsuits by contiguous states for drugged driving, pot-related traffic accidents, and drivers trafficking pot from the legalizing state.

Who will come to the rescue of involved banks then? Who will protect the drug-affiliated banks when they try to move drug-tainted money into the interstate banking system?

All this is just half the problem. Put aside liability to government entities and imagine that issue gone by fiat, which it never will be. This still leaves liability to nongovernment litigants — that is, to private parties adversely affected by the newly authorized drug trafficking and drug-related banking practices.

For all their eagerness to do so, the Obama administration cannot eliminate individual — and class-action — rights by private parties adversely affected by bank complicity.

Any state that legalizes marijuana has opened the door to a “public-spirited” — and often insatiable — plaintiffs’ bar. Complicit banks are in the mix.

Civil law suits will proliferate, just as they did against tobacco companies, and for better reason. First, anticipate the tort claims for millions of dollars in damages by victims of drugged-driving accidents, legally sanctioned overdoses, or in cases where “legally acquired marijuana” is a proximate cause.

Next expect the multimillion-dollar wrongful-death claims by families who can affirmatively link their child’s marijuana use, addiction or subsequent overdose from any drug to the state-sponsored drug-distribution program and bank participation. Who will these eager litigators identify as deep pockets? Banks.

Then watch class-action litigators re-emerge, the ones who got rich suing cigarette companies. They will file against everyone who touches pot money, articulating colorable claims for compensatory and punitive damages against all pockets. Prepare for a replay of nicotine addiction, organ damage and death.

Stripped of pro-drug hype, marijuana is actually more dangerous than nicotine, more addicting and more physically and mentally damaging. Moreover, the science is all public.

Ironically, studies by the Department of Justice and the Centers for Disease Control and Prevention will make the case. Medicine is never smoked, and promoting drug addiction is never benign.

Finally, add peripheral claims, contributory negligence in workplace accidents, marijuana-related violent and property crime, domestic abuse and reimbursement to hospitals for higher emergency-room costs. Private litigators must already be rubbing their hands together.

This is not rocket science, nor even difficult data analysis. This is pure replay, which is what makes the pending fiasco so surreal. Once on the slope, banks are all but in the litigation abyss.

The foreseeable liability of those embracing legal pot is enormous — greater than for cigarettes or alcohol — since the addicting power, and traceable and proximate damages from marijuana are established, provable and public.

As long as families and plaintiffs’ attorneys have a right to seek redress for actions by private parties complicit in promoting drug abuse, major lawsuits can be anticipated.

Waiving a few bank regulations will make no difference. The trump card is still held by the injured public. Any bank worth its salt should expect them to play it.

Robert B. Charles is a former U.S. assistant secretary of state for international narcotics and law enforcement and heads a D.C. consulting firm, the Charles Group LLC.

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