Treasury and bank depositors’ confidential tax info

Treasury’s long awaited guidance on marijuana banking anticipates that banks will know what is in marijuana  depositors’ tax returns.  Treasury says there’s a red flag if

A customer appears to be using a state-licensed marijuana-related business as a front or pretext to launder money derived from other criminal activity (i.e., not related to marijuana) or derived from marijuana-related activity not permitted under state law. Relevant indicia could include:

. . .

o The business is depositing more cash than is commensurate with the amount of marijuana-related revenue it is reporting for federal and state tax purposes. (Page 5.)

It seems clear that this “red flag” is for the bank, not the Government, to deal with:  “It is thus important to view any red flag(s) in the context of other indicators and facts, such as the financial institution’s knowledge about the underlying parties obtained through its customer due diligence.”

Again, “a financial institution should conduct customer due diligence that includes:  . . . (vi) ongoing monitoring for suspicious activity, including for any of the red flags described in this guidance.”  (Pages 1-2.)  Red flags are for the bank (not the government) to notice.

But tax reporting is confidential.  Nothing yet requires any taxpayer to give its bank any of its tax filings.

Technically, nothing prevents a depositor from disclosing tax return information to its bank.  Banks get tax return information from borrowers all the time.  But these marijuana businesses are hardly credit-worthy;  they are looking just to make deposits, which they can’t do now.  That’s the problem Treasury is trying to solve.  If banks get depositor tax information somehow, say by mistake, this memo makes them compare it to deposits.  OK . . .

So I back off from calling this a mistake.  I would call it inartful drafting.  It’s hard to imagine a marijuana business would lack  common sense enough to deposit more than its tax filings  show.   (If that were a possibility, this language will ensure that the business spreads deposits out among banks.)  I would have put tax filings nearer the bottom of the list, along with ”

Financial statements provided by the business to the financial institution are inconsistent with actual account activity.”



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