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Sunday, July 14, 2024 | Back issues
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Fed Balks at Licensing Pot Sellers’ Credit Union

DENVER (CN) - The Federal Reserve Bank of Kansas City asked a federal judge to dismiss a pot-friendly credit union's lawsuit, saying it does not want to further "an illegal purpose" by giving the credit union a master account.

Fourth Corner Credit Union filed its lawsuit against the Federal Reserve branch in July, after it was denied a master account with the federal banking system. Without a master account, Fourth Corner can't open or function as an electronic banking facility.

The credit union has been tasked by the state of Colorado with solving the problem of the nearly all-cash marijuana industry and the accompanying lack of access to banking services.

Fourth Corner hopes to create a financial space for marijuana companies to establish payroll, direct deposits, and take credit cards as payment. Since retail marijuana was legalized in Colorado in 2013, marijuana dispensaries have even had to deliver their taxes directly to the Internal Revenue Service in large bags and boxes of money since they have been barred from the banking system and are forced to operate entirely on a cash basis.

But the Federal Reserve branch filed a motion to dismiss the credit union's lawsuit, arguing that the federal banking system has to abide by federal law - which still prohibits the sale of both medicinal and recreational marijuana, the paths of states like Colorado, Washington and Oregon notwithstanding.

Forcing them to give Fourth Corner Credit Union a master account would be furthering "criminal activity," the Federal Reserve argues.

"It is illegal to knowingly conduct, manage, supervise, or control a money transmitting business that involves the transportation or transmission of funds known to have been derived from a criminal offense, or intended to support unlawful activity," the bank's motion says.

"The manufacture and distribution of marijuana is prohibited by federal criminal law. So is aiding and abetting the manufacture, distribution, and dispensing of marijuana. Even transporting or transmitting funds known to have been derived from the distribution of marijuana is illegal."

In its motion, the Federal Reserve branch notes that if Colorado had legalized the trade of endangered animals from North Korea and tried to create a banking system for those activities it would have rejected that application too.

"The present situation, similarly, cannot be sanctioned," the motion says.

Colorado's marijuana industry is estimated to bring in $700 million a year.

Neither Fourth Corner attorney Gabrielle Lee, of the Mason Law Firm, nor Federal Reserve Bank of Kansas City's attorney Scott Barker with Wheeler Trigg O'Donnell responded to requests for comment by press time.

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