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Pot Credit Union Sues Fed Over Master-Account Delays

A credit union serving the marijuana industry has sued the Federal Reserve, asking a federal judge to enforce the 10th Circuit’s order to grant the credit union a master account despite its ties to pot.

DENVER (CN) – A credit union serving the marijuana industry has sued the Federal Reserve, asking a federal judge to enforce the 10th Circuit’s order to grant the credit union a master account despite its ties to pot.

The marijuana industry came closer to being able to do banking when in June the 10th Circuit overturned an order that barred Colorado-based Fourth Corner Credit Union from obtaining a master account from the Federal Reserve Bank of Kansas City. The credit union first sued the Fed in 2015.

“In both district court and our court, Fourth Corner has promised to service marijuana-related businesses only if such service is legal,” Circuit Judge Robert Bacharach wrote for the 10th Circuit panel this past June. “In the face of these assurances, the Federal Reserve Bank of Kansas City has continued to resist granting a master account to Fourth Corner. In light of this continued resistance, we know with relative certainty that the Federal Reserve Bank of Kansas City will continue to refuse a master account even if Fourth Corner reiterates the promises that it has made in district court and in our court.”

Following the 10th Circuit ruling, Fourth Corner verified that its paperwork was in order and reapplied. But according to the credit union’s latest lawsuit filed Friday, the Federal Reserve Bank still hasn't issued the master account required for electronic banking.

While the Federal Reserve Bank has not denied a master account outright, the credit union says it has asked for unnecessary supplemental documents and delayed well beyond the typical turnaround of five to seven business days.

“The processing of a master account request is a ministerial act,” the credit union says in its lawsuit. “(The Federal Reserve Bank) must issue a master account to all depository institutions located in the 10th Federal Reserve District that request a master account. Federal Reserve Bank of Kansas City does not regulate or supervise state-chartered credit unions.”

The credit union says the only authority able to prevent it from operating is the Colorado Division of Financial Services, which gave its approval in 2014.

Since then, Fourth Corner has aimed to solve the cannabis industry’s biggest problem: marijuana is the only tax-abiding billion-dollar industry in the United States operating almost exclusively on cash.

To date, 28 states have approved some kind of medical marijuana program and eight have legalized the substance for recreational use. But the plant’s federal status as a Schedule I drug means marijuana-related businesses are prohibited from making bank transactions.

This means the industry operates without payroll, direct deposits and credit card transactions. Additionally, they are uniquely required to hand deliver their taxes to the Internal Revenue Service.

Although Fourth Corner is the first credit union to fight for the right for cannabis businesses to bank, it will not be the last.

“On Jan. 1, 2018, retail marijuana sales will begin in California,” the credit union says in its lawsuit. “The state of California is the world’s sixth largest economy, only outpaced by the United States as a whole. This event magnifies the untenable cash-only situation exponentially and could trigger a change in federal law to authorize depository institutions to serve marijuana related businesses.”

In an email, the credit union’s attorney Marc Mason said the Fed’s refusal to issue a master account violates Colorado’s sovereign right to charter financial institutions.

“Fourth Corner believes that its second lawsuit will result in Fourth Corner obtaining its master account so it can move forward with its ultimate mission to bring fully legitimate banking to marijuana related businesses,” Mason said. “The lawsuit should affirm Colorado’s sovereign right to charter (without federal interference) financial institutions it believes will further the best interests of the state and its citizens.

“Once the master account is obtained, Fourth Corner can take the next steps to achieve its goal.”

Fourth Corner seeks an order requiring the Federal Reserve Bank to immediately grant it a master account.

The Federal Reserve Bank did not immediately respond to requests for comment.

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