Oklahomans Approve Medical Marijuana… The Feds Do Not
By: Miles Pringle
Oklahoma voters were energized on both sides of State Question 788 permitting medical marijuana. With 891,654 total votes cast, voter turnout more than doubled 2014’s primary, and surpassed the total amount of votes cast in the 2014 gubernatorial election. Its passage makes Oklahoma the 30th state to approve the use of medical marijuana. Recreational use has been legalized in nine states, including the District of Columbia, which is part of a clear trend in the United States where a majority of Americans – 64% according to Gallup – support legalization.[i]
Despite its growing approval among the states and voters, marijuana remains illegal under federal criminal law and its possession and distribution may be punishable with long prison sentences. Under the Obama administration, the Department of Justice (“DOJ”) issued memoranda setting out its priorities regarding enforcement of marijuana related crimes in states that have approved medical or recreational use.[ii] Essentially, it was the policy of federal agencies and prosecutors to avoid interference with the application of state marijuana laws, unless specific activities violated the priorities they set out (e.g. sales to minors, revenue to gangs or cartels, etc.). The Trump administration has reversed course from the Obama administration – ostensibly taking authority away from the states – and Attorney General Jeff Sessions revoked the prior memoranda on January 4, 2018 of this year.
Thus, despite the result of State Question 788, it will continue to be a crime to grow and sell medical marijuana in Oklahoma under federal law.[iii] However, federal law criminalizes more than just persons directly involved in medical marijuana transactions; it also punishes one who “aids, abets, [or] counsels” offenders. For reference, “a person aids and abets a crime when (in addition to taking the requisite act) he intends to facilitate that offense’s commission.”[iv] Guilt as an accessory depends, not on ‘having a stake’ in the outcome of crime, but on aiding and assisting the perpetrators, whether by sale or otherwise, by providing the means to carry on their criminal undertakings. It does not matter if the act performed by the abettor is a normally lawful act.[v]
So what acts could constitute aiding and abetting? With drugs, typically it is being in a vehicle transporting a large amount of contraband. With medical marijuana, a glaring example of aiding and abetting is prescribing physicians, as Oklahomans will need a prescription to procure medical marijuana. “Physicians prescribing and patients using cannabis lawfully under state statutes could be subject to federal prosecution.”[vi] Additional cottage industries, such as builders of grow houses, could also find themselves in violation of federal law.
Another issue for medical marijuana businesses is access to the banking system. In addition to the laws cited above, financial institutions are subject to greater standards than many other businesses. “Under the Bank Secrecy Act and the USA PATRIOT Act, financial institutions must maintain robust programs designed to prevent money laundering.”[vii] These programs require financial institutions to identify their customers and use of account funds. The BSA also requires financial institutions to report illegal and suspicious activities to the federal Financial Crimes Enforcement Network (“FinCEN”) and submit currency transactions reports for cash transactions over $10,000 (as well as certain transactions over $5,000). Further, it is a crime under federal law to knowingly engage in a monetary transaction that is of a value greater than $10,000 and is derived from specified unlawful activity.[viii]
The DOJ has pursued financial institutions for their acceptance of drug related money. For example, in 2010, the DOJ entered into a deferred prosecution agreement with Wachovia Bank, N.A. to avoid charges that it willfully failed to establish an anti-money laundering program. The Drug Enforcement Administration stated that it exposed how a particular cartel capitalized on weak anti-money laundering practices at Wachovia to further the cartel’s drug trafficking abilities. Wachovia was ordered to pay $160 million in penalties. Earlier this year, U.S. Bank, N.A. was assessed $185 million in civil money penalties by FinCEN for failing to establish and implement an adequate anti-money laundering program, failing to report suspicious activity, and failing to adequately report currency transactions.
Almost all banks, savings institutions, and credit unions in Oklahoma are insured by the Federal Deposit Insurance Corporation (“FDIC”) or the National Credit Union Administration (“NCUA”), regardless of whether they are state or federally chartered. They are also subject to the supervisory powers of several state and federal agencies and regular examinations. Agencies can bring civil money penalties, revoke insurance, suspend or ban individuals from the banking industry, and take other enforcement actions. As a result, those financial institutions are wary to provide any financial services or open accounts for persons affiliated with the medical marijuana industry, however remotely.
It should also be noted that FinCEN’s authority extends far beyond banks and credit unions. FinCEN has authority over “financial institutions” which includes insurance companies, pawnbrokers, “a loan or finance company”, travel agencies, persons involved in real estate closings, or “any other business designated by the Secretary whose cash transactions have a high degree of usefulness in criminal, tax, or regulatory matters.”[ix] In 2015, FinCEN held MoneyGram International Inc.’s chief compliance officer personally responsible for the company’s BSA violations.[x] In 2016, FinCEN assessed fines upon Kustandy Rayyan, owner and operator of the Thriftway Food Mart located in Kentucky, for failing to establish and implement an effective written anti-money laundering program and failing to file accurate and timely currency transaction reports.
Difficulty accessing the banking and payment system has led marijuana growers and dispensaries to deal in cash. This presents inefficiencies, extra costs, and security risks. It is inefficient to pay all of your expenses – from plumbers to landlords – in cash, not to mention the headache of maintaining true cash accounts. It is also easier to hide proceeds from tax agencies. There is an extra cost to holding large amounts of cash, as one needs safes and other means of securing the money. Most importantly, having so much cash makes growers and dispensaries prime targets for theft, with all its encompassing dangers. As a result, a vast money laundering market has no doubt arisen to handle the demand from the cash marijuana businesses have on hand.
So what are the implications for lawyers? Rule 1.2 of the Rules for Professional Conduct state that “A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law.” Lawyers have been disbarred in Oklahoma for violating this rule.[xi] In several states where medical or recreational marijuana has been authorized under state law, state bar associations have issued opinions advising attorneys how to handle these issues.[xii] Similar guidance from the Oklahoma Bar Association should be forthcoming.
Fortunately for Oklahoma, we are not the first state to approve medical marijuana. As such, we know what some of the upcoming issues will be. Nevertheless, there are several uncertainties, such as how the Trump administration will enforce drug laws. The medical marijuana industry will no doubt create large profits for some who get involved; however, at present the risks of this business are more than just financial, they are criminal.
This Article was originally published in Oklahoma County Bar Association’s Briefcase Vol. 51 No. 7 in July 2018.
[i] See McCarthy, Justin, “Record-High Support for Legalizing Marijuana Use in U.S.”, Gallup, published October 25, 2017, available at https://news.gallup.com/poll/221018/record-high-support-legalizing-marijuana.aspx (last accessed July 2, 2018); see also German, Lopez, “The spread of marijuana legalization, explained”, VOX, published June 26, 2018, available at https://www.vox.com/cards/marijuana-legalization/where-is-marijuana-legal (last accessed July 2, 2018).
[ii] See e.g. Memorandum from James M. Cole, Deputy Att’y Gen., to Unites States Att’ys, Guidance Regarding Marijuana Enforcement (Aug. 29, 2013); see also David W. Ogden, Deputy Att'y Gen., Memorandum for Selected United States Attorneys: Investigations and Prosecutions in States Authorizing the Medical Use of Marijuana (Oct. 19. 2009).
[iii] See Gonzales v. Raich, 545 U.S. 1, 9, 125 S. Ct. 2195, 2201 (2005).
[iv] See Rosemond v. United States, 572 U.S. 65, 134 S. Ct. 1240, 1248 (2014).
[v] Backun v. United States, 112 F.2d 635, 637 (4th Cir. 1940).
[vi] Gostin, Lawrence O., Hodge, James G., Wetter, Sarah A., “Enforcing Federal Drug Laws in States Where Medical Marijuana Is Lawful”, 319 JAMA 1436 (Apr. 10, 2018).
[vii] Julie Andersen Hill, “Banks, Marijuana, and Federalism”, 65 Case W. Res. L. Rev. 597, 612 (2015).
[viii] 18 U.S.C. § 1957.
[ix] 31 USCS § 5312.
[x] United States Dep't of the Treasury v. Haider, No. 15-1518(DSD/HB), 2016 U.S. Dist. LEXIS 2292 (D. Minn. Jan. 8, 2016).
[xi] See e.g. State ex rel. Okla. Bar Ass'n v. Golden, 2008 OK 39, 201 P.3d 862.
[xii] Cherner, Phil, “Marijuana and Your License to Practice Law: A Trip Through the Ethical Rules, Halfway to Decriminalization”, American Bar Association, published February 2016, available at https://www.americanbar.org/content/dam/aba/events/professional_responsibility/2016%20Meetings/Conference/Materials/breakout3/2_ethics_of_pot_lecture_2016_february.authcheckdam.pdf (last accessed July 5, 2018).