Bank Regulators Post Swift Win in Marijuana Challenge

By Chris Bruce

Jan. 6 — A federal judge wasted no time in rejecting a Colorado credit union's claim that the Federal Reserve Bank of Kansas City wrongly denied its bid for full access to the U.S. payments system because of its ties to the marijuana industry.

The ruling, criticizing federal guidance on the question and calling for action by Congress, came less than two weeks after Judge R. Brooke Jackson of the U.S. District Court for the District of Colorado heard arguments in the case brought by Denver's Fourth Corner Credit Union. The credit union was chartered by the state to serve marijuana-related businesses even though marijuana is an illegal substance under federal law (248 BBD, 12/29/15).

Fourth Corner said the Kansas City Fed was required to issue it a master account, but Jackson dismissed the case late Jan. 5, saying courts “cannot use equitable powers to issue an order that would facilitate criminal activity.”

Marijuana Balancing Act

Jackson's order clarifies the Colorado dispute but highlights the broader tension between federal prohibitions on marijuana use, permissive state laws, and federal guidance from the Justice Department and the Treasury Department.

The federal guidance drew special criticism from Jackson. “In short, these guidance documents simply suggest that prosecutors and bank regulators might ‘look the other way' if financial institutions don't mind violating the law,” Jackson said. “A federal court cannot look the other way. I regard the situation as untenable and hope that it will soon be addressed and resolved by Congress.”

For Fourth Corner, the decision may have more immediate implications. A depository institution cannot transfer funds electronically without a master account provided by one of the Reserve banks. So crucial is that access, Jackson said, that without it, “Fourth Corner Credit Union is out of business.”

Fourth Corner Responds

Fourth Corner President and Chief Executive Officer Deirdra A. O'Gorman responded to that statement in a Jan. 6 e-mail to Bloomberg BNA. “Let's put it this way, the Fourth Corner is here to serve the industry and right now our service comes in the form of clarifying the law for all depository institutions so that the industry can be banked under clear rules,” she said.

O'Gorman added that Fourth Corner's mission is still to provide “compliant, transparent banking services” to marijuana-related businesses and supporters.

Kansas City Fed spokesman Bill Medley Jan. 6 declined to comment on the ruling.

Mike Elliott, executive director of the Marijuana Industry Group, which supports medical and recreational marijuana businesses in Colorado, Jan. 6 said the industry will continue its push for financial services.

“The marijuana industry will continue advocating for responsible banking solutions in order to promote accountability, transparency, and public safety,” Elliott told Bloomberg BNA.

Lawsuit Against NCUA

Fourth Corner filed its suit in August, claiming federal law required the Kansas City Fed to approve its bid for a master account because it has been chartered to do business by a state (148 BBD, 8/3/15).

Fourth Corner also has a separate but related lawsuit ongoing against the National Credit Union Administration that says the NCUA wrongly disapproved its application for federal share insurance.

That lawsuit, which was filed on the same day and in the same court as the suit against the Kansas City Fed, is being overseen by Judge Raymond P. Moore. The NCUA has asked Moore to dismiss that case.

—With assistance from Tripp Baltz in Denver.

To contact the reporter on this story: Chris Bruce in Washington at

To contact the editor responsible for this story: Seth Stern at