Pot, Bitcoin Companies Pay Steep Fees for Bank Access
By Chris Cumming and Marc Hochstein
April 10, 2015
As financial institutions worldwide move to cut off relationships with industries that regulators consider risky, the few banks that serve these businesses are charging hefty fees for basic services.
For companies in the cryptocurrency and legal marijuana businesses — two sectors that regulators now scrutinize most closely — getting access to a bank account can cost thousands in monthly fees, if it can be done at all.
Marijuana businesses routinely pay as much as $3,000 a month for basic checking accounts, people who work in the pot industry say. Additional fees — for picking up deposits in armored cars or for audits required by a bank’s regulators — make the all-in costs even higher, they say. (For perspective: Most banks offer small-business checking with monthly fees below $50, if any.)
For crypto-currency companies, banking options are even more limited, and more expensive. Monthly fees for a basic checking account can range into the tens of thousands of dollars, say lawyers and consultants who work with these companies.
There’s no question that banking these companies is expensive and risky for banks, given the due diligence required and the potential fines for lapses in anti-money laundering compliance. But many people who work in these industries think that banks are using risk as a cover to take advantage of the fact that companies in these industries have few other options.
“The reality is that it’s extremely difficult to get a bank account in this industry, so if you do find a bank you are highly incentivized to play by whatever rules they set for you,” said Taylor West, deputy director of the National Cannabis Association.
From banks’ perspective, higher fees are inevitable. Banking high-risk businesses requires extensive documentation and reporting, which would be unprofitable without charging more.
Charging risky companies high monthly fees for bank accounts is “absolutely reasonable,” said Andre Herrera, executive vice president of banking and compliance for Hypur, a firm that helps banks serve challenging industries.
“There are a number of legal, legitimate businesses that pay a higher price for their financial services,” he said. “Banks are looking at all the risk factors and saying, ‘I have more on the line to bank this industry and we’re going to bill them more to offset this risk.'”
The risks of the pot and cryptocurrency industries are due in part to their cloudy regulatory status. No bank has been publicly censured or fined by bank regulators for working with either industry, and regulators have issued guidelines on how banks can legally serve these industries.
But for most banks the business isn’t worth the risk. The result is that even as these industries begin to join the mainstream — with legal cannabis now a multi-billion-dollar business and traditional financial institutions investing millions in Bitcoin companies — basic banking services remain either off-limits or onerously expensive.
There are “a lot of parallels between the marijuana-banking space and the crypto-banking space,” said Andrew Ittleman, an attorney at Fuerst, Ittleman, David & Joseph who has published articles on both subjects.
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