Glossary of Cannabis Banking
In the dynamic realm of cannabis banking, understanding terminology defining its complex processes and regulations is essential. This cannabis banking glossary serves as a vital resource for practitioners navigating the intricacies of the cannabis industry.
Automated Clearing House (ACH)
The Automated Clearing House (ACH) is an electronic funds-transfer system that facilitates payments in the United States and internationally. It is a computer-based electronic network that processes batches of electronic credit and debit transfers, such as direct deposits, payrolls, consumer payments, and business-to-business transactions.
Anti-Money Laundering (AML)
Anti-Money Laundering (AML) refers to the laws, regulations, and procedures intended to prevent criminals from disguising illegally obtained funds as legitimate income.
- Financial institutions must have robust AML compliance programs to detect and report potential money laundering activities as required by laws like the Bank Secrecy Act (BSA).
The Bank Secrecy Act (BSA)
Anti-Money Laundering (AML) refers to the laws, regulations, and procedures intended to prevent criminals from disguising illegally obtained funds as legitimate income.
- The BSA requires financial institutions to maintain records and file reports on certain financial transactions to assist government agencies in detecting and preventing money laundering, tax evasion, and other illicit activities.
- It mandates financial institutions to implement anti-money laundering (AML) compliance programs, including customer due diligence, monitoring for suspicious activity, and reporting of cash transactions over $10,000.
Card Network
A card network (also known as a card association) is an organization that facilitates and regulates payment card transactions between various parties involved.
- Major card networks include Visa, Mastercard, American Express, Discover, China UnionPay, and JCB.
Cost of Goods Sold (COGS)
Cost of Goods Sold (COGS) refers to the direct costs associated with producing or acquiring the goods that a company sells during a given period.
- It includes costs like raw materials, direct labor, and manufacturing overhead directly tied to production.
- COGS excludes indirect costs like sales, marketing, administrative expenses, etc.
Enhanced Due Diligence (EDD)
Enhanced Due Diligence (EDD) is a rigorous process that financial institutions and other regulated entities employ to identify and mitigate risks associated with high-risk customers, transactions, or business relationships.
Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA)
The Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) are independent federal agencies that provide deposit insurance to protect consumers’ accounts in the event of a bank or credit union failure.
- Both the FDIC and NCUA insure deposits up to at least $250,000 per account holder, per ownership category, per insured institution.
Financial Crimes Enforcement Network (FinCEN)
Financial Crimes Enforcement Network (FinCEN) is a bureau of the U.S. Department of the Treasury that collects and analyzes information about financial transactions to combat money laundering, terrorist financing, and other financial crimes.
IRS Code Section 280E
Section 280E of the Internal Revenue Code disallows businesses that traffic in controlled substances from deducting ordinary and necessary business expenses from their gross income.
- It states that “no deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances.”
- The term “controlled substances” refers to those listed in schedules I and II of the Controlled Substances Act, which includes marijuana.
Merchant Account
A merchant account is a type of business bank account that allows businesses to accept and process electronic payments, such as credit and debit card transactions, from customers. It acts as an intermediary between the customer’s bank account and the business’s bank account, facilitating the transfer of funds.
Money Services Business (MSB)
A Money Services Business (MSB) is a legal term used by financial regulators to describe businesses that transmit or convert money. The definition encompasses more than just banks, including non-bank financial institutions that provide these services.
Office of the Comptroller of the Currency (OCC)
The Office of the Comptroller of the Currency (OCC) is an independent bureau within the U.S. Department of the Treasury that charters, regulates, and supervises national banks, federal savings associations, and the federal branches and agencies of foreign banks operating in the United States.
PIN Debit
PIN debit is a type of debit card transaction where the customer enters their personal identification number (PIN) to authorize the payment.
Secure and Fair Enforcement (SAFE) Banking Act
The Secure and Fair Enforcement (SAFE) Banking Act, also known as the SAFE Banking Act of 2023 or the Secure and Fair Enforcement Regulation (SAFER) Banking Act, is a proposed legislation that aims to provide protections for federally regulated financial institutions that serve state-sanctioned marijuana businesses.
Suspicious Activity Report (SAR)
A Suspicious Activity Report (SAR) is a document that alerts law enforcement to suspicious transactions with possible links to money laundering or terrorism financing.