In January, Attorney General Jeff Sessions opened a new chapter on federal overreach by taking aim at states that have legalized the use of the marijuana. Last week the third largest bank in the country added another twist when they shut down one of Alaska’s approved marijuana testing labs. However, trampling on states’ rights isn’t exactly new to the banking industry.
In 2013, the U.S. Department of Justice (DOJ) under President Obama issued a policy directing federal prosecutors to focus on marijuana activities by “large-scale criminal enterprises, gangs, and cartels.” In states that had legalized its use, they were asked to defer to local authorities provided “strong and effective regulatory enforcement systems” consistent with DOJs defined federal priorities were in place.
The policy was later updated to give banks legal breathing room to provide services to marijuana businesses operating within laws defined by the states. However, they were still required to report any suspicious activity uncovered during their normal customer due diligence processes.
This guidance was in place when Steep Hill Alaska became the state’s first approved testing lab. That they operated in rented space in Anchorage posed no legal problems for the landlord of that building or Wells Fargo, the bank holding the landlord’s mortgage.
The Sessions’ memo changed that. By erasing the Obama era distinctions and priorities, it defined all cultivation, distribution and possession of marijuana as a serious crime. Which meant that any financial transaction indirectly tied to a state approved lab would be considered a violation of federal money laundering statutes.
As a result, Wells Fargo threated to foreclose on the property Steep Hill rented. To avoid that, the landlord gave Steep Hill an eviction notice. Unable to find an alternative location, CEO Brian Coyle closed his company’s doors.
In an email sent to the Empire, a Wells Fargo spokesperson explained their decision. “It is currently Wells Fargo’s policy not to knowingly bank marijuana businesses, based on federal laws under which the sale and use of marijuana is still illegal”
Makes sense. But can a business with difficulty regulating itself be a credible enforcement arm of DOJ?
In 2016 alone, Wells Fargo was fined $4 million for record keeping in which customer documents may have been altered; another $185 million for illegally opening a few million private accounts without customer authorization; and agreed to pay the feds $1.2 billion to settle mortgage fraud claims arising from the 2008 financial crisis.
Even if their record was spotless, when a company like Wells Fargo imposes the federal government’s edicts on the people of Alaska, it’s still overreach. As it was for the banking industry itself when they fought and won their own battle to preempt the states’ anti-usury laws.
Once upon a time, lawmakers had the power to place limits on the interest rates banks located within their respective states could charge. But in a 1970s industry challenge to that authority, the U.S. Supreme Court ruled national banks weren’t obligated to comply. Alaska’s 10.5 percent statutory maximum rate no longer had any teeth.
That case was decided at the only time in history that interest rates set by the Federal Reserve Bank exceeded 20 percent. Between 1990 and 2008, it hovered around 6 percent. Then it fell to almost zero after taxpayers bailed out the banks. And yet, Wells Fargo is legally permitted to reach into the pocketbooks of its Alaska credit card customers and collect a loan-shark rate of 26.49 percent on their outstanding balance.
This is why, as Alaska’s territorial pioneers understood, the term overreach rightfully applies to the powerful entities in the private sector as well as the feds. They pursued statehood partly to free themselves from the stranglehold of Seattle-based businesses.
Wells Fargo is headquartered even farther south in San Francisco. They’re “the real bad guy here” Coyle told The Empire after seeing his business destroyed. “If they’re going to be doing business in Alaska, they should be following Alaska’s state laws.”
In the spirit of state sovereignty, Coyle is right. But this Republican administration thinks he was running a criminal enterprise. And for banks part, they’ve had it their way long before Sessions or Obama were actors in this story.
• Rich Moniak is a Juneau resident and retired civil engineer with more than 25 years of experience working in the public sector. He contributes a regular “My Turn” to the Juneau Empire. My Turns and Letters to the Editor represent the view of the author, not the view of the Juneau Empire.
