Secure and Fair Enforcement Banking Act of 2021

Floor Speech

Mr. Speaker, I rise in opposition to H.R. 1996.

I want to begin by commending my colleague from Colorado, Mr. Perlmutter, for the way that he has approached this legislation. He is incorporating a lot of ideas from Members all across this Chamber and from across the country. He has doggedly pursued this legislation for many years, and I want to commend him for that.

I also want to thank my colleagues, Mr. Stivers and Mr. Joyce of Ohio, for the way they have approached this bill. I think this is a testament to constructive criticism of a bill and it becoming better as a result of it.

Let me say, regardless of your position on this bill, I do think the fact remains that cannabis is a prohibited substance under schedule I of the Controlled Substances Act.

Let me further state that, by enacting this legislation, we are effectively kneecapping law enforcement in legalizing money laundering. These are concerns that I have, that still remain.

By effectively legalizing money laundering, we are inserting a new level of risk in our financial system. We are preventing our legal entities from doing their jobs. We are encouraging bad actors and placing our financial institutions at risk.

Rather than dealing with the issues of cannabis and the question of its Federal legalization, we are dealing with a component of the challenge, which is the banking of it, and it is a challenge. I think we are adding a new risk to our banking system and our anti-money laundering reforms that we passed just in January of this year. That seems counterintuitive to me.

For years, Congress has worked to reform our anti-money laundering laws. Now, in one fell swoop, we are undoing a lot of that hard work and we are going to make it easier for money launderers.

If you want to help the system, if you want to give financial institutions the certainty and security they want and need to do the job with the cannabis industry, where it is legalized in these States, we should debate the merits of cannabis remaining a schedule I substance, not pass a bill that skirts around the substance of the issue.

This bill we are considering today is one of the biggest changes to U.S. drug policy, yet it was done with little debate this Congress. There has been a lot of debate overall in this Congress, far more than the Senate has even had, on the question of cannabis.

This bill, which is really the first step in legalizing cannabis at the Federal level, was reported out of the Financial Services Committee last Congress, and it is a committee that really has no jurisdiction over the Controlled Substances Act. We only had one hearing featuring one panel of witnesses. We haven't had a hearing this Congress to discuss changes over the last 2 years, let alone a markup to discuss any changes that might strengthen or impact the bill.

For example, late last year, Congress passed a sweeping bipartisan anti-money laundering piece of legislation. These reforms include prohibitions on the concealment of sources of assets in monetary transactions; a prohibition, I will add, that comes with a steep penalty of up to 10 years in prison and up to $1 million in fines.

If we were doing our due diligence, we would have done a deeper discussion on how these new AML Act changes would impact banks working with cannabis industries as clients instead of me raising this issue at the eleventh hour on the floor, which is what I have got to resort to.

In addition to this concern, I believe I have voiced many other concerns, including our need to better comprehend and address the supervisory and regulatory issues that would result from enactment of H.R. 1996.

Mr. Speaker, I include in the Record a letter from Ranking Member Luetkemeyer of the Subcommittee on Consumer Protection and Financial Institutions and myself as ranking member of the full Committee on Financial Services. House of Representatives, Committee on Financial Services, Washington, DC, March 21, 2019. Hon. Maxine Waters, Chairwoman, Committee on Financial Services, Washington, DC. Hon. Gregory W. Meeks, Chairman, Subcommittee on Consumer Protection and Financial Institutions, Washington, DC.

Dear Chairwoman Waters and Chairman Meeks: We write today to seek your agreement to delay consideration of H.R. 1595, the SAFE Act, currently scheduled to be marked up on March 26, 2019, until the Committee has a better understanding of the full range of consequences that enacting such legislation may trigger. As you know, marijuana is a schedule I controlled substance as defined in 21 U.S.C. Sec. 802. The impact that many state laws, which have legalized marijuana, have on the federal laws governing the manufacturing, use, and sale of marijuana, including proceeds, raise many questions and concerns. Any change to these statutes, or those that impact them, has the potential to divide the Congress and the country. We must ensure that Congress has done its due diligence, including conducting thorough oversight and review, before moving such legislation.

The hearing at the Committee on Financial Services on February 13, 2019, made clear that we need to better comprehend and address the supervisory and regulatory issues that would result from enactment of H.R. 1595. Many outstanding questions remain, which include but are not limited to the following:

1. What changes to our banking laws are necessary to implement the SAFE Banking Act or other legislation creating a safe harbor for cannabis-related businesses?

2. How would individual agencies enforce Bank Secrecy Act (BSA) requirements following enactment of the SAFE Banking Act? What changes would be required of BSA requirements?

3. How would individual agencies enforce anti-money laundering (AML) regulations following enactment of the SAFE Banking Act? Would AML reforms be necessary?

4. How would individual agencies enforce Know Your Customer (KYC) rules following enactment of the SAFE Banking Act? What changes would be required of KYC rules?

5. How would individual agencies enforce Suspicious Activity Report (SAR) filing requirements and guidelines following passage of the SAFE Banking Act? What changes would be required of SAR filing requirements and guidelines to ensure illicit financial activities were not being financed?

6. How would individual agencies enforce Currency Transaction Report (CTR) filing requirements and guidelines following enactment of the SAFE Banking Act? What changes would be required of CTR filing requirements and guidelines?

7. In what ways are agencies working with state counterparts, including state banking and securities supervisors, under the existing regime? How would those cooperative relationships change with enactment of H.R. 1595?

8. Would H.R. 1595 require conforming changes to any of the statues, rules, and requirements previously listed to ensure there are no unintended consequences, such as cartels and other bad actors gaining access to our financial system?

9. Would the safe harbor require any changes to the rules or processes governing federal deposit insurance systems?

10. What are the implications of H.R. 1595 on nonbank financial firms, including insurers and investment companies?

11. What are the implications of H.R. 1595 on third parties, including payment processors?

12, What are the implications of H.R. 1595 on individual and institutional investors of cannibis-related businesses?

13. What are the implications of H.R. 1595 on federal, state, and local law enforcement, including the Department of Justice and the Drug Enforcement Agency?

14. How are the proceeds from state licensed growers and distributers taxed under federal law? Relatedly, what conforming changes to our tax code are necessary?

15. What are the implications of H.R. 1595 on other products and services offered by financial institutions, including but not limited to mortgage products, deposit advance products or general commercial lending?

As Members of Congress, and the Committee of primary jurisdiction, we owe it to our constituents and to the public to fully understand the implications of any legislation before supporting or opposing it. We urge you to hold H.R. 1595 and any related legislation until we have a full understanding of the consequences of this bill. Sincerely, Patrick McHenry

Ranking Member. Blaine Luetkemeyer,

Ranking Member.

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Mr. McHENRY. Mr. Speaker, this letter raises a number of concerns, including:

What changes to our banking laws are necessary to implement the SAFE Banking Act, a number of questions that I have;

What agencies are going to be necessary for this working group to actually ensure that the letter of this law is adhered to by the executive branch, that they actually follow it as the writer of the legislation intends;

How the executive branch will interpret the ``know your customer'' rules enacted in the SAFE Banking Act, compared to what we enacted just 2 months ago, 3 months ago;

How we would deal with suspicious activity reporting requirements under the new guidelines of the SAFE Banking Act, compared to what we enacted at the end of last year;

How we deal with currency transaction reports under this law, compared to what we just passed; and

What are the implications on nonbank financial firms as well, such as insurers and investment companies.

Mr. Speaker, I think the author of the bill intends for insurers and investment companies and banks to have the same qualifications when they are handling money that has touched the cannabis industry. I think that is the intent.

Mr. Speaker, I think we need to understand whether or not the administration would follow that intent that the author has stated clearly in debates here on the House floor last Congress and this Congress and, furthermore, whether or not Federal, State, and local law enforcement will have a similar interpretation that the writer of this bill says is his intent, that Federal law enforcement should hear the voice of Congress and hear this step to legalization which is part of this bill.

I do not think it is the author of the bill's idea to get into sort of the broader conversation about legalization at the State level and what we should do at the Federal level in this bill. However, that is a part of it.

In March of 2019, the National Sheriffs' Association voiced concern with this bill, saying that it could easily be exploited. They echoed my concerns that ``allowing banking access for a Schedule 1 drug gives money laundering access to international drug cartels, which are already using the cover of legalization.''

Mr. Speaker, I include that letter in the Record. National Sheriffs' Association, March 19, 2019. Hon. Maxine Waters, Chairwoman, House of Representatives, Committee on Financial Services, Washington, DC. Hon. Patrick McHenry, Ranking Member, House of Representatives, Committee on Financial Services, Washington, DC.

Dear Chairwoman Waters and Ranking Member McHenry: On behalf of the National Sheriffs' Association (NSA) and more than 3,080 sheriffs nationwide, I write to express our deep concern and opposition to H.R. 1595, The SAFE Banking Act. This bill creates protections for depository institutions that provide financial services to cannabis-related businesses and service providers for such businesses.

H.R. 1595 will increase the legalization of marijuana across the Nation, which we understand is an intended consequence of this bill. Furthermore, allowing banking access for a Schedule 1 drug gives money laundering access to international drug cartels, which are already using the cover of legalization. This will inevitably open the door to other criminal activity!

NSA is concerned with the welfare and safety of citizens and works to preserve their rights to live and work in communities where drug abuse is not accepted and they are not subjected to the adverse effects of drug abuse. The dangers of illegal drugs, including marijuana, and the threat to public safety caused by their use in terms of highway safety, criminal activity, and domestic violence are well-documented.

NSA believes that any legislation regarding national legalization must engage the nation's law enforcement agencies in order to have a comprehensive discussion regarding the potential implications this bill could have on our communities. We urge The House of Representatives to defeat this dangerous bill. Sincerely, Jonathan F. Thompson, Executive Director and CEO.

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Mr. McHENRY. Furthermore, we see cannabis-legal States like California, Washington, and Colorado, as the subject of recent news reports that cartels have found that it is easier to grow and process marijuana in legal States like Colorado and ship it throughout the United States than it is to bring it from Mexico or Cuba. I include that article in the Record, Mr. Speaker. [From Global Power, May 29, 2018] Foreign Cartels Embrace Home-Grown Marijuana in Pot-Legal States (By Dennis Romero, Gabe Gutierrez, Andrew Blankstein and Robert Powell)

Los Angeles.--General Jeff Sessions called it ``one of the largest residential forfeiture actions in American history.''

In early April, local and federal authorities descended upon 74 marijuana grow houses in the Sacramento area they say were underwritten by Chinese organized crime. They filed court paperwork to seize the properties, worth millions of dollars.

Federal officials allege that legal recreational marijuana states like California, Colorado and Washington, where enforcement of growing regulations is hit-or-miss, have been providing cover for transnational criminal organizations willing to invest big money to buy or rent property to achieve even bigger returns.

Chinese, Cuban and Mexican drug rings have purchased or rented hundreds of homes and use human trafficking to bring inexperienced growers to the United States to tend them, federal and local officials say.

The suspects are targeting states that have already legalized marijuana ``in an attempt to shroud their operations in our legal environment here and then take the marijuana outside of the state,'' said Mike Hartman, executive director of the Colorado Department of Revenue, which regulates and licenses the cannabis industry. Authorities say they've seen an increase in these ``home grows'' since the launch of recreational pot sales in Colorado.

While California and Washington have mainly seen organized criminals from China buying homes and converting them into grow houses, Colorado has largely been grappling with Cuban and Mexican-led cartels, said Sheriff Bill Elder of the El Paso County Sheriffs Office in Colorado.

``They have found that it's easier to grow and process marijuana in Colorado, ship it throughout the United States, than it is to bring it from Mexico or Cuba,'' Elder said. A `MASSIVE' MARIJUANA NETWORK

In El Paso County, NBC News witnessed firsthand the damage a commercial-scale cannabis grow can do to a home otherwise built for an average American family. Growers pose as legitimate renters, and by the time authorities disrupt their operation, homes have been gutted and trashed.

``We've fallen through floors,'' U.S. Drug Enforcement Agency Special Agent Randy Ladd said. ``The electrical damage, they draw so much current that you'll see, in some places, the wires are fused inside of the electrical box. And--a lot of people--they don't wanna pay the high electric bills. So what they do is they take jackhammers and pickaxes and they cut through the foundation of the house, so that they could steal the power.''

One of the biggest busts so far came last June, when the Colorado attorney general's office announced that ``a massive illegal interstate marijuana distribution and cultivation network stretching from Colorado to Texas'' had been dismantled. It was allegedly Chinese-connected, Ladd said.

Authorities said the network was responsible for securities fraud, millions of dollars of laundered cash, 2,600 ``illegally cultivated'' marijuana plants and 4,000 pounds of harvested cannabis, according to the Colorado attorney general's statement.

The operation took place in 18 warehouses and storage units and 33 homes, mostly in the Denver area, authorities said. ``These seizures are believed to only scratch the surface,'' the office said.

Ladd alleged that some Chinese crews cover immigrants' costs of traveling to America in exchange for work in the grow houses. ``It's like indentured servitude,'' he said. ``It is a form of human trafficking.''

The workers often fly from China to Belgium, and from Belgium to Mexico, before making asylum claims at the border and then disappearing by the time they're scheduled to tell their stories in court, Ladd said. Often when grow houses are raided, immigration fugitives are discovered, he said.

The grow homes are usually purchased by shell property management companies, Ladd said. ``These growers can hide in plain sight,'' he said. HOW FOREIGN CARTELS OPERATE IN THE U.S.

The Sacramento-area raids, which also struck Calaveras, Placer, San Joaquin, El Dorado, Yuba and Amador counties, shed some light on how many of the foreign rings operate.

Northern California-based DEA Special Agent Casey Rettig said suspects send cash to the United States in $9,999 increments, just below the mandated reporting threshold, and receive funds from China that fly under that nation's $50,000 foreign spending limit. They then purchase homes with the help of cash lenders instead of traditional mortgage firms.

Last fall, a scenario fitting that pattern unfolded in Grays Harbor County, Washington, southwest of Seattle, as a drug task force busted an alleged cultivation ring funded by organized crime in China.

More than 40 suspects were arrested and $80 million worth of cannabis was seized, the Grays Harbor County Sheriff's Office said. ``The majority of these homes were purchased with cash, and information was developed that these purchases were conducted by Chinese nationals involved in organized crime,'' according to a statement from the Sheriff's Office.

And just this month, search warrants were served at 19 locations in the Puget Sound area of Washington state, a federal official who did not want her name used said. The ring was allegedly run by three Chinese nationals who produced thousands of pounds of cannabis destined for greater New York, the U.S. attorney's office in Seattle alleges.

The suspects, who face drug conspiracy charges, purchased homes with the help of multiple wire transfers from China that included dollar figures--$2,000 to $5,900--they believed would fly under the radar, according to a federal complaint.

Ultimately it was the houses' exorbitant electricity use-- up to 38,477 kilowatt hours in one day versus the American average of just 30--that made them targets of a federal investigation, according to the filing.

Even a single grow house can contain a large marijuana operation. In April, police in Pomona, California, an exurb in Los Angeles County, announced they discovered a 23-room grow house allegedly run by Chinese nationals. Fifty-five- hundred marijuana products, including 2,900 plants and nearly 21 pounds of cannabis, were seized, police said.

``The grow operation used advanced systems of lighting, air conditioning, fans, exhaust blowers and air-filtering systems to control the climate inside the buildings and the odor of marijuana,'' according to a Pomona police statement.

Pomona police spokeswoman Aly Mejia said a gun and $6,900 in cash were also found.

The DEA's Rettig, speaking from her base in San Francisco, said the Chinese operations are ``illegal under state law.'' In California, marijuana growers, producers and retailers need state and local licenses. Cities can opt out and ban such businesses altogether.

Rettig said even with the Golden State's sky-high housing market--the median price of a home is $535,100, according listings site Zillow--overseas criminals know that ``marijuana can fetch three times as much out of state.''

``There's a great profit motive in it,'' the DEA's Ladd said. ``In Colorado, marijuana legalization has magnified the black market. The standard price per pound here is $2,000, but they can get $3,500 to $4,500 by shipping it back East. The profits are great there.''

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Mr. McHENRY. Furthermore, because of this patchwork at the State level, I think you are seeing additional concerns at the southern border right now, and I will include for the Record a letter that the former Border Patrol chief submitted that in February alone there was nearly $14 million a day of marijuana caught at the southern border.

Despite these many issues I still have with the SAFE Banking Act, I do appreciate the work that my colleagues have put into this legislative effort, but considering that the larger issue of cannabis legalization has not yet been debated here on the House floor, I think it is premature for the Financial Services Committee to do the full work of this Congress on the question of cannabis legalization at the Federal level. I think that would be better left to the Judiciary Committee, with a wider debate here on the House floor, and I would encourage that wider debate.

Notwithstanding that, I would like to thank my colleagues for the hard work that they have put into this legislation. Even if I have concerns, I know that there is more than sufficient support to pass this under the suspension calendar, and that would not happen were it not for the good legislative work of my colleague and friend from Colorado (Mr. Perlmutter).

I do believe that my colleague was quite intentional about the date that he wanted to actually have the vote here on the House floor. With that, for those of you who don't know, tomorrow is 4/20/21, 4/20 being the operative date.

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Mr. McHENRY. Mr. Speaker, I would say that if we are going to have legalization of cannabis, let's have legalization of cannabis and do it in regular order in the House of Representatives, not have it come through the Financial Services Committee. I wanted to be clear, and I wanted to make sure my colleague heard that.

But I do commend my colleague, Mr. Perlmutter, for taking every bit of the jurisdiction that we currently have and using it smartly for the best outcome possible.

I yield 2 minutes to the gentleman from Ohio (Mr. Joyce), my colleague and good friend.

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Mr. McHENRY. Mr. Speaker, may I inquire how much time I have remaining.

I want to repeat this from my earlier remarks. This bill represents one of the biggest changes to U.S. drug policy. If we want banks to provide services risk-free, then we should do it thoughtfully and address the legality of cannabis instead of this workaround. This bill represents a yeoman's task of a legal framework so that funds from cannabis in those legalized States can be legally banked.

But that is not a holistic approach to this issue, nor should it be the Financial Services Committee leading the debate, which we have had one hearing on in the last 3 years in this committee--actually, you could say probably one hearing in the last decade on the Financial Services Committee. Yet, we have this bill, which, frankly, on its face is a very well-balanced bill to fix a glaring problem that is happening across the country.

This bill will legalize the banking of a federally illegal product. I am sure the irony of this is not at all lost on the American public.

The drug cartels, frankly, are keen to this, and other bad actors are keen to this. They will attempt to take advantage of this if it is not well-implemented, if it is not thoughtfully implemented, especially if those things are not the case.

No matter how we spin what is happening right now, we currently have a crisis at the southern border, and human trafficking is certainly a part of that; a desire to come to the United States is certainly a part of that; and the movement of illegal drugs into the United States is certainly a part of that. This doesn't help with that crisis at the southern border.

Again, we are the House Financial Services Committee. We are not the Homeland Security Committee, and we are not the Appropriations Committee, so we can't fix all things within our jurisdiction.

Let me close with this. I do not support this bill because it represents a workaround to a much bigger debate that we need to have in the United States, and that is whether or not cannabis should remain a schedule I substance under the Controlled Substances Act. This fact is the bigger issue that I think this Congress should wrestle with, and I would welcome it. In fact, I think we can have a much more nuanced debate here.

But I do want to close by thanking my colleagues for creating a very thoughtful product. This legislative text is much improved upon from where it was originally. I thank my colleague, Mr. Perlmutter, for leading that conversation and leading that set of negotiations.

It has taken years to produce this product. It is strong legislative text. It is a strong legal framework. Even though I have pointed out a number of its deficiencies and challenges, I do see on its face how this would resolve a huge problem in a large number of States.

I understand that, and I am inviting the larger discussion about cannabis, as well. I think we need to have that conversation.

But I do thank my colleague, Mr. Perlmutter, for his leadership there, and I thank my colleagues, Mr. Stivers, Mr. Davidson, and Mr. Joyce, on our side of the aisle for engaging in that, as well as Mr. Luetkemeyer and Mr. Barr who dealt with particular issues in their States and their jurisdictions, as well.

Mr. Speaker, I urge my colleagues to vote ``no,'' but I understand if they do vote ``yes.'' I yield back the balance of my time.

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