The cannabis cash economy
Because of uncertainty surrounding the cannabis regulatory landscape, many banks currently are not comfortable entering the space. This hesitance makes it difficult for cannabis-related business (CRB) owners to rely on traditional banking services. Without appropriate banking resources, CRBs have to operate without bank accounts, credit cards, or loans – and the list goes on. It’s only logical, then, that these CRBs deal primarily in cash transactions.
CRBs face security implications because of their reliance on cash transactions, including a higher risk of robbery and crime due to the cash they regularly have on premises. The Secure and Fair Enforcement Banking Act of 2021 (SAFE Banking Act) – currently passed in the House and waiting on Senate approval – aims to increase public safety by expanding financial services to legitimate CRBs and other service providers and reducing the amount of cash at such businesses.
Beyond security implications, CRBs also must be aware of filing requirements for dealing in large quantities of cash. It is important for CRBs to have strong policies, procedures, and controls surrounding monitoring processes, record-keeping, and reporting, including the preparation and filing of Form 8300.
Cannabis-related businesses seeking clarity on filing requirements and financial services organizations that bank CRBs and want to be sure their clients are aware of their obligations need to take appropriate steps to make sure Form 8300 requirements are followed. This reference guide is a helpful resource for organizations that must file.
What is Form 8300?
Form 8300 is designed to provide the U.S. Department of the Treasury with information pertaining to large cash transactions for trades and businesses. It differs from currency transaction reports used by banks, broker-dealers, and insurance, gaming, and money service businesses as those reports are filed on behalf of the bank’s customers and use Financial Crimes Enforcement Network (FinCEN) CTR Form 112. Filing Form 8300 absolves the bank from filing on behalf of the customer’s customer because Form 8300 is filed on the true transactor and not the customer of the bank.
Criminals continue to use large amounts of cash to launder money obtained from illegal activities and questionable sources. The purpose of Form 8300 is to assist law enforcement in monitoring this activity.
Who must file?
Each person engaged in a trade or business who, in the course of that trade or business, receives more than $10,000 in cash in one transaction or in two or more related transactions, must file Form 8300.
A “person” who must file Form 8300 includes an individual, company, corporation, partnership, association, trust, or estate. As many cannabis businesses are organized as such, these rules then apply to them. The business must file Form 8300 if any part of the transaction occurs within any of the 50 states, the District of Columbia, or a U.S. possession or territory.
A “related transaction” refers to transactions between a payer, or an agent of the payer, and a recipient of cash that occur within a 24-hour period. If the same payer makes two or more transactions totaling more than $10,000 in a 24-hour period, the business must treat the transactions as one transaction and report the payments. Transactions also are considered related even if they occur over a period of more than 24 hours if the recipient knows, or has reason to know, that each transaction is one of a series of connected transactions.
How are cash and cash transactions defined?
Cash includes the coins and the fiat currency of the United States and any foreign country. Cash may also include cashier's checks, bank drafts, traveler's checks, and money orders with a face value of $10,000 or less if the business receives the instrument in a “designated reporting transaction” or any transaction in which the business knows the customer is trying to avoid reporting of the transaction on Form 8300.
A “designated reporting transaction” is the retail sale of any of the following:
- A consumer durable such as an automobile, boat, or property other than land or buildings that is suitable for personal use, can reasonably be expected to last at least one year under ordinary use, has sales price of more than $10,000, and can be seen or touched (tangible property)
- A collectible such as a work of art, rug, antique, metal, gem, stamp, or coin
Cash does not include personal checks drawn on the account of the writer and does not include cashier's checks, bank drafts, traveler's checks, or money orders with a face value of more than $10,000. Essentially, a monetary instrument that is under $10,000 would be seen as cash because it’s purchased under the banking reporting threshold and therefore wouldn’t hit the FinCEN CTR Form 112 requirement. However, if that monetary instrument is used with other cash or another instrument to cross $10,000, then it’s reportable for Form 8300.
What types of payments must be reported?
Organizations must report cash payments received if all the following criteria are met:
- The amount of cash is more than $10,000.
- The business receives the cash as:
- One lump sum of more than $10,000.
- Installment payments that cause the total cash received within one year of the initial payment to total more than $10,000.
- Previously unreported payments that cause the total cash received within a 12-month period to total more than $10,000.
- The establishment receives the cash in the ordinary course of a trade or business.
- The same agent or buyer provides the cash.
- The business receives the cash in a single transaction or in related transactions.
What information must be collected?
- Identity of the individual from whom the cash was received
- Person on whose behalf this transaction was conducted
- Description of transaction and payment method
- Business that received the cash
How long do organizations have to file?
Organizations must file Form 8300 by the 15th day after the date the cash transaction occurs.
What are the penalties for noncompliance with Form 8300 requirements?
- A minimum penalty of $25,000 may be imposed if the failure to file is due to an intentional or willful disregard of the cash reporting requirements.
- Criminal prosecution which, upon conviction, may result in imprisonment of up to five years or fines of up to $250,000 for individuals and $500,000 for corporations or both.
Why might organizations be penalized?
- Failing to file a correct and complete Form 8300 on time and cannot be explained by a reasonable cause
- Failing to furnish timely a correct and complete statement to each person named in a required report
- Causing, or attempting to cause, a trade or business to fail to file a required report
- Structuring, or attempting to structure, transactions to avoid the reporting requirements
The takeaway
With these severe penalties in place, it's clear Form 8300 requirements are not something CRBs should handle haphazardly. Neither should the financial services organizations that bank CRBs – even though CRBs should be filing on their own behalf. CRBs carry their own challenges, so properly handling filing requirements is imperative.
Understanding the right processes to deploy when banking CRBs is critical. Taking proactive steps to make sure Form 8300 is filed as required helps organizations achieve and maintain compliance with federal requirements.
