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FOS Blog

23 Feb

Are You Effectively Identifying Marijuana-Related Business Customers?

Are You Effectively Identifying Marijuana-Related Business Customers?

The Financial Crimes Enforcement Network (FinCEN) has identified thorough customer due diligence (CDD) as a critical component in assessing the risk posed to financial institutions when providing a service or product to a marijuana-related businesses (MRB).  The first step in assessing risk is the initial identification of this business type during the new account opening process – whether this is a new customer or an existing customer opening a new account, a well-phrased CDD questionnaire should not only identify the business, but also the level of involvement the customer has in the MRB.  The levels have been classified as tiers:

  • Tier I – Growers, processors, wholesalers, and dispensaries
  • Tier II – Suppliers, security firms, licensing firms
  • Tier III – Professional service providers, landlords, financial services

Tier I is considered highest risk since businesses in this tier tend to work with marijuana directly, while the direct access and proximity to marijuana decrease over Tier II and Tier III.  Recent regulatory guidance has encouraged institutions to not only ask if the customer is or has involvement with an MRB, but also to what degree.  Your BSA policy should also speak to this process and address your institution’s stance on banking MRBs.

Once you have identified your MRB customer, FinCEN recommends additional layers of CDD in addition to the typical questions related to anticipated activity, including, but not limited to verification and review of applicable licenses and registration, review of available information from state licensing and enforcement authorities about the customer and related parties, negative news searches, and the collection of all relevant documentation.

These steps will lay the groundwork for a strong customer due diligence program for this potentially higher risk business type and will allow your institution to determine the best path forward to ongoing monitoring needs.

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Article written by Yesica Quintero – for additional information email