NCUA Orders CU to Correct Numerous Issues in Managing Marijuana Business

The NCUA slapped a cease-and-desist order against the $69 million Live Life Federal Credit Union last month, ordering it to immediately stop opening new accounts for marijuana business members, discontinue operating a money services business program, and file suspicious activity reports.

The independent federal agency also ordered the Fraser, Mich.-based credit union to suspend transactions activity on its existing money services business accounts and hire a qualified third-party to perform a retrospective review of its MSB activity to identify suspicious transactions.

What’s more, the retrospective review must include an evaluation based on a 2019 FinCEN advisory in identifying and reporting suspicious activity on how criminals and other bad actors exploit virtual currency for money laundering, sanctions evasion and other illicit financing purposes. Based on the results of this review, the NCUA directed Live Life FCU to file SARs recommended by the third party.

By April 30, the credit union must implement an automated system to effectively monitor and identify all transactions for suspicious activity, including functions to support Live Life FCU’s compliance with FinCEN requirements for marijuana related businesses, or MRBs.

The credit union also is required to immediately develop and implement a system to ensure all Currency Transaction Reports are filed accurately, according to the cease-and-desist order.

After Michigan voters approved recreational marijuana in 2018, the first pot shops opened in January 2019.

Since then, the financial performance for the small Michigan credit union has improved.

After posting six-figure losses in 2016 and 2017, and a modest five-figure income in 2018, Live Life FCU recorded income of $426,540 in 2019, which soared to $2.8 million at the end of 2020, according to NCUA financial performance reports.

The credit union’s total loans increased substantially from $5.4 million in 2016 to $32.6 million in 2020, while its total loan income also jumped significantly from $395,228 in 2016 to $920,708 at the end of last year, NCUA financial performance reports show.

However, the credit union’s fee income made the most impact on its financials, jumping from $64,326 in 2018 to $852,725 in 2019, Call Reports show. At the end of 2020, Live Life’s fee income skyrocketed to $3.5 million, according to Call Reports.

Because of the labor-intensive compliance requirements that come with providing banking services to cannabis companies, financial institutions charge higher fees.

In a February CU Times article, Chris Call, president/CEO for the $97 million North Bay Credit Union in Santa Rosa, Calif., said 17 people were working in its compliance department. Call indicated he needed to increase his compliance workforce from one to 17 in just one year to ensure that cannabis business members were complying with state and federal regulations.

However, Live Life FCU’s number of employees increased by only two from 7 in 2018 to 9 in 2020, according to its Call Reports.

Though the NCUA’s order does not say how many marijuana business members Live Life serves, its membership increased from 1,339 in 2018 to 1,624 in 2020.

Live Life FCU President/CEO Karla Haglund did not respond to CU Times’ email and phone messages requesting comment regarding the NCUA order.

According to an October 2019 local news site, Deadline Detroit, Haglund claimed the credit union was managing about 100 cannabis-related accounts, noting that the compliance reporting is “strenuous and complicated” and that “bankers must monitor licensed pot merchants closely.” Haglund also reportedly said she had to hire to hire two additional employees just to count all the cash deposited by marijuana business members.

The Live Life cease-and-desist order was posted on NCUA’s administrative order website on Feb. 26.