Uruguay's biggest bank is shuttering accounts linked to pharmacies that are legally selling marijuana due to concerns about running afoul of US laws regulating financial institutions, presenting a potentially significant obstacle to the advancement of Uruguay's historic marijuana legalization experiment.
A little more than a month after pharmacies around the country began legal sales of government-regulated marijuana, the state-owned Bank of the Republic (Banco de la República Oriental de Uruguay - BROU) has closed private accounts related to the sale of the substance, El Observador reported on August 17.
The BROU, the country's largest financial institution, announced it will not maintain commercial relations with any pharmacy selling marijuana because doing so could "lead to the financial isolation of BROU and its clients, preventing it from carrying out any type of operation with an international counterpart."
US federal law prevents banks from handling the proceeds of drug sales. But the US Treasury and Justice departments have taken recent steps to loosen banking restrictions related to marijuana sales in order to accomodate the growing number of US states that have legalized the recreational sale of the drug.
Under the administration of former President Barack Obama, the Justice Department announced that it would not target legal cannabis sellers as a top priority, as long as they follow state regulations.
Recently, Attorney General Jeff Sessions reaffirmed the validity of this policy. Still, a significant amount of uncertainty remains regarding how the administration of Obama's successor Donald Trump will handle the marijuana issue both domestically and internationally.
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The reach of US federal drug laws can stretch far beyond the country's borders, potentially creating a chilling effect for foreign banks considering accepting the proceeds of legal drug sales. But Uruguayan officials nevertheless seem dedicated to forging ahead with the implementation of the marijuana legalization experiment.
Indeed, the current setbacks were anticipated by President Tabaré Vázquez, who met with Uruguayan banking officials ahead of the start of legal pharmacy sales in July to discuss the handling of such issues, according to Geoff Ramsey of the Washington Office on Latin America (WOLA), who has extensively researched the legalization initiative.
"It's important to note this isn't catching the Uruguayan government by surprise. There have been talks with both the state-run central banks and the government-run Bank of the Republic about what to do in these kinds of scenarios," Ramsey told InSight Crime.
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In response to the BROU's decision, President Vázquez announced he will send an official commission, lead by former president and the architect of the legalization program Jorge Mujica, to New York in coming weeks to negotiate directly with US banking officials in an effort to find a solution. And Ramsey believes that ultimately, Uruguay's central banks will have to play a role in the program.
"I think that these are just the positions of these banks so far. We can see this as separate actors trying to stake out positions ahead of going into negotiations," Ramsey said. "They understand that they're going to have to heed way to the government on this and they're just trying to make sure that as these negotiations happen, they're coming from a point of strength."