Case 1:15-cv-01633-RBJ Document 1 Filed 07/30/15 USDC Colorado Page 1 of 44

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. _______________________
THE FOURTH CORNER CREDIT UNION,
a Colorado state-chartered credit union,
Plaintiff,
v.
FEDERAL RESERVE BANK OF KANSAS CITY,
Defendant.

COMPLAINT
________________________________________________________________________

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Plaintiff, complaining of Defendant herein, would respectfully show this
Honorable Court as follows:
NATURE OF PROCEEDINGS
1.

Pursuant to 28 U.S.C. §2201 and Rule 57 of the Federal Rules of Civil

Procedure, Plaintiff, The Fourth Corner Credit Union (“TFCCU”), respectfully requests
this Court issue a declaration directing Defendant, Federal Reserve Bank of Kansas City
(“FRB-KC” or the “Reserve Bank”) to grant TFCCU, a Colorado state-chartered credit
union, a master account at FRB-KC, pursuant to 12 U.S.C. §248a(c)(2) which requires
that “All Federal Reserve bank services covered by the fee schedule shall be available to
nonmember depository institutions and such services shall be priced at the same fee
schedule applicable to member banks, . . .” and in accordance with (a) Federal Reserve
Banks Operating Circular No. 1 (Effective September 1, 2011), and (b) the American
Bankers Association Routing Number Administrative Board Routing Number Policy
(Revised 3/12). An actual controversy exists within this Court’s jurisdiction as to the
interpretation and application of 12 U.S.C.§248a(c)(2), Federal Reserve Banks Operating
Circular No. 1 (Effective September 1, 2011) and the American Bankers Association
Routing Number Administrative Board Routing Number Policy (Revised 3/12) such that
the Court should declare the rights of TFCCU, the interested party seeking such relief.
THE PARTIES
2.

Plaintiff, TFCCU, is a Colorado state-chartered credit union. TFCCU was

granted Charter No. 272 on November 19, 2014. It is a nonprofit corporation formed and
registered on said date. Its principal place of business is located in the City and County
of Denver. It was incorporated pursuant to the applicable provisions of the Colorado

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Revised Statutes. Said credit union exists, is in good standing, and is authorized to
conduct business pursuant to all of the powers conferred upon it by law. TFCCU is
currently regulated and supervised solely by the Colorado Division of Financial Services
(“DFS”).

Consistent with its state credit union charter, TFCCU intends to provide

banking services to compliant state licensed cannabis and hemp businesses, their
employees, industry vendors and any one or more of the thousands of businesses and/or
persons that are members of, or who join, one of the non-profit associations designated to
be within TFCCU’s multiple association common bond field of membership established
in TFCCU’s Articles and Bylaws.
3.

Defendant, FRB-KC, is a private, independent entity run by its own board

of directors. FRB-KC is not run by the Federal Reserve Board of Governors or any other
part of the executive branch. The Reserve Bank acts with sufficient independence under
private ownership and control such that it does not qualify as a government corporation.
The Reserve Bank is considered a separate corporation owned solely by commercial
banks within its district, distinct from the Board of Governors. The United States does not
own stock in the Reserve Bank; it acts as the government’s fiscal agent and all of the
Reserve Bank’s profits belong to the United States; it is a private corporation in which
the government has an interest. The Reserve Bank is not a department, commission,
administration, authority or bureau of the federal government. The Reserve Banks do not
have the authority to promulgate regulations having the force and effect of a law, a power
that the Board of Governors may not delegate. 1 The Reserve Bank’s operation is not

1

12 U.S.C.§248(k). The Board of Governors of the Federal Reserve System are authorized and
empowered to “delegate, by published order or rule and subject to the Administrative Procedure Act, any of
its functions, other than those relating to rulemaking or pertaining principally to monetary and credit
policies, to . . . Federal Reserve banks.” (emphasis supplied).

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government financed. The Reserve Bank gives all revenue in excess of expenses to the
U.S. Treasury. No statute designates the Reserve Bank as a federal agency; the Reserve
Bank is a tax-exempt federal instrumentality; the Reserve Bank does not need to consult
the United States Attorney or even the Board of Governors to pursue legal action. FRBKC is a regional Reserve Bank that is part of the Federal Reserve System.2 It is distinct
from the Federal Reserve Board of Governors; it is owned by large commercial member
banks; it is directly supervised in its daily operations by a separate board of directors –
not the federal government; its employees are not considered federal employees, officials,
or representatives for purposes of 12 U.S.C. §341. Federal Reserve Banks are not federal
agencies pursuant to 28 U.S.C. §451. FRB-KC serves the Tenth Federal Reserve District,
a seven (7) state region, which includes Colorado. It operates a Federal Reserve Branch
Bank in the City and County of Denver. Its Denver Branch office acts as the Federal
Reserve’s connection to this part of the country. FRB-KC's cash processing and
distribution in Denver provide currency and coin to financial institutions in Colorado,
Wyoming and northern New Mexico, as well as parts of western Kansas and western
Nebraska. The Reserve Bank employs bank supervision staff in Denver dedicated to
examining many state member banks. It has an active regional and community presence
responsible for promoting fair and impartial access to credit and equal access to its

2

The Federal Reserve System is comprised of 12 regional Reserve Banks located across the country. Each
Reserve Bank is overseen by a local Board of Directors composed of community and business leaders from
diverse sectors across each of the 12 regions. These directors share governance responsibility for Reserve
Bank operations along with the Board of Governors in Washington, D.C., a government agency composed
of individuals nominated by the President and confirmed by the Senate to serve 14-year terms. See,
Structure Matters: The Decentralized Federal Reserve, The Exchequer Club, May 21, 2014, Speaker,
Esther L. George, Page 1. “The Fed” is the acronym for the Federal Reserve System. The Federal Reserve
Act created “a decentralized system that represented the interests of communities from across the country.”
See, Robert Owen and His Legacy: Oklahoma History Center, October 16, 2013, Speaker Esther L. George,
Page 5. “The Federal Reserve is not a monolithic organization . . . “ Id.

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payments services across the region. FRB-KC has a “direct channel to Main Street”3
through its Denver Branch Board of Directors, a seven (7) member branch board of
directors that provide real-time insight, advice and counsel that creates the foundation for
decision on regional policy. The Reserve Banks provide customer service to financial
institutions nationwide that have the legal right to equal access to Federal Reserve
products at nondiscriminatory prices. The Reserve Bank supplies payment services4 to
the public through depository institutions like banks and credit unions. It has
responsibility for regulating and supervising specifically defined segments of the banking
industry5 in Colorado to ensure safe and sound banking practices and compliance with
banking laws. It provides financial services in Colorado to banks and credit unions. It
provides broad based support to the financial system that underpins the economy of this

3

U.S. Monetary Policy: Risks of Delayed Action, Colorado Economic Forum, September 26, 2013,
Speaker, Esther L. George, Page 3.
4
Payments services include: Cash Services: The Fed provides banks with currency and coin to meet
public demand. Electronic Payments: The Fed moves money electronically between banks. Fedwire
funds transfer system processes large payments almost instantly. ACH is used mostly for recurring
payments like business payrolls and utility payments. Check Processing: The Fed operates a nationwide
check clearing system. Banks send paper checks to the Fed for processing, but it now uses mostly
electronic images to exchange check data. U.S. Fiscal Agent: The Fed acts as fiscal agent for the U.S.
government. It maintains the Treasury’s checking account and processes electronic payments for the
government, including Social Security. A financial institution cannot operate without access to the Fed’s
payments services. A financial institution is a customer of Fed customer payments services. It is what
allows money to move from one place to another. The Fed is the bank for all financial institutions (a bank
for a bank). The Federal Reserve has a mission to promote economic growth through accessibility to the
payments system. See, The Federal Reserve and the Payments System: Consumer Payment Innovation in
the Connected Age, May 29, 2012, Speaker, Esther L. George, Page 1. “Throughout its history, the Federal
Reserve has played an important role as a retail payments operator, enabling it to bring about socially
beneficial changes.” Id. at Page 2. The Federal Reserve plays a “key operator role” in running the retail
payments system. Id at Page 5. [O]f the various roles a central bank can play in retail payments, the role
of regulator should be limited. The Federal Reserve in its role as a key operator of the payments system
should serve as an “industry catalyst” that “supports economic growth.” Id. at Page 6. The Fed is the
circulatory system of the economy.
5
The Federal Reserve is supervisor and regulator of: (a) bank holding companies (including financial
holding companies); (b) nonbank subsidiaries of bank holding companies; (c) state banks that are members
of the Federal Reserve; (d) savings banks; (e) edge and agreement corporations; and (f) state and federally
licensed branches, agencies and representative offices of foreign banks. The Federal Reserve is not a
supervisor or a regulator of state-chartered credit unions.

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region. It has a network of “on-the-ground” connections; it employs persons, owns
property, and conducts substantial business in this judicial district.
JURISDICTION AND VENUE
4.

This Court has subject matter jurisdiction pursuant to the following

statutes: (a) 28 U.S.C. §1331, providing for “original jurisdiction of all civil actions
arising under the Constitution, laws or treaties of the United States”; (b) 28 U.S.C. §1367,
providing for “supplemental jurisdiction over all other claims that are so related to claims
within such original jurisdiction that they form part of the same case or controversy”; and
(c) 28 U.S.C. §2201, providing for a declaration of rights and other legal relations of any
interested party in a case of actual controversy within its jurisdiction.
5.

Venue is proper in this District pursuant to 28 U.S.C. §1391(b)(1) because

Defendant FRB-KC, an entity with the capacity to sue and be sued in its common name,
resides in this judicial district pursuant to 28 U.S.C. 1391(c)(2). FRB-KC has
purposefully availed itself of the privilege of conducting business in this District; it
maintains a regular place of business in this District; it conducts business in this District;
the claim arose in this District; material witnesses are located in this District; and, it is
subject to this Court’s jurisdiction under C.R.S. §13-1-124, Colorado’s long arm statute.
TFCCU and FRB-KC have not entered into any agreement containing a forum selection
clause.
6.

FRB-KC is not an administrative agency. There exists no administrative

procedure by which TFCCU can obtain a review of the decision of FRB-KC not to
approve TFCCU’s request for a master account. The Administrative Procedures Act, 5
U.S.C. §500 et seq., is not applicable to this proceeding.

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THE DUAL BANKING SYSTEM
7.

Historical context is useful in analyzing the present controversy. The

banking system in the United States is described as “dual” because it is made up of
separate federal and state component systems. This duality has existed in various forms
since the earliest years of our nation, and while the federal and state components of the
system have evolved in structure over the years, the essential characteristics of the
system’s duality have not. The federal system is based on a federal bank charter, powers
defined under federal law, operation under federal standards, and oversight by a federal
supervisor. The state system is characterized by state chartering, bank powers established
under state law, and operation under state standards, subject to state supervision. As
Professor Kenneth Scott wrote in his landmark analysis of the dual banking system, the
“very core of the dual banking system is the simultaneous existence of different
regulatory options that are not alike in terms of statutory provisions, regulatory
implementation and administrative policy.”6
8.

Over the past 153 years the dual banking system in the United States has

remained firmly anchored in the modern world of banking and finance. Over this time,
“financial markets in the United States have developed into world-class centers of capital
and have led financial innovation.”7

6

Kenneth E. Scott, The Dual Banking System: A Model of Competition in Regulation, 30 Stan. L. Rev. 1,
41 (1977).
7
Perspectives on 150 Years of Dual Banking: Conference of State Bank Supervisors, State-Federal
Supervisory Forum, Savannah, Ga., May 22, 2012, Speaker, Esther L. George, Page 1.

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9.

Thousands of state-chartered and federal-chartered financial institutions,

most of which are small community banks and credit unions, “allow credit to flow to
individuals and businesses, even in remote areas of our country.”8
10.

The dual banking system owes its beginnings to the introduction of

federally chartered banks with the passage of the National Bank Act of 1864. Prior to
that, commercial banks were initially organized under charters granted by state
legislatures – a process that became highly politicized.

The next step was states’

instituting free banking laws, which allowed anyone to open a bank as long as they could
meet standards specified in a state’s banking laws. Then came the National Bank Act.
The act’s basic provisions mirrored key aspects of free banking laws that states had
adopted – specifically free entry and flexibility to adapt to a changing economy. “Thus
began the competition between state and national bank charters and the emergence of the
dual banking system.”9
11.

“[W]e have a stronger supervisory system – both at the state and the

federal levels – as a result of dual banking.”10 “One of the primary benefits of dual
banking is that the multiple options for state and federal charters have led to considerable
innovation and improvement in banking services. We have seen these benefits from the
beginning.”11
12.

The dual banking system:

has allowed local bankers, state supervisors and state governments to
construct a banking system closely attuned to the economic needs of each
state and supervised by personnel with a strong knowledge of the structure
8

Id.
Id. at Page 2.
10
Id.
11
Id. at Page 3.
9

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and condition of the local economy. State legislatures and supervisors
have a long history of adopting their own set of prudential laws and
regulations, consumer protection statutes, and bank chartering and
expansion laws – all of which generally reflect the needs of each state.12
13.

“Another benefit of the dual banking system is that the option to choose a

regulator has made banking supervision and regulation much stronger and more
efficient.”13
14.

The dual banking system provides for competition:

[C]ompetition is the process that makes market economies efficient.
Choice among regulators provides an important incentive to improve
examination processes and ensures examiners have timely training. 14
[P]roviding banks regulatory choice serves as a check and balance on
supervisory authorities so that they are not so restrictive that banks are
unable to provide the credit necessary for economic growth.15
15.

If the dual banking system is to serve us well going forward states must be

provided “with enough leeway to continue to implement laws and supervise banks in a
manner most conducive to local interests and the state economy.”16 Federal laws are
necessary in a national banking system but we must:
strike the right balance in limiting the preemption of state laws and in
respecting the authority of state supervisors and legislators. If we fail to
achieve this balance, we risk losing many of the important benefits of the
dual banking system.17
16.

The dual banking system has benefited the U.S. banking system and the

overall economy since its establishment 153 years ago. “The diversity provided by this
system allowed our economy to grow and to be the most vibrant, innovative and strongest

12
13
14
15
16
17

Id.
Id. at Page 4.
Id.
Id. at Page 5.
Id.
Id.

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in the world.” The only way the dual banking system can continue to survive is if all
federal and state chartered depository institutions have equal access to the Federal
Reserve payments system on non-discriminatory terms. This case is about the unlawful
refusal of FRB-KC to grant TFCCU equal access to the Federal Reserve payments
system.
THE FEDERAL RESERVE ACT
17.

Esther L. George, President of FRB-KC, has said:

The Federal Reserve Act of 1913 established a framework for the nation’s
central bank that departed materially from that of the First and Second
Banks of the United States. Congress rightly understood that the
monolithic structure of these first two central banks was ill-suited to
represent and serve the diverse interests, geographies and industries that
make up the U.S. economy.18
18.

To ensure there was appropriate balance and regional representation, the

Act called for 12 Reserve Banks to be located across the country.
19.

“Each Reserve Bank is overseen by a local Board of Directors composed

of community and business leaders from diverse sectors across each of the 12 regions.
These directors share governance responsibility for Reserve Bank operations along with
the Board of Governors.”19
20.

Over the past century, the Federal Reserve’s local connections have

allowed each regional Reserve Bank to deliver financial services with “a deep
understanding of regional interests.” 20 FRB-KC President Esther L. George has also
stated:

18

Structure Matters: The Decentralized Federal Reserve: The Exchequer Club, Washington, D.C., May
21, 2014, Speaker, Esther L. George, Page 2.
19
Id. at Page 3.
20
Id. at Page 4.

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if Congress were to design the Federal Reserve System today, it might
well choose to have 50 Reserve Banks rather than just 12.21
21.

The system, by design, is intended to include “a diverse range of

perspectives . . . [a] “cacophony of voices.”22 The diversity of the Reserve Bank system
reflects a democratic process “where a mosaic of perspective and input is sometimes
messy.” 23

This structure: “by design, allows for dissenting views.

This feature

recognizes the value Americans place on independent thinking.” 24 The system has
“populist roots.”25
22.

The Federal Reserve Act brings diversity of experience, background and

geography to the Federal Reserve’s most challenging issues. “A $17 trillion economy
with complex dynamics is well-served by this process, which includes a range of
viewpoints and inputs.”26
23.

Prior to the Monetary Control Act of 1980, not all depository institutions

had equal access to a centralized payments system. Large commercial banks that were
members of the Federal Reserve established an Automated Clearinghouse (“ACH”)
network and thereby largely controlled access to the U.S. centralized payments system.
They used this control to monopolize the financial system, in unlawful restraint of trade,
to their economic benefit. The controversy over ACH access policy was finally resolved
by a pair of antitrust suits brought against the California and Rocky Mountain ACHs by
the United States Department of Justice (“DOJ”) in 1977. The DOJ argued that Federal
21

Id. at Page 5.
Id. at Page 6.
23
Id. at Page 6.
24
Id. at Page 6.
25
See, The Federal Reserve and the Path of Monetary Policy: Omaha, Nebraska, September 6, 2013,
Speech, Esther L. George, Page 1.
26
Id. at page 6.
22

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Reserve subsidies of ACH services and the absence of explicit prices for these services
created local monopolies in this area. The subsidies discouraged the emergence of a
private sector competitor and so turned these ACHs into essential facilities. Therefore,
the denial of direct access to all depository institutions placed those institutions at a
competitive disadvantage with respect to commercial banks in violation of established
antitrust laws.27
24.

On the tail of the DOJ anti-trust suits, Congress acted. The Monetary

Control Act of 1980 became a part of the Federal Reserve Act at 12 U.S.C. §248a. The
Monetary Control Act requires the Federal Reserve to provide all depository institutions
with equal access to Federal Reserve bank services at nondiscriminatory pricing. See 12
U.S.C. §248a(c)(2). This restored competition to the U.S. financial system. Thrifts and
fledgling credit unions where placed on an equal footing with large commercial banks
that previously used their ACH network to control access to the Federal Reserve
payments system.

All depository institutions (Federal Reserve member and non-

member) then had equal access to the payments system and hence equal ability to
compete to serve customers. David was then allowed to compete with Goliath in respect
of the provision of banking business.
25.

The Federal Reserve System’s policy for the payment services it provides

was stated in the white paper, “The Federal Reserve in the Payment System,” published
in the Federal Reserve Bulletin in May 1990, pp. 293-98. The paper stated that “[i]n
summary, the role of the Federal Reserve in providing payment services is to promote the
integrity and efficiency of the payments mechanism and to ensure the provision of
27

See, The Monetary Control Act and the Role of the Federal Reserve in the Interbank Clearing Market, A.
Kuprianov, Economic Review, July/August 1985.

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payment services to all depository institutions on an equitable basis, and to do so in an
atmosphere of competitive fairness.”
26.

The dispute about access to the payments system, long settled, has arisen

again in the context of this declaratory judgment action. The decision facing the Court
turns upon the interpretation and application of 12 U.S.C. §248a(c)(2), the equal access
provision of the Monetary Control Act. TFCCU seeks to enforce in this declaratory
judgment action its federal statutory right, as a fledgling state-chartered credit union, to
equal access to the payments system; a right granted by Congress to all depository
institutions 35 years ago. Issues of central bank design were left to Congress. TFCCU
seeks to compel FRB-KC to comply with the equal access law to which it is subject.
FRB-KC must respect the 153 year-old constitutionally established dual banking system
– and honor the structural design of the Federal Reserve System and its various
components. The Tenth Amendment to the United States Constitution reserved to the
states the authority to charter financial institutions. Colorado issued a state charter to
TFCCU. FRB-KC must honor that official state action and allow TFCCU access to the
Federal Reserve payments system so it can operate. It is against this historical backdrop
that this dispute between TFCCU, a state chartered credit union, and FRB-KC, an
independent Reserve Bank, has arisen.
FACTUAL BACKGROUND
27.

On January 10, 2014, United States Senators Michael Bennet (D-CO) and

Mark Udall (D-CO), and Members of Congress Dianna DeGette (D-CO), Ed Perlmutter
(D-CO), Mike Coffman (R-CO)and Jared Polis (D-CO) (the “Colorado Delegation”)
wrote Jennifer Shasky Calvery, Director, Financial Crimes Enforcement Network

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(“FinCEN”), United States Department of the Treasury and Deputy Attorney General
James Cole, United States Department of Justice (“DOJ”). The letter requested that
FinCEN and DOJ:
…expedite guidance that would enable licensed marijuana dispensaries
and retail stores in Colorado to avail themselves of the banking system . . .
There has been significant uncertainty, however, as to whether these
businesses will be able to accept checks or credit cards or to open accounts
at insured depository institutions. The possibility of a cash-only system
has raised significant public safety concerns for customers and employees
who must now handle and transport large quantities of cash. Additionally,
a cash-only system may make it more difficult for the state and federal
government to regulate and audit these facilities. Finally, without access
to the banking system, it may become easier for retail stores to avoid sales
tax collections, which would diminish funding for marijuana enforcement
activities and Colorado school construction.
28.

On February 14, 2014, in response to the letter from the Colorado

Delegation and prompting from others that shared similar public safety concerns, the
Department of Treasury, Financial Crimes Enforcement Network (“FinCEN”), issued
formal federal guidance, FIN-2014-G001, entitled “BSA Expectations Regarding
Marijuana-Related Businesses” (the “FinCEN guidance”) and James M. Cole, Deputy
Attorney General, United States Department of Justice (“DOJ”), issued a “Memorandum
for All United States Attorneys:

Guidance Regarding Marijuana Related Financial

Crimes” (the “Cole memorandum”).
29.

FinCEN’s guidance sought to clarify

…how financial institutions can provide services to marijuana-related
businesses (“MRBs”) consistent with their Bank Secrecy Act (“BSA”)
obligations, and aligns the information provided by financial institutions in
BSA reports with federal and state law enforcement priorities. This
FinCEN guidance should enhance the availability of financial services for,
and the financial transparency of, marijuana-related businesses. Id. FIN2014-G001 at Page 1.

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30.

The FinCEN guidance was intended to facilitate state licensed marijuana-

related business “access to financial services, while ensuring that this activity is
transparent and the funds are going to regulated financial institutions responsible for
implementing appropriate AML safeguards.”28 The “overarching goal” in issuing the
guidance “was to promote financial transparency, ensuring law enforcement receives the
reporting from financial institutions that it needs to police this activity and making it less
likely that the financial operations move underground and become more difficult to
track.”29
31.

The Cole memorandum instructed U.S. Attorneys and law enforcement to

focus on “eight priorities in enforcing the Controlled Substances Act (“CSA”) against
marijuana-related conduct.” 30 The Cole memorandum stated that it is the federal
expectation that states and local governments that have enacted laws authorizing
marijuana-related conduct will implement strong and effective regulatory and
enforcement systems to address the risks related to the legalized marijuana industry.
32.

The Colorado Bankers Association (“CBA”) took the position that the fact

FinCEN guidance and Cole memorandum intended to give banks federal permission to
open accounts for state licensed marijuana businesses “only reinforces and reiterates that

28

Remarks of Jennifer Shasky Calvery, Director, Financial Crimes Enforcement Network, 2014 MidAtlantic AML Conference, Washington, DC, August 12, 2014, Page 5.
29
Id. at Page 4.
30
The eight priorities in enforcing the CSA against marijuana-related conduct are: (1) preventing the
distribution of marijuana to minors; (2) preventing revenue from the sale of marijuana from going to
criminal enterprises, gangs, and cartels; (3) preventing the diversion of marijuana from states where it is
legal under state law in some form to other states; (4) preventing state-authorized marijuana activity from
being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity; (5)
preventing violence and the use of firearms in the cultivation and distribution of marijuana; (6) preventing
drugged driving and the exacerbation of other adverse public health consequences associated with
marijuana use; (7) preventing the growing of marijuana on public lands and the attendant public safety and
environmental dangers posed by marijuana production on public lands; and (8) preventing marijuana
possession or use on federal property.

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banks can be prosecuted for providing accounts to marijuana related businesses.”
CBA’s press release stated: “After a series of red lights, we expected the guidance to be
a yellow one. This isn’t close to that. At best this amounts to ‘serve these customers at
your own risk’ and it emphasizes all of the risks.
http://www.coloradobankers.org/?60.

This light is a red light.” See,

As a result of this view, shared by many

depository institutions, initially, the FinCEN guidance did not result in meaningful access
to banking for MRBs.
33.

After FinCEN’s guidance went into effect, between February 14 and

August 8, 2014, 105 individual financial institutions from states in more than one third of
the country engaged in banking relationships with marijuana-related businesses. 31
Nearly 400 financial institutions filed 3,157 marijuana-related suspicious activity reports
in at least 42 states and the District of Columbia between February 14, 2014 and January
26, 2015. Based on this data, FinCEN concluded that “banks are using our guidance and
providing much needed transparency into their dealings with marijuana-related
businesses.”32 Each of these banks utilized the Federal Reserve payments system to serve
MRBs.
34.

If the District of Columbia is counted as a state, there are 24 states that

have legalized medical cannabis for distribution, taxation and regulation. Five of those
states have gone further to legalize cannabis for adult use.33 An additional 15 states have
legalized the use of low THC hemp based CBD oil for medical purposes. 34 Furthermore,
20 states have allowed industrial hemp growing and cultivation with regulations that
31

Calvery Remarks at Page 4.
Id.
33
http://medicalmarijuana.procon.org/view.resource.php?resourceID=000881
34
http://www.celebstoner.com/news/marijuana-news/2014/03/13/four-states-on-verge-of-passing-cbdonly-laws/
32

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violate federal law.35 In total, there are only eight states (AR, ID, KS, LA, OH, PA, SD,
WY) whose laws do not currently conflict with the federal Controlled Substances Act in
some manner. 21 U.S.C. §801 et seq. It is clear that the Federal Government's stance on
cannabis prohibition is not honored by all but eight states. The majority of those states
have pending legislation to change their position as well. None of these state licensed,
regulated, and taxed businesses have meaningful and stable access to traditional banking
services. The few MRBs that have bank accounts are at constant risk of their accounts
being closed all of the sudden. The majority of MRBs are forced to operate in cash only,
and to suffer the high cost of handling and safeguarding this cash. The public is at risk in
having hundreds of millions of dollars of cash flowing about the streets of Colorado. The
‘seed-to-sale’ state and municipal regulation of cannabis works – until the point of sale
when a sale generates cash.
35.

Aware of the significant public safety concerns presented by the nearly

all-cash marijuana industry,36 and the widespread lack of access of Colorado MRBs to
banking services, ten (10) courageous citizens formulated a plan to solve the problem. In
March 2014, they came together to organize a Colorado state-chartered credit union to
develop a robust anti-money laundering (“AML”) program to comply with the newly
issued FinCEN guidance and Cole memorandum and thereby provide much needed
banking services to compliant, licensed cannabis and hemp businesses and to thousands
of persons, businesses and organizations that supported the legalization of marijuana.
They formulated a local solution to a local problem.

35 http://www.ncsl.org/research/agriculture-and-rural-development/state-industrial-hemp-statutes.aspx
36
Does Anybody Want $3 Billion in Cash from Pot Sales? Geiger, Hamilton and Dexheimer,
Bloomberg.com, May 15, 2015, http://www.bloomberg.com/news/articles/2015-05-12/banks-just-say-noto-weed-as-treasury-pushes-the-business

17

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36.

Martin Kenney, a world-renowned anti-fraud and anti-money-laundering

expert, was the primary architect of the credit union’s AML compliance program. 37
Experts in the fields of law, banking, the principles of financial accounting of credit
unions, academia, technology, insurance, marketing, marijuana regulation, government
relations, law enforcement and state regulators were engaged in the collaborative process.
37.

The proposed credit union’s business plan was straightforward – (i) build

a Colorado state-chartered credit union around a culture of compliance; (ii) take
compliance out from behind the desk and into the field; (iii) charge credit union members
that required enhanced monitoring service fees commensurate with the cost of the
enhanced due diligence required by the FinCEN guidance and Cole memorandum; (iv)
diversify risk by including ordinary consumers who are members of any one or more of a
number of not-for-profit associations within the credit union’s field of membership, not
just licensed cannabis and hemp businesses; (v) engage as credit union members the
social movement that supports the legalization effort based upon a belief in personal
liberty, state’s rights and wellness; and (vi) become a regulatory partner with state and
federal government to perform the “gatekeeper” function as envisioned by the FinCEN
guidance and the Bank Secrecy Act (“BSA”).
38.

On April 2, 2014, pursuant to C.R.S. §§11-30-101 et seq., TFCCU applied

to the Colorado Division of Financial Services (“DFS”) for a de novo state credit union
charter to serve a field of membership of persons, businesses, and organizations that

37

Martin Kenney, had, in June 2014, been given a lifetime achievement award from the Association of
Certified Fraud Examiners (“ACFE”) “for major lifetime contributions to the detection and deterrence of
fraud.” The ACFE is the world’s largest association of anti-fraud and anti-money laundering professionals
(with 75,000 members in 160 countries). The Cressey Award bestowed on Mr. Kenney is the ACFE’s
highest honor.

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support the legalized cannabis and hemp industries – by the submission of a voluminous
charter application that laid out the proposed credit union’s business plan.
39.

Upon receipt of the application for a state credit union charter, pursuant to

C.R.S. §§11-30-101(1)(a), (3)(a) and (b), the Colorado State Commissioner of the DFS
was required by law to determine: (a) whether TFCCU was a cooperative association
established for the purpose of promoting thrift among its members and creating a source
of credit at fair and reasonable rates of interest; (b) whether the proposed field of
membership was limited to groups having a common bond of association; (c) whether the
application conformed to the provisions of the Colorado Credit Union Act, C.R.S. §§1130-101 et seq.; (d) whether such a credit union would benefit the members and proposed
members thereof, consistent with the purposes of the Act; (e) the general character and
fitness of TFCCU’s proposed incorporators and organizers; (f) the economic advisability
of establishing the proposed credit union; (g) whether the incorporators and organizers
were qualified; and (h) whether their qualifications and financial experience were
consistent with their responsibilities and duties.
40.

On July 2, 2014, Colorado DFS granted TFCCU a state credit union

charter, conditioned upon TFCCU obtaining federal share deposit insurance from the
NCUA. The grant of the charter was based on statutorily required findings by the
Colorado Commissioner of the DFS that: (a) TFCCU was a cooperative association
established for the purpose of promoting thrift among its members and creating a source
of credit at fair and reasonable rates of interest; (b) that TFCCU’’s proposed field of
membership was limited to groups having a common bond of association; (c) that
TFCCU’s application conformed to the provisions of the Colorado Credit Union Act,

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C.R.S. §§11-30-101 et seq.; (d) that TFCCU would benefit the members and proposed
members thereof, consistent with the purposes of the Act; (e) that the general character
and fitness of the incorporators was satisfactory; (f) that TFCCU was economically
advisable; (g) that the incorporators and organizers were qualified; and (h) that their
qualifications and financial experience were consistent with their responsibilities and
duties. The Commissioner’s findings are entitled to a presumption of validity.
41.

On July 18, 2014, in a letter to the State of Washington Department of

Financial Institutions, NCUA Office of Examination and Insurance Director, Larry Fazio,
stated the policy of the NCUA relative to the legal ability of federally chartered and
federally insured state-chartered credit unions to provide services to marijuana-related
businesses: “NCUA has provided the FinCEN guidance to agency examiners, who are
responsible for determining the compliance of financial institutions that provide service
to marijuana-related businesses.”
42.

On August 13, 2013, the Board of Governors of the Federal Reserve

System, the Federal Deposit Insurance Corporation (“FDIC”), the NCUA and the Office
of the Comptroller of the Currency (collectively, the “Agencies”) issued a federal policy
statement to the effect that the Agencies had formally incorporated the FinCEN guidance
into their supervisory process. The Agencies reported that the federal policy related to
federally regulated depository institutions banking MRBs is as follows:
Generally, the decision to open, close or decline a particular account or
relationship is made by a bank or credit union, without involvement by its
supervisor. This decision may be based on the bank or credit union’s
particular business objectives, its evaluation of the risks associated with
offering particular products or services, and its capacity to effectively
manage those risks.

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43.

FRB-KC policy allows depository institutions to use Reserve Bank

services to serve MRBs, provided the depository institutions comply with the FinCEN
guidance.
44.

In August 2014, TFCCU submitted a Routing Number Application to

ACCUITY, the official Registrar for the American Bankers Association. A Routing
Number (also sometimes called an “ABA” number) is the number that identifies the bank
that is responsible to either pay or give credit or is entitled to receive payment or credit
for a check or electronic transaction.

See American Bankers Association Routing

Number Administrative Board Routing Number Policy (Revised 3/12), Section I.
45.

In order to obtain a Routing Number, a bank must be “eligible to maintain

an account at a Federal Reserve Bank.” Id. at Section II. A. ACCUITY coordinates with
the Federal Reserve System on all policy issues and procedures. Id. at Section V, A, 4. A
representative of the Federal Reserve Bank is an Associate Member of the Routing
Number Administrative Board. Id. at Introduction. As part of its review of a Routing
Number Application, ACCUITY “may consult with the representatives of the appropriate
Federal Reserve Bank and the applicant’s chartering agency to confirm applicant bank’s
eligibility.” Id. at Section V, C.
46.

The Routing Number Application states: “Your request will be forwarded

to the Federal Reserve in your district for verification. When the application is returned
to us from the Federal Reserve, we will send you an official assignment of the number.”
47.

On August 25, 2014, Accuity, pursuant to the American Bankers

Association Routing Number Policy (Revised 3/12), issued a Routing Number to

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TFCCU, thus determining TFCCU was eligible to maintain an account at a Federal
Reserve Bank.
48.

To be eligible to open an account at a Federal Reserve Bank, an

organization can be a state chartered “depository institution” as defined in 12 U.S.C.
§461(b)(1)(A). The term “depository institution” means – “(iv) any insured credit union
as defined in section 1752 of this title or any credit union which is eligible to make
application to become an insured credit union pursuant to section 1781 of this title.” Id.
(emphasis supplied).
49.

The authority of a depository institution to provide financial or payment

services is governed by the charter granted by the state regulatory authority. See
American Bankers Association Routing Number Administrative Board Routing Number
Policy (Revised 3/12), Introduction. The Routing Number simply identifies a chartered
financial institution.
50.

On September 4, 2014, TFCCU submitted to the NCUA's Board a fully

completed “NCUA Form 9600 – Application of a State Chartered Credit Union for
Insurance of Accounts,” together with all schedules and information required by NCUA
Form 9600. NCUA Form 9600 is 16 pages in length; it contains 21 questions and calls
for the submission of 7 schedules. TFCCU provided all information required to be
provided with the application in respect to a deposit insurance application submitted by a
new credit union.
51.

TFCCU also began exploring options to obtain private share deposit

insurance in the event the NCUA declined its application for federal share deposit
insurance.

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52.

On November 19, 2014, the Colorado Commissioner of DFS granted

TFCCU an unconditional Colorado state credit union charter, pursuant to C.R.S. §11-30117.5(3), that provides for the issuance of a final unconditional charter after a credit
union “has applied for” share deposit insurance.
53.

Immediately after its state charter became final and unconditional, on

November 19, 2014, TFCCU sought a master account at FRB-KC.

Every depository

institution must have (and does in fact have) access to the Federal Reserve payments
system, either by having a master account, or by having access through a correspondent.
Without such access, a depository institution is nothing more than a vault.

Cash

deposited at a financial institution is transported to the Federal Reserve branch. It is
credited to the depository institution’s account and the cash becomes an electronic credit.
Credits and debits from transactions with other depository institutions are settled in the
institution’s account at the Federal Reserve Bank where an institution’s master account is
maintained.

In basic terms, an account at the Federal Reserve is the depository

institution’s bank account.
54.

Federal Reserve Banks Operating Circular No. 1, ACCOUNT

RELATIONSHIPS (Effective September 1, 2011), and its appendices - Appendix 1,
Master Account Agreement (Revised September 2011) and Appendix 2, Transaction and
Service Fee Settlement Authorization Form (Last updated 6/13), set forth the terms under
which a depository institution may open a Master Account with its Administrative
Reserve Bank (“ARB”).
55.

TFCCU, a Colorado state-chartered credit union, is located in the Tenth

Federal Reserve District. As such, its ARB is FRB-KC.

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56.

In order to establish a Master account with its ARB:

…the Board of Directors of a Financial Institution must pass resolutions
(in a form prescribed by the Reserve Banks) that authorize certain
individuals to conduct business on behalf of the Financial Institution
(“Authorized Individuals”). The Financial Institution must provide its
ARB with a certified copy of the resolutions as well as an Official
Authorization List (“OAL”)which identifies Authorized Individuals. An
Authorized Individual must then execute a Master Account Agreement
(Appendix 1) . . . to open a Master Account [on behalf of a Financial
Institution]. By opening and maintaining a Master Account, a Financial
Institution agrees to be bound by all the provisions, as amended from time
to time, of this Circular and of all other Federal Reserve Bank operating
circulars that cover services that it obtains from any Reserve Bank. Each
Maser Account Agreement is subject to approval by the Financial
Institution’s Administrative Reserve Bank. See Federal Reserve Bank
Operating Circular No. 1 (Effective September 1, 2011), Section 2.6.
57.

The Federal Reserve Bank, Operating Circular 1, Appendix 1, Master

Account Agreement (Revised September 2011) is 1 page in length. Section 1 of the
Agreement asks for the depository institution’s “Routing (ABA) Number,” its address, an
“Official Signature” and an “Anticipated Account Opening Date.” Sections 2 and 3 of
the Agreement ask the depository institution to identify the employee to whom questions
regarding the account should be directed. The Agreement does not require the submittal
of any documents other than a Resolution Authorizing an Institution to Open and
Maintain Accounts and Use Services (version 6.18.04) and a Federal Reserve Bank
Official Authorizations List (Last Updated 08/12). A footnote contained at the bottom of
the Master Account Agreement states: “Processing may take 5-7 business days. Please
contact the Federal Reserve Bank to confirm the date that the master account will be
established.” There is no designated application form for a Master Account – the only
documents involved are the Master Account Agreement, the OAL and the Resolution.

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58.

On or about November 19, 2014, TFCCU submitted a duly executed

certified Resolution Authorizing an Institution to Open and Maintain Accounts and Use
Services (version 6.18.04) (the “Resolution”) and a Federal Reserve Bank Official
Authorizations List (Last Updated 08/12) (the “OAL”) to FRB-KC.
59.

Shortly after submission, FRB-KC’s Financial Management department

approved FCCU’s Resolution and OAL. Approval involved an employee in the Financial
Management department at FRB-KC verifying the authenticity of the signatures on the
Resolution and OAL and that the forms were properly completed.
60.

TFCCU representatives then worked with the Customer Relations and

Support Office at Federal Reserve Financial Services in Minneapolis, Minnesota to
complete the standard forms to select the various Reserve Bank services desired by
TFCCU.
61.

Following FRB-KC’s approval of the Resolution and OAL, FRB-KC

refused to lodge TFCCU’s OAL and Resolution into FRB-KC’s legal documents archives
and further refused to allow TFCCU to submit an executed Master Account Agreement
(Revised September 2011) to open a master account, stating that: “the Board Resolution
and Official Authorization List will be processed . . . upon approval by credit and risk.”
62.

TFCCU’s legal counsel immediately contacted FRB-KC and asked to be

provided with the rules pertaining to approval by credit and risk and was advised that no
such rules exist.
63.

After receiving TFCCU’s request for a master account, FRB-KC delayed

acting upon TFCCU’s request for almost nine (9) months.

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64.

The processing of a master account request is a routine ministerial act that

does not involve the submission of an application, the review of an application or the
exercise of discretion by FRB-KC.
65.

It normally takes 5 to 7 days to process an application for a master

account. (See, footnote to standard form FRB Master Account Agreement.)
66.

A request for a master account is processed by FRB-KC, not decided

67.

The Master Account Agreement is a one-page form seeking only the

upon.

“Routing (ABA) Number,” the financial institution name and address, and the
“Anticipated Account Opening Date.” See Federal Reserve Bank Operating Circular 1,
Appendix 1 (Revised September 2011), Master Account Agreement.
68.

The only required submittals to obtain a Master Account are a Routing

(ABA) Number, a board resolution and an authorized signer list.
69.

The scant master account agreement and absence of submittal

requirements establish that no discretion is utilized in the routine process of opening a
master account.
70.

The absence of transparently displayed or published written criteria (to be

used in the exercise of a discretion) is further proof that the process is ministerial.
71.

FRB-KC is not a regulatory agency. As such, its decisions are subject to

de novo review, and are not entitled to deference from this Court.
72.

FRB-KC does not regulate state-chartered credit unions.

73.

FRB-KC provides Federal Reserve payment services to state-chartered

credit unions.

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74.

The Federal Reserve provides four important payment services: (1) a

centralized check collection system, (2) the Automated Clearinghouse (ACH) network
for processing batched electronic small-dollar payments, (3) the Fedwire system for
larger electronic payments, and (4) coin and currency services. See 12 U.S.C. §248a(b)
(1) through (8).
75.

Depository institutions use each of these Federal Reserve services to

provide customers payment services.
76.

The Monetary Control Act of 1980 requires that the Federal Reserve offer

payments system services to all “depository institutions,” regardless of whether the
institution is a member of the Federal Reserve System. See 12 U.S.C. §248a(c)(2). Thus,
the Federal Reserve currently provides services to banks and credit unions alike.
77.

By establishing regulations and policies governing access to its payment

systems, the Board of Governors of the Federal Reserve System has the ability to
uniformly impact practices at all financial institutions using these systems. See 12 U.S.C.
§248(k).
78.

Accessing the Federal Reserve’s payment systems is not administratively

difficult. It requires only a resolution from the financial institution’s board of directors
and the completion of forms designating individuals authorized to initiate transactions
and identifying the types of services wanted. See Operating Circular No. 1 (Effective
September 1, 2011), Section 2.6.
79.

In providing access to the payment systems, the Federal Reserve does not

investigate the financial institution’s customers.

Indeed, the Federal Reserve’s risk

management policy in effect when TFCCU submitted its request for a master account

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explicitly avoids comment on “relationships between financial institutions and their
customers,” concluding that “relevant safety and soundness issues associated with these
relationships are more appropriately addressed through the bank supervisory process.”
See Board of Governors of the Federal Reserve System, Reserve Policy on Payment
System

Risk

at

Page

6

(March

24,

2011),

available

at

http://www.federalreserve.gov/paymentssystems/files/psr_policy.pdf. On December 31,
2014, the Federal Reserve amended its Policy on Payment System Risk by removing the
above quoted sentence.
80.

Pursuant to 12 U.S.C. §248a(c)(2):

All Federal Reserve bank services covered by the fee schedule shall be
available to nonmember depository institutions and such services shall be
priced at the same fee schedule applicable to member banks, except that
nonmembers shall be subject to any other terms, including a requirement
of balances sufficient for clearing purposes, that the Board may be
determine are applicable to member banks. (emphasis supplied).
81.

Pursuant to 12 U.S.C. §248a(e):

All depository institutions, as defined in section 456(b)(1) of this title,
may receive for deposit and as deposits any evidences of transaction
accounts, as defined in section 461(b)(1) of this title from other depository
institutions, as defined in section 461(b)(1) of this title or from any office
of any Federal Reserve bank without regard to any Federal or State law
restricting the number or the physical location or locations of such
depository institutions.
82.

Pursuant to 12 U.S.C. §360:

Every Federal reserve bank shall receive on deposit at par from depository
institutions . . . checks and other items . . . drawn by any depositor in any
other Federal reserve bank or depository institution upon funds to the
credit of said depositor in said reserve bank or depository institution . . .
83.

Pursuant to 12 C.F.R. §210.3(a):

Each Reserve Bank shall receive and handle items in accordance with this
subpart and shall issue operating circulars governing the details of

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handling of items and other matters deemed appropriate by the Reserve
Bank. The circulars may, among other things, . . set forth terms of
services . . .
84.

Pursuant to 12 U.S.C. §461(b)(1)(A) - the term “depository institution”

means – “(iv) any insured credit union as defined in section 1752 of this title or any credit
union which is eligible to make application to become an insured credit union pursuant to
section 1781 of this title.”
85.

TFCCU is a credit union organized and existing according to the laws of

Colorado.
86.

TFCCU is eligible to make application to become an insured credit union

pursuant to 12 U.S.C. §1781.
87.

Pursuant to 12 U.S.C. §1781(b), TFCCU may make application for

insurance of member accounts “at any time.”
88.

Pursuant to C.R.S. §11-30-117.5(3), a Colorado credit union may be

granted an unconditional charter once “it has applied for insurance on its shares and
deposits as provided in this section.”
89.

Pursuant to C.R.S. §11-30-117.5(1), a Colorado credit union must apply

for insurance of its shares and deposits under 12 U.S.C. §1781 (federal share deposit
insurance administered by the NCUA), or comparable insurance approved by the
commissioner (otherwise known as private share deposit insurance).
90.

On or about December 1, 2014, FRB-KC asked the NCUA if TFCCU was

“eligible to make application to become an insured credit union” pursuant to 12 U.S.C.
§1781. The reason the question was posed in this precise manner is because if TFCCU
was “eligible to make application to become” a federally insured credit union, it was

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eligible for a master account at FRB-KC, pursuant to the Monetary Control Act of 1980,
12 U.S.C §248a(c)(2), Federal Reserve Banks Operating Circular 1, Account
Relationships, Effective September 1, 2011 and the American Bankers Association
Routing Number Administrative Board Routing Number Policy, Section II (Revised
3/12).
91.

A new state-chartered credit union is entitled to a master account

irrespective of whether is has obtained federal share deposit insurance; it only need be
“eligible to make application to become” federally insured.
92.

A state-chartered credit union is not required by federal law to have

federal deposit insurance from the NCUA or private share deposit insurance as a
precondition to having a master account at a Reserve Bank.
93.

The deposits of almost all state chartered credit unions are either federally

insured or privately insured.
94.

Currently, there are approximately 129 operating credit unions that have

private (primary) share deposit insurance. Each of these 129 privately insured credit
unions have access to the Federal Reserve payments system.
95.

The NCUA does not oversee state-chartered, privately insured credit

unions. There are over 6,000 state and federal credit unions whose deposits are insured
(to up to $250,000 per member account) by the fund administered by the NCUA.
96.

A state-chartered credit union with private share deposit insurance is not

subject to NCUA regulation, supervision or examination.
97.

As a policy matter, in 2007 NCUA issued a report to Congress concluding

that the NCUA should be the sole provider of primary deposit insurance.

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98.

The NCUA has tried for 8 years, without success, to get Congressional

support for its plan to abolish private primary deposit insurance. The NCUA wants to
exert federal control over all state-chartered credit unions.
99.

On December 19, 2014, TFCCU attorney Douglas Friednash of

Brownstein Hyatt Farber Schreck (Denver) wrote Ms. Laster to advise that the NCUA
failed to respond to the direct question raised by the Federal Reserve Bank of Kansas
City as to whether TFCCU was “eligible to make application to become” insured by the
National Credit Union Share Insurance Fund (“NCUSIF”).
100.

On January 7, 2015, Esther L. George, FRB-KC President, issued a letter

to TFCCU’s legal counsel setting forth FRB-KC’s legal position that stated, in pertinent
part, as follows:
As you note in your letter, Operating Circular 1 sets forth the terms under
which a financial institution may open a master account with a Reserve
Bank. The Operating Circular also states that a master account is subject
to other applicable Federal Reserve regulations and policies relating to
accounts maintained with a Reserve Bank. These include policies related
to risk posed by a financial institution and how that risk will be mitigated
when determining whether and under what conditions an account may be
opened. Issuance of a master account is within the Reserve Bank’s
discretion and requires that the Reserve Bank be in a position to clearly
identify the risk(s) posed by a financial institution and how that risk can be
managed to the satisfaction of the Reserve Bank. In the case of TFCCU,
we will consider TFCCU’s response to the National Credit Union
Administration, along with other relevant information, in our evaluation of
its application for an account. (emphasis supplied).
101.

Upon information and belief, on or about January 13, 2015, the NCUA

advised FRB-KC in writing that TFCCU was eligible to make application to become
federally insured by the NCUA.

TFCCU was not provided with a copy of this

communication.

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102.

On January 20, 2015, TFCCU attorney Steven W. Farber wrote FRB-KC

President George indicating that:
TFCCU is a ‘depository institution’ entitled to a master account at the
FRB, based on the NCUA’s confirmation of its eligibility to make
application to become an insured. With this confirmation, combined with
the required documentation previously submitted, TFCCU respectfully
renews its request for the establishment of a master account at the FRB,
subject to the execution of a master account agreement in the prescribed
form.
103.

On March 6, 2015, United States Senator Michael F. Bennet (D-CO)

wrote a letter to Janet Yellen, Chair, Board of Governors of the Federal Reserve System
and Esther L. George, President, Federal Reserve Bank of Kansas City. Senator Bennet
advised Ms. Yellen and Ms. George that the nearly all-cash nature of Colorado state legal
cannabis businesses “raised significant public safety concerns” and that the “cash only
nature of these businesses has also made it more difficult for the state to audit these
entities and to conduct oversight.” The letter requested that the Reserve Bank “work
directly with the credit union to the extent that it has not satisfied the necessary terms and
conditions to open a master account.”
104.

On March 19, 2015, TFCCU’s CEO Deirdra O’Gorman wrote Ms. Yellen

and Ms. George to request a meeting:
to elaborate on TFCCU’s compliance, risk management, enhanced due
diligence protocols, and that state’s robust regulatory structure, to the
extent such information is pertinent to the FRB’s determination of the
risk(s) posed by the financial institution and how that risk can be managed
to the satisfaction of the Reserve Bank.
105.

Ms. Yellen and FRB-KC declined to meet with TFCCU representatives.

FRB-KC specifically instructed TFCCU not to submit any more documentation to FRBKC.

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106.

On or about April 9, 2015, FRB-KC President Esther L. George visited

Denver to meet with political leaders, bank and credit union officials, and representatives
of Colorado’s state legal cannabis industry.

Following the meeting, FRB-KC issued a

statement that FRB-KC “has a role in ensuring the financial system’s safety and
soundness in the state of Colorado and to gather information from local businesses and
community leaders.”
107.

After receiving Senator Bennet’s letter and after having met with Colorado

businesses and community leaders, in April 2015, FRB-KC formulated a proposed
written response to TFCCU’s request for a master account and circulated that response to
various agencies and persons, including but not limited to, the NCUA.
108.

FRB-KC was prepared to issue its proposed response to TFCCU’s request

for a master account, until, according to FRB-KC, the “NCUA went dark.”
109.

The communications relating to FRB-KC’s proposed response to

TFCCU’s request for a master account that were circulated amongst third-parties are not
subject to any legal privilege and are discoverable in this action.
110.

Upon information and belief, the NCUA and FRB-KC, acted in concert to

unlawfully deny TFCCU access to the Federal Reserve payments system.
111.

On July 1, 2015, Janet L. Yellen, Chair of the Board of Governors of the

Federal Reserve System, wrote United States Senator Michael F. Bennet (D-CO)
regarding TFCCU’s request for a master account stating:
As you know, this case raises issues regarding compliance with Federal
law, which currently prohibits certain activities related to marijuana. This
matter is also pending before the National Credit Union Administration,
which is considering whether FCCU qualifies for deposit insurance under
Federal law.

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112.

On July 2, 2015, the NCUA Office of Consumer Protection issued a letter

of disapproval of TFCC’s application for federal share deposit insurance. The NCUA
secretly and unlawfully provided a copy of this confidential letter to FRB-KC. The
NCUA’s actions are the subject of a related lawsuit filed in this Court that directly attacks
the NCUA’s conduct as unlawful, contrary to constitutional right, in excess of statutory
jurisdiction, made without procedure required by law, not supported by substantial
evidence, arbitrary, capricious, an abuse of discretion and otherwise not in accordance
with law.
113.

The NCUA’s July 2, 2015 letter of disapproval does not provide an

evidentiary basis for FRB-KC’s denial of TFCCU’s master account request.
114.

On July 16, 2015, TFCCU’s lawyers advised the NCUA’s lawyers and its

decisional employees that participated in the call that the NCUA acted unlawfully and
that its actions would be challenged in court unless the NCUA withdrew its contrived
letter of July 2, 2015.
115.

Upon information and belief, following this call, representatives of the

NCUA engaged in unlawful communications with FRB-KC relative to TFCCU’s share
deposit insurance application. The purpose of these unlawful communications was so
that the NCUA and FRB-KC could coordinate a denial of TFCCU’s request for a master
account (based on the NCUA’s July 2, 2015 letter) before litigation ensued. These
communications are not privileged and are subject to discovery in this proceeding.
116.

On July 16, 2015, FRB-KC denied TFCCU’s request for a master account

based upon “information TFCCU has provided to the Bank and the National Credit
Union Association (sic – its Administration – not Association) (NCUA), as well as the

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NCUA’s denial of insurance . . .” FRB-KC stated it had “reviewed the NCUA’s analysis
and denial of TFCCU’s application for insurance of accounts.” FRB-KC cited no legal
authority for its action.
117.

FRB-KC is owned by large commercial member banks. These banks

currently deposit a substantial amount of state legal cannabis money into the Federal
Reserve payments system. TFCCU is a putative competitor that also seeks to provide
services to MRBs. A key distinction between the fledgling TFCCU and these large
commercial banks is that TFCCU is a nonprofit, cooperative financial institution to be
owned and run by its members. This is the cement that unites credit union members in a
cooperative venture – in a way banks cannot.
118.

The Federal Reserve must allow all depository institutions equal access to

the Federal Reserve payments system on nondiscriminatory terms. Federal Reserve
policy permits all participants in the Federal Reserve payments system to provide
services to MRBs consistent with the FinCEN guidance. When TFCCU is granted access
to the Federal Reserve payments system it will have the ability to compete with FRBKC’s owners for the business of a newly emerging fast-growing industry.

The

competition for business that exists between banks and credit unions is legendary. Thus,
the law provides for only very limited information sharing between the NCUA and the
Federal Reserve.

38

Also, the law prevents FRB-KC’s owners from playing a

discretionary role in deciding who gets into the monopolistic payments system, and who
is kept out. All depository institutions get in so they have a fair opportunity to compete.

38

See, 12 U.S.C. 1784(g) that permits the NCUA Board to share information about a credit union with
Federal Reserve banks “for the purpose of facilitating insured credit unions’ access to liquidity” provided
the Federal Reserve bank gives “appropriate assurances of confidentiality.”

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119.

TFCCU does not need NCUA insurance to operate, or to gain access to the

Federal Reserve. It has the ability to pursue a private share deposit insurance option.
Further, insurance is not a legal prerequisite to having a master account. The NCUA is
on record that it is against private share deposit insurance because the NCUA has no
authority to supervise, regulate or examine privately insured state chartered credit unions.
Apparently, the NCUA does not trust highly qualified state regulators with superior local
knowledge to supervise state-chartered credit unions without NCUA oversight. Thus, in
order to carry out their nefarious scheme to unlawfully block TFCCU from the Federal
Reserve payments system, FRB-KC and the NCUA concocted an aggressively expressed
denial of the federal deposit insurance application that also gratuitously impugned the
reputations and work of the multitude of highly qualified professionals that worked on
TFCCU’s business plan and its AML compliance model, manual and systems. At the
same time, the NCUA and FRB-KC impugned the Colorado regulators that approved
TFCCU’s charter and the Colorado elected officials that supported TFCCU’s effort to
solve a serious public safety problem.
120.

Upon information and belief, representatives of FRB-KC had improper

and unlawful ex parte conversations with NCUA decisional employees about confidential
information provided to the NCUA by TFCCU, as well as about the merits of TFCCU’s
pending federal share deposit insurance application and its pending request for a master
account.
121.

The Federal Reserve System plays a major role in developing and

operating the nation’s payments system.

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122.

FRB-KC is required to provide payments services to all depository

institutions on equal terms. See 12 U.S.C. §248a(c)(2).
123.

The Federal Reserve payments system is a monopoly, since no alternatives

to the Federal Reserve payments system services exist at this time.
124.

FRB-KC is required to provide equal access to its essential facilities on

reasonable and nondiscriminatory terms.
125.

In the context of anti-trust law, the payments system is an “essential”

facility in that it provides significant competitive advantages to any market participants
that have direct access to that facility.
126.

The denial of direct access to Federal Reserve payments system services

places TFCCU at a competitive disadvantage with respect to all other depository
institutions that have been granted equal access and nondiscriminatory pricing for the
said services.
127.

By denying TFCCU access to the Federal Reserve payments system, FRB-

KC has engaged in an unreasonable restraint of trade and commerce.
128.

Operating rules cannot be used to discriminatorily exclude TFCCU from

the Federal Reserve payments system, an essential facility.

Operating Rules are

overridden by the governing statute, 12 U.S.C. §248a(c)(2).
129.

The Board of Governors of the Federal Reserve System could adopt a rule

or policy that strictly prohibits all financial institutions from using Reserve Bank services
to bank the marijuana industry because marijuana remains federally illegal. However, it
has not. Rather, the Board of Governors adopted a rule that allows all depository
institutions to provide services to MRBs, provided they comply with the FinCEN

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guidance and the Cole memorandum. Whatever the rule is, it must be applied equally
and not discriminate.
130.

FRB-KC must provide all depository institutions equal access to the

payments system. See 12 U.S.C. §248a(c)(2). This requires it make the payments system
universally accessible to depository institutions, including small, remote, and newly
chartered institutions.
131.

A new state-chartered credit union is entitled to a master account.

132.

The law does not require a state-chartered credit union to have a history of

performance or historical record before it can have a master account.
133.

The law does not require a new state-chartered credit union to have

reserves, or be adequately capitalized to have a master account.
134.

Credit unions (as cooperatives that do not issue capital stock) initially

have no net worth and credit unions, according to law, are granted a reasonable time to
accumulate net worth. 12 U.S.C. §1790d(b)(1)(B).
135.

New credit unions have 10 years to become adequately capitalized. Id.

136.

A credit union is adequately capitalized if it has a net worth ratio of not

less than 6 percent. 12 U.S.C. §1790d(2)(B)(c)(1)(B).
137.

The Federal Reserve is required to serve all U.S. depository institutions

equitably. See 12 U.S.C.§301. It is required to tie all depository institutions into one
unified system.
138.

The Federal Reserve’s operational role is to ensure all depository

institutions have access to its services.

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139.

TFCCU qualifies as a customer of the FRB and is entitled to its

monopoly-like services.
140.

The Federal Reserve payments system is a publicly produced and

subsidized payments system that is an essential facility that must be offered on a
nondiscriminatory basis to depository institutions.
141.

FRB-KC has engaged in unlawful anti-competitive activity by denying

TFCCU equal, competitive, nondiscriminatory access to its payments system in violation
of 12 U.S.C. §248a(c)(2).
142.

FRB-KC’s denial of TFCCU’s master account application is anti-

competitive; it is detrimental to public safety; it is an abuse of monopoly power; it is a
collusive practice in restraint of trade; and it is statutorily and constitutionally unlawful.
143.

FRB-KC has failed to administer the affairs of FRB-KC fairly and

impartially and without discrimination in favor of or against any depository institution in
violation of 12 U.S.C. §301.
FOR A FIRST CAUSE OF ACTION
(Declaratory Judgment)
(TFCCU is entitled to a Master Account at FRB-KC)
144.

Plaintiff repeats and realleges the foregoing allegations of the Complaint

as if set forth herein verbatim.
145.

There exists a case of actual controversy in the constitutional sense - a real

and substantial controversy admitting of specific relief through a decree of a conclusive
character between TFCCU and FRB-KC that pertains to the proper legal interpretation of
12 U.S.C. §248a(c)(2), Federal Reserve Banks Operating Circular No. 1 (Effective

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September 1, 2011) and the American Bankers Association Routing Number
Administrative Board Routing Number Policy (Revised 3/12).
146.

This Court should declare the rights and other legal relations of TFCCU

under 12 U.S.C. §248a(c)(2), Federal Reserve Banks Operating Circular 1 (Effective
September 1, 2011) and the American Bankers Association Routing Number
Administrative Board Routing Number Policy (Revised 3/12) because judgment by this
Court would settle the legal issues involved, it would finalize the controversy and offer
the parties relief from uncertainty.
147.

12 U.S.C. §248a(c)(2) requires that “All Federal Reserve bank services

covered by the fee schedule shall be available to nonmember depository institutions and
such services shall be priced at the same fee schedule applicable to member banks, . . .”
148.

Operating rules, such as Federal Reserve Banks Operating Circular 1

(Effective September 1, 2011) cannot be used to exclude TFCCU from the Federal
Reserve payments system, an essential facility, nor can they override the equal access and
nondiscriminatory pricing requirements of federal law. 12 U.S.C. §248a(c)(2.
149.

TFCCU is a nonmember depository institution.

150.

FRB-KC has refused to make “Federal Reserve bank services covered by

the fee schedule” available to TFCCU in violation of 12 U.S.C. §248a(c)(2).
151.

12 U.S.C. §248a(c)(2) is mandatory, in that it provides that Federal

Reserve Banks’ services “shall” be made available to non-member depository
institutions.

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152.

FRB-KC does not have discretion to decide which non-member depository

institutions are entitled to Federal Reserve Bank services. The word “shall” connotes a
mandatory requirement, not subject to discretionary whim.
153.

FRB-KC must provide equal access and non-discriminatory pricing to

Federal Reserve bank services to all depository institutions.
154.

Federal Reserve Banks Operating Circular No. 1 states: “Each Master

Account Agreement is subject to approval by the Financial Institution’s Administrative
Reserve Bank.” See Operating Circular No. 1 (Effective September 1, 2011), Section
2.6. The approval referenced in OC-1 is not a discretionary approval. OC-1 calls for
FRB-KC to process a master account application by verifying that a resolution from the
financial institution’s board of directors has been duly executed and that the depository
institution has completed the forms designating individuals authorized to initiate
transactions and identifying the types of services wanted.
155.

The Federal Reserve Act does not grant the Board of Governors of the

Federal Reserve System or FRB-KC the authority or power to discriminate in favor of or
against any depository institution in the provision of Federal Reserve Bank services.
Rather, the Act requires a Reserve Bank “to administer the affairs of said bank fairly and
impartially and without discrimination in favor of or against” any depository institution.
See 12 U.S.C.§301.
156.

There exists no policies or procedures for the exercise of the claimed

discretion by FRB-KC in the routine processing of a master account application.

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157.

After access is granted, OC-1 provides operating rules that are uniformly

applicable to all depository institutions pertaining to terminating or maintaining a master
account, settlement, statements, overdrafts and sensitive consumer information.
158.

Upon information and belief, since the passage of the Monetary Control

Act in 1980, FRB-KC has never refused to grant a federal or state chartered depository
institution a master account, nor has FRB-KC ever exercised discretion in the processing
of a master account application.
159.

FRB-KC routinely and administratively processes master account

applications within 5 to 7 days.
160.

FRB-KC’s stated legal position is that “Issuance of a master account is

within the Reserve Bank’s discretion and requires that the Reserve Bank be in a position
to clearly identify the risk(s) posed by a financial institution and how that risk can be
managed to the satisfaction of the Reserve Bank.”
161.

FRB-KC does not regulate or supervise TFCCU.

162.

Colorado DFS is TFCCU’s sole regulator and supervisor.

163.

Colorado DFS granted TFCCU a charter and in doing so, it exercised its

discretion, pursuant to C.R.S. §11-30-101(3)(a) and (b), to determine TFCCU’s safety
and soundness. Said decision is entitled to a presumption of validity.
164.

Under the dual banking structure, FRB-KC does not have jurisdiction to

second-guess Colorado DFS, or to reject its determination.
165.

A state charter was issued. According to federal law, access to the Federal

Reserve payments system must be granted.

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166.

FRB-KC has stated that, in the exercise of its claimed discretion in the

routine processing of a master account application, that: “In the case of [T]FCCU, we
will consider [T]FCCU’s response to the National Credit Union Administration, along
with other relevant information, in our evaluation of its application for an account.”
167.

Under the federal statutory scheme, a state-chartered credit union is

entitled to a master account if it is eligible to make application to become insured by the
NCUA. See 12 U.S.C. §461(b)(1)(A)(iv).
168.

The existence of federal share deposit insurance is not a prerequisite for a

state-chartered credit union to obtain a master account.
169.

The existence of private share deposit insurance is not a prerequisite for a

state-chartered credit union to obtain a master account.
170.

For a state chartered credit union the requirement that deposits be insured

is a feature of state law. C.R.S. §11-30-117.5.
171.

A state has the authority to determine what type of deposit insurance

satisfies state law requirements.
172.

Pursuant to C.R.S. §11-30-117.5(1), TFCCU may seek permission of the

Colorado Commissioner of DFS to obtain private share deposit insurance in which case
TFCCU would not be supervised, regulated, or examined by the NCUA.
173.

The statutory scheme is such that an FRB master account is the cart that

comes before the horse – the horse being share deposit insurance (either federal or
private).
174.

Pursuant to 28 U.S.C. §2201 and Rule 57 of the Federal Rules of Civil

Procedure, TFCCU respectfully requests this Court issue a judgment declaring that FRB-

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KC must grant TFCCU a master account at FRB-KC, pursuant to 12 U.S.C. §248a(c)(2)
which requires that “All Federal Reserve bank services covered by the fee schedule shall
be available to nonmember depository institutions and such services shall be priced at
the same fee schedule applicable to member banks, . . .” and in accordance with Federal
Reserve Banks Operating Circular No. 1 (Effective September 1, 2011) and the American
Bankers Association Routing Number Administrative Board Routing Number Policy
(Revised 3/12).
WHEREFORE, TFCCU prays unto this Honorable Court as follows:
1.

For a declaration directing FRB-KC to immediately grant TFCCU, a

Colorado state-chartered credit union, a master account at FRB-KC;
2.

For an order providing for a speedy hearing on this declaratory judgment

action, thereby advancing this cause on the Court’s calendar as permitted by F.R.C.P.,
Rule 57; and
3.

For such other and further relief as this Court may deem just and proper.

Date: July 30, 2015

Respectfully submitted,
s/ Mark A. Mason
Mark A. Mason
Gabrielle Z. Lee
Counsel of Record
THE MASON LAW FIRM, P.A.
Tidewatch Centre on Shem Creek
465 W. Coleman Boulevard, Suite 302
Mount Pleasant, South Carolina
Telephone: (843) 884-1444
FAX: (843) 884-3595
E-mail: mark@masonlawfirm.com
Counsel for Plaintiff

44