 Aloha and welcome to Business in Hawaii with Reg Baker. We broadcast live at 2 o'clock every Thursday here in the ThinkTech studios in downtown Hololulu in the Pioneer Plaza. We are stories, the show is about stories of successful business in Hawaii and I do have a couple PSAs, public service announcements that I'd like to get into that kind of highlights a little bit about the success stories. Now we've heard about Hawaii not being the best place in the country to do business. It's difficult, it's challenging, it's too expensive, etc, etc, etc. But I just wanted to highlight that the PBN last week had their fastest 50 and they awarded different rankings to 50 different companies throughout the state and I just wanted to mention that the 50th, the lowest ranked company in the PBN list, number 50 was the right slice which is from Kauai and she was a guest on here I guess about six months ago but their growth rate was 48.5%. Any company that can grow 48% in one year is successful and that was the lowest ranked one. And it would be interesting, I would imagine that there's well over several hundred companies that are growing at 10% to 15%, that's to me an indication of success here in Hawaii. So we do have success stories, we do have people that have made it work, yes there are challenges but the PBN list, the fastest 50 shows that we do indeed have people that can make it work here in Hawaii. A couple other quick announcements that I want to make before we get into our guest today. One, I just got a notice from the IRS and this is very timely with all the students going back to school. There is a new tax scam going around, there's being calls made to homes and they're asking for payments related to the federal student tax and that they're behind and their children will not be allowed to go to school, they might even be arrested so they need payment immediately for this balanced due on federal student tax. It's a scam, do not pay it, hang up and I would suggest that if you get any phone calls from the IRS or any tax department or agency for that matter demanding payment, don't comply, maybe give them a call back on a line that you can get somewhere that is on the internet or through the phone book if people still use that or call your CPA or tax advisor. Taxing agencies normally do not call up and make threats like that so be very careful and please avoid this federal student tax scam that's going on right now. As some of you may know I am on the national board for the Small Business Administration's Financial Regulatory Review Board, I'm the chair of the 9th region, we do have a round table coming up, people are invited if you're a small business and you have a complaint about a federal rule of regulation or a challenge you might have at the federal level, we'd love for you to come out to the round table and share that with us, that's on Tuesday August 23rd at the SBA district offices at Restaurant Roe, so love to see you there. And then finally the Hawaii Kai Chamber of Commerce is having a luncheon where I'm a speaker and I'm going to be doing a business update at that chamber luncheon, that's going to be out in Hawaii Kai on August 24th at the Outback Steakhouse, so hope to see you there. I'd like to jump right into the guest today, Steve Pengre, he's an attorney, he spends a lot of time criminal tax attorney, financial law issue, he's got a very broad background and very interesting website where he talks about some of this, he just wrote an article about some of the challenges that the medical marijuana industry has with bank accounts, he has some thoughts about that, but we're going to probably cover a lot of different areas it's got to do with criminal tax and foreign bank accounts and that sort of thing, but Steve it's great to have you back on the show. Thank you, it's a pleasure to reoccur. Yes, recurring returning guest, you just wrote this article and it talks a little bit about some of the issues with the banking side of the medical marijuana business, can you kind of share some of what you wrote about with us today? Sure, be happy to. The biggest problem that medical marijuana and marijuana businesses have nationwide is they do not have access to bank accounts and this creates a lot of problems as you can well imagine, first of all just the payment of their taxes, many taxes are paid through e-filing through your bank account, payment for anything for that matter and that's true and also you know the payroll taxes and that type of thing. The problem is and most people think it's just the banks don't like marijuana and they don't want to be involved with this kind of soared business and that type of thing, that's really not the truth because marijuana businesses earn a lot of money, gross income and they would deposit a lot of money in the banks so the banks would like to have the business. The problem is that still today marijuana is listed as a controlled substance on the scheduled one which means it's an illegal narcotic drug and it's illegal to possess or to traffic in it or in other words earn money from the sale of marijuana and we're to have any business that if you will touches marijuana proceeds so the banks are governed by the Department of the Treasury, what they call FinCEN, the Financial Crimes Enforcement Network and the Department of Justice and they have all these rules and regulations that deal with what they can and they cannot do. The problem is it's the risk that the banks run if they do deal because in 2014 the Department of the Treasury and the Department of Justice came out with some opinions basically that said the banks are allowed or given permission to deal with medical marijuana businesses if they follow certain know-your-customer protocol and certain anti-money laundering protocol due diligence type of protocol of their customers. The key is that the banks are allowed to engage with marijuana businesses if they are willing to assume the risk. What risk is that? Money laundering primarily and money laundering is basically the process of making dirty money look clean and what the banks are particularly concerned about is they don't know the source of the cash you know they don't know where it's coming from presumably it's coming just from this one business that happens to sell grow and sell marijuana here in Hawaii for example but the banks don't know that they don't know the customers they don't know the original source of the cash they're concerned that it may come from either black market marijuana sales or cartel you know organized crime and that sort of thing. Or other drug type you know which I think you just mentioned I mean there could be a lot of different drugs involved in this cash generation so that's that's true crystal meth opioids you know cocaine and so on. So the the banks have very strict criteria for I won't go into all of them but there's eight or nine criteria for vetting or examining their customers and all this doesn't directly relate to money laundering it does relate to increased regulation if you've ever tried to open a bank account in the last couple three years especially if you have a company trying to open a bank account you know that it's very difficult you can't just give them your driver's license and sign you know they require a tremendous amount of information. Well you know and I have a little bit of a bank background in the banking industry and I know sometimes when you open up the bank account it's not only particularly for a business not getting proper identification and all the different support for the entity itself but you're even required to go out and do a drive by the business and take a look at the business and make sure it's a legitimate address and it's not a post office box or something like that so you know they've gotten pretty serious about trying to have a really good handle on who the customer is. That's that's very true and what I've suggested in the article specifically for the medical marijuana businesses in Hawaii is a list of seven or eight what I would call anti money laundering protocols that the marijuana medical marijuana businesses could institute within their own house if you will so that they know their customers and they do do diligence and they keep records and they keep track and and that type of thing. And so this pushes the burden a little bit over onto the actual medical marijuana businesses themselves to do some of this know your customer work for the bank. Exactly and and the marijuana businesses need to understand that it's their responsibility to know their customers and to go to the bank and say look here's my state registration here's my Department of Health application here's all of my employees they're all the criminal background checks of all our employees you know in other words give the bank a comfort package so that the bank will will feel like the risk that they're taking has been ameliorated as much as possible. Now I would imagine that if they put these best practices into use at the business level they need to have some documentation of what they're doing right. Exactly and they can do that. You know they first of all when patients come in to buy medical marijuana they have to register and they're registered with the State Department of Health and all that's in the computers and the you know the dispensary if you will will know each and every patient you know and they of course have financial records and records of the that tie into the marijuana that they grew and that they sold so you can they can demonstrate that it didn't come from a black market outside source and that type of thing. You know some of what we've talked about in the past that I know you've got experience with is doing currency reports right you know and I would imagine there's there's going to be a lot of cash moving through here and so would the medical marijuana business be required to do these currency transaction reports. Yes first of all the business itself right in the beginning if they receive more than ten thousand dollars in cash this is kind of interesting but it's supposed to be from any one transaction so which is kind of interesting because most transactions are two three hundred dollars or something like that but anyway if they have received let's say in a day ten thousand dollars in cash they are probably required to fill out what's called a form eighty three hundred the receipt of more than ten thousand that's number one that goes to the IRS then when they go to the bank with their ten or fifteen or thirty thousand dollars in cash the bank will fill out what's called a currency transaction report that identifies the the depositor the customer and the source of the funds and all that sent to the IRS and then there's another report called a suspicious activity report or an SAR that the banks file unbeknownst to the customer if they feel that there's something that's not quite right you know the deposits are out of sync or that there's a sudden huge increase in cash deposits which might indicate that maybe the customers taken in a little extra money from a black market source and put it with their source. Would a series of nine thousand dollar deposits be suspicious? Absolutely that's called structuring your deposits you know in multiple deposits under the ten thousand dollar reporting limit to avoid the currency transaction report that's a felony it's a five-year felony two hundred fifty thousand dollar fine it's a serious they take it seriously there's also monetary penalties too yeah up to two hundred fifty thousand dollars plus a forfeiture of the funds so if it adds up yeah exactly well and so I guess in some respects it's better to over report than under report yes and in not in particular I mean all businesses should but in particular because the medical marijuana businesses are under such scrutiny and criticism if you will they should be very very well and I imply it until things settle down they're gonna be under a microscope and people gonna be watching them really close that's and there's and it's not just a currency there's a lot of compliance issues that I think is you know gonna be a way of life for some of the medical marijuana business but we're gonna have to go on a short break here believe it or not we just went right through the first 14 minutes there's a lot to talk about yeah no we're gonna take a short one minute break we're gonna come right back with Steve Pengray and we're gonna talk a little bit more about some of the criminal activity reporting that might be needed if you do a lot of currency or have for bank accounts we'll be right back Aloha my name is John why and I actually had a small part to do with what's happening today served actually in public office but if you don't already know that here's a chance to learn more about what's happening in our state by joining me for talk story with John why hey every other Monday thank you and I look forward to your seeing us in the future hi I'm Chris Leitham with the economy and you and I'd like to invite you each week to come watch my show each Wednesday at 3 p.m. hello I'm Marianne Sasaki welcome to think tech Hawaii where some of the most interesting conversations in Honolulu go on I have a show on Wednesdays from one to two called life in the law where we discuss legal issues politics governmental topics and a whole host of issues I hope you'll join me welcome back to business in Hawaii with Reg Baker we're here today with Steve Pengray we're talking a little bit about some of the criminal aspects of having formed bank accounts and having cash transactions in Hawaii we've got this new industry the medical marijuana industry it's slowly starting to get some momentum going and there are a lot of issues a lot of compliance challenges ahead of them we talked a little bit about how we can maybe set some procedures up where it might make it a little bit easier for the banks at least consider opening a bank account and Steve appreciate all your thoughts on this we're gonna maybe switch gears a little bit and get into a little of the foreign bank accounts it's been in the news a lot everybody's been talking about you got to report the foreign banks as some of the foreign bank entities themselves are sharing information with the Treasury and the IRS could you give us a quick you know summary what's going on here the United States government in the last within the last 10 years let's just say they had basically created all of these rules to force foreign banks to divulge information and turn it over to the United States Internal Revenue Service so of bank accounts held by US citizens in foreign bank account does it just us citizens are going to be like green card holders or that's a very good point it's any US taxpayer which is a US citizen a green card holder which is a US resident alien is what they call them a lot of green card holders don't understand that they have to pay us taxes just like a regular US citizen and also some businesses that do business in the US they may be foreign home but if they do business in the US they're considered a business tax person so there's there's two basic reports one is called an F bar or a foreign bank account report and this is a separate report from the tax return return itself right exactly and it has to be filed once a year by June 30th and it has to be filed online and essentially if you have a foreign bank account and you have more than $10,000 US value in that bank account at any given time during the year so it could go up and down at the end of the year if it's less than $10,000 if it broke $10,000 a year you got to report it exactly and most people many people don't know about the F bar report the foreign bank account report and a lot of people again who are resident aliens or green card holders they don't understand that they're treated just like US taxpayers there's there's a little nuance in there that I've I've read don't totally understand it maybe you can explain it it doesn't the account have to be in your name or do you just what if you have access to it you can get your hands on it if you have signatory can authority over a foreign bank account or if you have control over the foreign bank it doesn't have to be in your name that's correct but for example if you have a corporation or a company you know overseas in some foreign country and you know the owners or the directors or so on or somebody else but you're actually a majority owner or you own more than 10% of that corporation and so you have voting authority you have to file what if your mom is in a foreign country and you are you you're on the signature card and you can have access to that account but she's got twenty thirty thousand dollars over there you are required to file the F bar report because you have a count you know it's a big problem in Hawaii because we have a lot of people who are immigrants and that's why I brought that up is that there are a lot of these connections and the penalties for non-compliance are pretty stiff they're very stiff first of all if it's a willful non-compliance if somebody just says I don't want the government knowing my information and they don't file that's a criminal offense and it's punishable by prison and very large fines and a felony right and a felony that's correct the second is sort of a negligent but you know civil type of non-compliance and that those penalties can range up to 100% of the value of the account each year so filing it basically we're just talking about a reporting process correct and a lot of cases there's not a tax implication it's just a reporting process that's correct because many times some people you know have earned money in the U.S. and they deposit for whatever reason in the home country of their spouse for example and they've already paid tax and they've already paid taxes on it but if they earn interest or a return on that money then they have to pay tax on the income which could be nominal I mean on $20,000 the interest on that these days is not going to be a whole lot so yeah and you earn interest of a few hundred dollars the tax on it might only be twenty or thirty dollars you don't want to run and jeopardize anything that you've got by not reporting that's correct that's correct and you can find the report you go to irs.gov and look for forms and look for F bar I won't give you the number of it but just look for F bar report and you can find it online and and report it the other issue is on a person's tax return and this is there's two checkboxes on well you know better than I but on schedule B which follows schedule A there's there's two boxes and one says I do or do not have a foreign bank account in excess of ten thousand dollars okay that's yes or no the second one is I do or do not have a controlling interest in a business a foreign business that I forget what the number is more than fifty thousand dollars something like that you know I don't have more than fifty thousand financial assets in a foreign country and you check that box yes or no it's a you sign the tax return under a penalty of perjury so if you check no or tell your accountant to check no and then you sign under penalty perjury and that turns out not to be true then you are guilty of filing a false tax return which is a three-year felony and civil penalties and so on and from what I understand I think you shared with me earlier that they can confiscate the balance in the account that's correct that's but that's pretty stiff that's right the fines are up to twenty seven percent to a hundred percent of the account balance plus they can confiscate the account balance itself in a very egregious situation but still and it's a good time to bring this up because a lot of people excuse me are on extension right now and we'll be signing there of tax returns either the corporate return in what September 15th I think and then their individual return by October 15th so they really need to pay attention to schedule B they do and you know the reporting is a separate reporting it's you know if you do have the balances of 10,000 or more you do have to report them and it's not part of the tax return years ago I think there was a form you could attach but they stopped doing that so now you got to go online and actually file this report separately now some tax preparers could probably help you with that but not all of them you know and so you need to ask but it's not a difficult process but you do have to set up an account to do this online when you do it right you know and for the sake of filing this one report you it's wise to do it because the repercussions can be very very large that's true that's very very true everything that you just said and you know it's the comment basically is the government has been increasingly adding on and piling on these regulations not only to American taxpayers which takes time money energy and knowledge to which a lot of people just don't have in this area but also foreign banks there's another new law called the foreign account compliance tax act factor they call it which came into enforcement in the 2015 which requires foreign bank accounts that's probably the IRS calling to get name and number and something like that they were saying I owe them money by the way parenthetically the to go back to what you talked about in the beginning the IRS never calls people to collect money never so anytime someone calls on the phone and says I'm from the IRS and you owe us money and we're gonna sue you that's a scam that's always good to know they never call and sometimes they can be very aggressive and scary and people can get intimidated and so don't let that happen if you're intimidated just hang up exactly you don't have to listen to them just remember they never the IRS never calls people so unless you have an appointment where were we over the factor the the foreign account compliance tax act requires all about a hundred plus banks institutions and their branches of course throughout the world to report the account information of all US taxpayers to the US Internal Revenue Service how do you like that and you know you say well why would the foreign banks want to do that and that it's because the US government has said if the foreign banks do not cooperate they do not have access to the American capital market that's huge you know better than I that's huge well I mean just think of all the transactions that take place in New York and San Francisco through the Federal Reserve System the clearing of the checks right you know we're not just talking about deposits we're talking about the entire movement of money on an international basis which at one point or another almost always gets into the US banking system right you know and not having access to that could actually ruin the bank mm-hmm and which is why over a hundred and some odd foreign banks have signed up and and again this isn't just you know one bank in one country it may be one big bank in a country with 500 different branches right you know and but anyway that's those are things to be very aware of right now is if you have a foreign bank account if you are married to a person who is from another country and has family in the country like you talked about the German person their family may in in a foreign country have bank accounts or property that also have the names of the children who happen to be US citizens on the accounts and really create a big problem we're in a final minute or so of the program and so I just wanted to we've been talking a lot about individuals but if there's a foreign company that say is in Hong Kong or Japan or China and they have a bank account in a foreign bank but they're doing a lot of business in the US what kind of reporting requirements would they have businesses that operate in the United States and you know earn income in the United States it as a general rule are treated just like us taxpayers now they're not taxed on their worldwide income for example the Japanese shareholders in Japan but the business in the US is taxed and also the beneficial owners of that American business have to report any foreign bank accounts that they may write in those bank accounts again may not trigger a tax it's just a reporting process that they have so all right very good well you know Steve it's always a pleasure to have you on that the show you always scare the bejiggers out of us I don't mean to do that but you know but this is important for people to know because if you know to get into something that could come as a surprise down the road would not be good and so it's good to know this stuff so we can take some steps to protect ourselves so thank you very much you're quite welcome this is business in Hawaii with Reg Baker we broadcast every Thursday at 2 o'clock we try to highlight the difference success stories in Hawaii and have topics that are important to the small business community so thank you for tuning in today and hope to see you next week