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Washington • The Justice Department and federal banking regulators will help clear the way for financial institutions to transact business with the legitimate marijuana industry without fear of prosecution, Deputy Attorney General James Cole told Congress on Tuesday.

The issue has taken on greater urgency now that Colorado and Washington have become the first states to legalize recreational use of marijuana.

Currently, processing money from marijuana sales puts federally insured banks at risk of drug racketeering charges.

Because of the threat of criminal prosecution, financial institutions often refuse to let marijuana-related businesses open accounts. The problem occurs in states that have laws permitting medical use of marijuana.

In an appearance before the Senate Judiciary Committee, Cole said the absence of banking services is one that "we need to deal with" and that "we're working on it."

The congressional hearing was the first since the administration announced a new, more permissive enforcement policy. On Aug. 29, the Justice Department said it won't try to stop Colorado and Washington state from legalizing recreational marijuana use as long as they implement strong enforcement systems. Marijuana is an illegal drug under federal law.

At the hearing that highlighted the conflict between state and federal law on marijuana, Cole told the committee that, "We're at the point we're trying to find the best of the imperfect solutions before us."

Committee Chairman Patrick Leahy, D-Vt., said that as a result of the banking constraints, legitimate marijuana businesses are operating on a cash-only basis and "that's a prescription for problems, tax evasion" and other criminal activity.

Iowa Sen. Chuck Grassley, the committee's top Republican and co-chairman of the Senate Caucus on International Narcotics Control, said the Justice Department is "giving the green light" to an industry bent on breaking federal law.

Grassley said that Colorado has seen a sharp uptick in diversion of marijuana from Colorado to other states and increased use among minors.