Bank Fraud Trial Highlights White Collar Enforcement Risks For Cannabis Industry – Cannabis & Hemp – United States – Mondaq News Alerts

United States: Bank Fraud Trial Highlights White Collar Enforcement Risks For Cannabis Industry

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The trial of two men associated with an online cannabis
marketplace began last week in the Southern District of New
York.  Prosecutors seek to prove that Hamid Akhavan and Ruben
Weigand, two businessmen who worked with the online platform from
2016 to 2019, conspired to commit bank fraud by disguising credit
and debit card transactions for cannabis purchases as transactions
for non-cannabis purchases.  While selling cannabis remains
illegal under federal law, the case demonstrates how cannabis
businesses face white collar enforcement risks unrelated to
drug-trafficking charges.   

There are a number of online cannabis marketplaces that allow
customers to purchase cannabis products from a network of
dispensaries.  One of the key aspects of the marketplace
Akhavan and Weigand worked for was that, until 2019, it allowed
customers to make purchases with credit cards and debit
cards.  This was significant because U.S. financial
institutions generally avoid transactions related to the cannabis
industry because cannabis remains illegal under federal law.

On March 31, 2020, Akhavan and Weigand were indicted with
conspiracy to commit bank fraud in violation of 18 U.S.C. §
1349.  The indictment alleged that from 2016 to 2019, Akhavan,
Weigand, and other unnamed co-conspirators engaged in a „Transaction Laundering Scheme” to deceive banks into
processing over $100 million in credit and debit card payments to
cannabis retailers by disguising transactions as payments to dummy
businesses unrelated to cannabis.  The defendants allegedly
disguised the money received from customers as payments to phony
online merchants and other non-cannabis businesses, including
businesses purportedly selling dog products, dive gear, carbonated
drinks, green tea, and face cream.  To facilitate the scheme,
the cannabis marketplace allegedly relied on a third party payment
processor to create sham offshore corporations, as well as websites
and offshore bank accounts for the dummy businesses.  The
indictment also alleged that the defendants instructed others to
use false credit card and debit card transaction codes in order to
create the false appearance that the transactions were unrelated to
cannabis.  The defendants allegedly used the offshore bank
accounts to disguise payments to the cannabis marketplace,
concealing the true nature of the payments from U.S. banks. 
The marketplace itself was not charged.

On February 19, 2021, the former CEO of the online marketplace,
James Patterson, pleaded guilty to one count of conspiracy to
commit bank fraud and agreed to assist in the prosecution of
Akhavan and Weigand.  Patterson admitted that he worked with
Akhavan and Weigand to hide the true nature of the purchases
because he „understood that if banks were aware of the nature
of the transactions they would not allow them.”

Regardless of the outcome of the trial, the prosecution shows
that financial compliance is another legal pitfall for cannabis
businesses to avoid.  In a way, the case may also be a symptom
of a maturing industry—every established industry has its
share of white collar crime, and the Department of Justice’s
choice to prosecute financial misconduct instead of traditional
drug-dealing charges may reflect the government’s recognition
of the industry’s legitimacy.  As the industry continues
to grow, cannabis businesses must ensure that they maintain
policies promoting financial transparency.  Cannabis
businesses should also be diligent with financial services
companies they work with to ensure that they also maintain honest
business practices.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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