United States:

Bank fraud study highlights the risks of white-collar crime enforcement for the cannabis industry

March 13, 2021

Sheppard Mullin Richter & Hampton

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The trial of two men connected to an online cannabis marketplace began last week in the southern borough of New York. Prosecutors want to prove that Hamid Akhavan and Ruben Weigand, two business people 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 the sale of cannabis remains illegal under federal law, the case shows how cannabis companies face enforcement risks unrelated to drug trafficking fees.

There are a number of online cannabis marketplaces where customers can purchase cannabis products through a network of pharmacies. One of the main aspects of the market Akhavan and Weigand worked for was that by 2019, customers could make purchases using credit cards and debit cards. This was important in that 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 charged with conspiracy to commit bank fraud in violation of 18 USC § 1349. The indictment alleged that Akhavan, Weigand, and other undisclosed co-conspirators were involved in a “transaction laundering” scheme from 2016 to 2019 to deceive banks into making credit and debit card payments worth over $ 100 million in cannabis Process retailers by disguising transactions as payments to bogus non-cannabis-related companies. The defendants allegedly disguised money received from customers as payments to fake online retailers and other non-cannabis companies, including companies that allegedly selling dog products, scuba gear, carbonated drinks, green tea, and face cream. To simplify the program, the cannabis marketplace allegedly relied on a third-party payment processor to serve bogus offshore companies, as well as websites and offshore bank accounts for the dummy companies The indictment also alleged the defendants would have directed others to use bogus credit card and debit card transaction codes to create the false impression that the transactions had nothing to do with cannabis. The defendants allegedly used the offshore bank accounts to disguise payments to the cannabis market and to hide the true nature of payments from US banks. The marketplace itself was not burdened.

On February 19, 2021, the former CEO of the online marketplace, James Patterson, pleaded guilty to a conspiracy to commit bank fraud and agreed to assist in the prosecution of Akhavan and Weigand. Patterson admitted that he had 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, prosecutors show that financial compliance is another legal threat that cannabis companies should avoid. In some ways, the case can also be a symptom of a mature industry – every established industry has its share of white-collar crime, and the Justice Department’s decision to prosecute financial misconduct instead of traditional drug trafficking charges could reflect the government’s recognition of the industry’s legitimacy . As the industry continues to grow, cannabis companies need to make sure they are following guidelines promoting financial transparency. Cannabis companies should also work diligently 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 general guidance on the subject. A professional should be obtained about your particular circumstances.

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