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Money laundering challenges for cannabis businesses

What do cannabis businesses need to know when it comes to off-shore dealings and the risk of prosecution for proceeds of crime?

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Money laundering challenges for cannabis businesses

Wayne Atkinson, group partner at Collas Crill, discusses the complex criminal law surrounding cannabis businesses, and how the Bailiwick of Guernsey’s new position on proceeds of crime is attracting cannabis investors to the island. 

In Shakespeare’s Measure for Measure, Escalus, a lord, questions Pompey, a pimp, on his profession and asks him “is it a lawful trade?” Pompey replies, in a response beloved of well-read lawyers everywhere that it would be “If the law would allow it, sir.”

At its heart, this 400-year-old exchange and the question “is my trade lawful?”, is a question that will be a familiar one to many in the global cannabis industry, with recreational business becoming increasingly globally accepted in many nations but off the table in many others, and with varying levels of acceptable content and medical licensing requirements in different jurisdictions. This becomes even more of a challenge when one looks to use another jurisdiction, such as an offshore finance centre to assist with international structuring.

Almost everyone reading this will be familiar at some level with obligations to prevent money laundering and ensure people do not profit from the proceeds of crime. Of course, preventing this requires us to answer again the question: “What is a crime?” 

In many jurisdictions, laws relating to money laundering and the proceeds of crime attempt to impose their own standard on worldwide behaviour. Some jurisdictions for example talk (amongst other things) about conduct that constitutes a criminal offence under the laws of that jurisdiction, or which would constitute such an offence if it were to take place there. This is intended to ensure actions criminalised by particularly chaotic or despotic regimes in isolation do not get captured within the proceeds of crime regime. By taking this view, however, jurisdictions are imposing their own criminal system onto actions that are perfectly legal where they are committed, which is a tricky area, particularly with cannabis.

Imagine a situation where a business takes the best legal advice on offer in respect of its conduct in a specific country and is told everything is legal, but once that company pays a dividend to an investor in another jurisdiction that investor is considered to have “received the proceeds of crime”. This seems unduly harsh on the investor who has invested in what Pompey would call a “lawful trade”. Harsher still would be sanctions against that investor’s local bank, which failed to report that the monies it received for the investor were the proceeds of crime.  

Put in this situation, many financial services businesses feel they have no option but to throw the baby out with the bathwater and decline business which they feel is close to the line. The cost of cross-border legal analysis and the risk of sanction is simply too great to ignore. In some offshore jurisdictions, the position is even clearer – all cannabis business is off the table. 

Happily, recent legislative guidance from my own jurisdiction, Guernsey, has clarified our position and provided local service providers with the comfort they need to move forwards in this space. 

Last year, the Guernsey Policy and Resources Committee (effectively our equivalent of a Home Office), issued an Information Notice on Cannabis Cultivation and Production in Other Jurisdictions. That note helpfully clarified Guernsey’s own position, making clear that where drug-related conduct outside Guernsey generates proceeds, those proceeds only fall within the scope of our Drug Trafficking Law if the conduct that generated them is unlawful in the jurisdiction where it took place (subject to some limited exemptions not relevant to cannabis). 

This test of requiring an offence to have been committed in both jurisdictions is known as dual criminality and is obviously tremendously helpful in allowing for the proceeds of cannabis business (and other businesses involving potentially unlawful drugs such as psilocybin-producing fungi).

Going back to Pompey’s lawful trade, even this position can be confusing when one considers how complicated criminal law can be in and of itself. The same action could be lawful or unlawful depending upon one’s possession of a licence. Is it reasonable to expect offshore banks to distinguish between medicinal cannabis production in Canada, decriminalised cannabis production in California, hemp oil production in Suffolk and a hydroponic cannabis farm in an industrial part of London? All of these examples place a different legal analysis on the cultivation of plants of the genus Cannabis. 

Meanwhile florists in the UK frequently produce bouquets featuring the dried seed head of the opium poppy, Papaver somniferum, which is the same plant used to produce heroin in Afghanistan, but which has also been widely grown in Tasmania since the sixties for the lawful production of morphine and codeine. Gardeners in the UK can readily acquire opium poppy seed from major seed companies to beautify their borders and, by the way, that lemon and poppy seed muffin you are enjoying whilst you read this? Same poppy! The law is complicated.

To assist with this concern HM Procureur, Guernsey’s equivalent of an Attorney General, issued guidance making clear the Law Officers would only prosecute money laundering offences in respect of the proceeds of cannabis business where:

  1. That business is illegal in the foreign jurisdiction in which it is operated; and 
  2. The person involved had actual knowledge or suspicion that the proceeds of the Target Business are the proceeds of cultivation or production of cannabis-related activities which are unlawful where it occurs.

Whilst broader regulatory obligations in Guernsey still require businesses to make an effort to understand the legality of the business in question, this gives comfort around the risk of prosecution for an innocent mistake. 

The combination of these two clarifications means Guernsey’s institutions are increasingly open to cannabis business and we are already seeing investment funds formed in Guernsey specifically to invest into the sector. With Guernsey offering a well-regulated, efficient and easy-to-use company law regime ideally placed for outward investment globally, it is easy to see why this pragmatic and sensible guidance has led to it becoming the go-to offshore jurisdiction for businesses in the sector.

Wayne Atkinson
Group partner
Collas Crill

Politics & policy

Mayor of London urged to drop cannabis diversion pilot

The pilot would “send the wrong message to young Londoners” say MPs.

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Mayor of London urged to drop cannabis diversion pilot

15 MPs have written to the Mayor of London requesting he drop a pilot scheme that would divert young people away from the criminal justice system.

A group of Conservative MPs have urged Sadiq Khan to drop the proposed pilot scheme saying that it would have “wider ramifications than heightened violent crime”.

MP for Orpington, Gareth Bacon, publicly stated that: “Khan’s policing trial would send the wrong message to young Londoners. Cannabis is not harmless, and using it is not a victimless crime.”

The MPs state they believe the scheme, which they suggest in the letter will “effectively decriminalise” cannabis possession, risks inflaming violence in the city by funnelling cash into the pockets of criminals. 

The pilot scheme, which is similar to others being run across the country, has been put forward to be trialled in Bexley, Lewisham and Greenwich. It aims to divert 18 to 14-year-olds away from the criminal justice system if caught in possession of small amounts of cannabis.

The scheme intends to prevent young people’s lives from being blighted by criminal records for low-level crime and to provide counselling and drug education to mitigate the potential harms of drug use in the lives of young people.

Read more: London to trial new diversion pilot for cannabis possession

Drug reform group Volteface, which produced the Lewisham-commissioned report suggesting the scheme, has highlighted that it would not be effective decriminalisation but a diversion pilot.

Speaking to Cannabis Wealth, Katya Kowalski, head of operations at Voletface, commented: “I think what this shows is that there is a disconnect between what MPs are coming out and stating, what the media is coming out and stating, and what is actually taking place.

“There’s a lack of understanding around what this [scheme] actually is – stating that crime and violence will go up when, in fact, these measures are trying to prevent crime and tackle problematic drug use from its core. I think there is a disconnect and a lack of understanding around what decriminalisation actually means.”

National charity, Revolving Doors, which works to help decision-makers develop solutions “that address the underlying systemic faults that can trap people within the crisis-crime cycle”, pointed out that “diversion is not decriminalisation”.

In 2011, the Advisory Council on the Misuse of Drugs (ACMD) noted in a report that: “The ACMD also believe that there is an opportunity to be more creative in dealing with those who have committed an offence by possession of drugs. 

“For people found to be in possession of drugs (any) for personal use (and involved in no other criminal offences), they should not be processed through the criminal justice system but instead be diverted into drug education/awareness courses.”

Reform organisation Transform Drugs highlights that other similar schemes run throughout the UK and across the globe, however, show evidence that such programmes can prevent crime by reducing reoffending, reducing racial disparities in the criminal justice system and reducing some drug use.

Kowalski highlighted that the pilot scheme would help young people from vulnerable communities and is aiming to tackle racial disproportionality in the criminal justice system – particularly in London around drug possession.

Read more: New report lays out cannabis social equity principles for UK

“I think one thing that the MPs are disregarding is the fact this is a pilot scheme. It is not a widespread policy change. What the scheme is looking at doing is actually collecting evidence and seeing whether a scheme like this does lower reoffending, whether it does lower crime. I am confident that the results will come in and show that.”

Towards the end of 2021, the UK Government released its ten-year drug strategy that aimed to move away from treating drug use and addiction as a criminal matter, and towards treating it as a health matter. The strategy intends to cut crime and get more people into treatment.

Read more: Reform organisations respond to new UK drug strategy

“It is surprising that these MPs are coming out against the scheme as the UK drug strategy that came out at the beginning of December is in fact completely in line with this,” added Kowalski.

“There is a focus on diversion – moving away from criminalisation and towards a health approach for drug users. 

“I think [the letter] shows the reactive nature of drug policy, where people come out against it just because they feel like there is a kind of moral infringement. Drug policy creates a lot of immediate reactions and feelings rather than what the state of play is and what’s actually taking place.”

On January 4, a spokesperson for the Mayor of London said: “The idea of the scheme, which is already used by other police forces across the country, would be to divert young people who are found with a small amount of cannabis away from the criminal justice system and instead provide help and support. This has been shown to reduce reoffending.

“Reducing crime is the Mayor’s top priority and he will continue to explore and implement the most effective solutions to help to divert young people away from drug use and crime for good.”

“This is a great initiative to move young people away from exploitation and an illegal drug trade,” said Kowalski.

MP Gareth Bacon did not respond for comment at the time of publishing.

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Politics & policy

New report lays out cannabis social equity principles for UK

The new report for the UK’s legal cannabis industry has been published by the national centre of expertise on drugs and drugs law in the UK, Release.

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New report lays out cannabis social equity principles for the UK

Release has launched its new report exploring equity and social justice initiatives within UK cannabis reform.

In admittance to the failure of the War on Drugs, countries across the globe are adopting more progressive approaches to drug policy. In particular, addressing cannabis-related policy. 

The new report from Release highlights how the UK is lagging behind in this global conversation.

It states that the UK must repair the harms and historical injustices done by cannabis prohibition, and contains 14 equity principles to integrate into the UK’s future legal market to ensure a “just, fair and equitable cannabis market in the UK”.

The report, Regulating Right, Repairing Wrongs: Exploring Equity and Social Justice Initiatives within UK Cannabis Reform, is supported by 15 organisations including the Green Party and the Liberal Democrats for Drug Policy Reform.

The report states: “The foundations of cannabis prohibition and ethnicity are intertwined, and without recognising this legacy of racial injustice and the profound impact this has had (and continues to have) on Black and Brown communities, cannabis reform remains unfinished business.”

The disproportionate impact on minority groups

The report builds on the organisation’s national research which highlights the disproportionate policing relating to cannabis of ethnic minority and other disadvantaged groups.

It highlights that over half a million people are subject to police stop and search every year in England and Wales, with Black, Asian, and Minority Ethnic groups being more than 4.1 times more likely to be searched than White people.

The report states that: “The disparity is particularly pronounced for Black people, who were 8.9 times more likely to be stopped and searched than White people, despite being no more likely than the White population to use controlled substances.”

Read more: London to trial new diversion pilot for cannabis possession

With only 20 per cent of searches (2019/20) resulting in an outcome linked to the reason for the search, highlights the report, this inequity has resulted in Her Majesty’s Inspectorate of Constabulary and Fire & Rescue Services (HMICFRS) calling for a debate on the use of stop and search in the policing of controlled drugs.

Such harms surely need to be addressed imminently – however, one benefit of the UK’s lack of improvement on cannabis-related policy is that the country has the chance to implement best practice from the get-go, highlights report co-author, Amal Ali.

Ali stated: “The lack of progression to date in the UK means that thousands of people each year – disproportionately people from Black and other ethnic minority communities, and people living in poverty – continue to receive life-changing criminal records for cannabis-related offences. 

“The only benefit to our lack of progression is that we are able to observe and adopt best practice from other jurisdictions that have pioneered social equity models of cannabis reform. 

“We know that when these principles are not front and centre, people continue to be punished for cannabis use and the harms caused by the war on cannabis are not rectified.”

The report puts forward that any legal cannabis retail market “must adopt an anti-racist framework of policies and practices based on equity creation and must take steps to ensure diversity and inclusion among its actors”, as well as outlining a roadmap to prioritise and protect individuals vulnerable to the harms of prohibition in legal recreational markets. 

Katrina Ffrench, founder and director of Unjust UK, commented: “The UK is headed towards a future where cannabis is legal and regulated, and this report by Release highlights the steps we must take to ensure that equity and social justice are at the foundation of any legalisation effort. 

“Cannabis prohibition has disproportionately harmed Black, Asian and Minority Ethnic people and communities. 

“To repair these wrongs, any legislation should ensure that members of these communities are not just welcomed, but actively assisted and empowered in a new legal cannabis market.”

Justice models for cannabis reform

Looking towards justice models of cannabis reform in the US, the report’s principles are designed to ensure that “the same people who are locked up by punitive drug policies are not locked out of the legal market.”

The principles focus on:

  • Reinvesting tax revenue into over-criminalised communities and supporting harm reduction
  • Removing criminal or civil sanctions for use or possession of cannabis
  • Automatic release from prison for cannabis-related prisoners and expungement of past cannabis-related convictions
  • Non-commercial domestic cultivation of cannabis
  • Co-operative cannabis distribution models such as social clubs, among others.

Click here to read the full list of principles 

Co-author and policy lead at Release, Dr Laura Garius, commented: “The UK Government’s new drug strategy regurgitated a ‘tough on drugs’ rhetoric, despite the Home Office’s own research concluding that the estimated £1.6bn spend per year on drug law enforcement is not impacting levels of drug use. 

“Change is inevitable – cannabis is the most widely used illicit drug in the UK and the world, and it is simply too lucrative a market for politicians to ignore. However, we must make sure that cannabis will be regulated right. 

“The legal renaissance of cannabis is a vital opportunity to address the harm that cannabis prohibition has caused to Black and Brown communities and to people with lived experience of cannabis policing. 

“Social equity models of cannabis reform are already being developed around the world while the UK is left faltering behind. We must be prepared to follow in these footsteps and recognise that cannabis reform is not progressive if the harms continue for some.”

Senior Policy Analyst at Transform Drug Policy Foundation, Steve Rolles, stated: “The legal regulation of cannabis markets is no longer a theoretical discussion – it is being debated and implemented in jurisdictions on every continent. 

“The inevitability of change creates a responsibility on policymakers to ensure that reforms serve the needs of the whole community, not just the profit-seeking priorities of big corporate actors.

“This means hardwiring a clear social justice agenda into legislation from the outset, in particular making sure that the marginalised communities who carried the greatest burden of the drug war’s failure are able to share in the peace dividends.”

Read more: It is time for London to pilot a legal cannabis industry

The paper emphasises that social equity and public health must be the primary goals of cannabis law reform in the UK, concluding that: “The war on drugs has been a costly failure and despite the countless lives that have been devastated, it is estimated that globally $100bn is devoted per annum to enforcement-led approaches. 

“Despite the recent claims by current UK Prime Minister, Boris Johnson, that he has “absolutely no intention of legalising cannabis”, it is clear that the legalisation and regulation of cannabis for adult recreational use is fast approaching the UK, as demonstrated by the plethora of cannabis advisory companies and thinktanks that have emerged in recent years – and the influence of the market and lobbyists cannot be ignored. 

“When this occurs, civil society must be prepared to push for reforms grounded in principles of racial and social justice, and we must ensure that any new framework does not lock out the very people who are locked up by punitive and racially-biased policies.”

The report has been also been endorsed by leading research and reform organisations including Drug Science, the Beckley Foundation, LEAP UK, Harm reduction International and more. 

Release has published a signup form for any civil society organisation to sign should they wish to endorse the principles. Click here to find the form.

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Politics & policy

Italian signatures calling for referendum on cannabis have been verified

Divorce and abortion legalisation have also been introduced through popular referendums.

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Italian referendum: The Italian flag and buildings

Italian officials have confirmed that activists in Italy have collected enough signatures for a referendum in the Spring on cannabis.

Last year, activists in Italy handed in over 630,000 signatures calling for a referendum on cannabis. The Supreme Court of Cassation has confirmed that this is enough to trigger a referendum that could be held in Spring.

There is just one more step before this happens. The legality of the proposal’s provisions must be debated by a separate constitutional court.

The verdict will be issued on 15 February before a date for the referendum is confirmed. The purpose of this debate will be to decide if a yes verdict of the referendum would challenge the constitution, the Italian fiscal system or any international treaties.

On their Facebook page, the activist group calling for the referendum said: “Today the Court of Cassation informed us that the signatures we delivered in October are sufficient to call the #ReferendumCannabis next spring. It is wonderful news that we have been waiting for days. Now the last, fundamental opinion is that of the Constitutional Court which will be expressed on February 15th to fix the date of the vote. While we are waiting for the final ok we cannot sit idle, so we are starting to organise a national mobilisation to inform all citizens that cannabis is better legal.”

Italian law

In Italy, a popular referendum can be called if a petition secures over 500,000 signatures before a September 30 deadline. Campaigners from several pro-cannabis organisations and political parties managed to gather 500,000 in one week. If the public votes to decriminalise then it could mean the purchase, sale and cultivation of the drug will become legal under Italian law.

The referendum would seek to amend a 1990 law that makes cannabis sales punishable with two to six months in prison. It also makes possession punishable with the suspension of driving licenses. Although Italy initially decriminalised recreational cannabis in 1993, a 2006 law introduced penalties on consumers and tripled prison sentences until it was altered in 2014.

Under current law, consumers can be fined and have their personal documents such as a driving licence suspended.

The campaigners state that legalising cannabis could create thousands of new jobs and increase tax revenue for the state.

Referendum success

Supreme Court of Cassation has now verified the legitimacy of all signatures while the Constitutional Court will ensure the referendum question is in line with the Italian constitution. If all the signatures are validated then the President of Italy, Sergio Mattarella, can establish a date for the referendum. Italian citizens may vote yes to remove the article of narcotic law that criminalises cannabis cultivation for personal use and the penalties for possession.

If it is approved then Italy would become the fourth EU member state to legalise along with Portugal, the Czech Republic and Estonia. Italy was one of the first states to legalise medical cannabis in 2007.

The campaigners wrote on their Facebook page: “More than 500,000 online signatures in just a week for the #ReferendumCannabis. We celebrate them by thanking you one by one because this is a first and not just in Italy.

“But now the race continues, to secure this finish line we have very few days to collect many more. So with a smile, we keep sharing, explaining, taking to the streets, discussing because we know exactly what we want: legal cannabis and Italy free from the mafia.”

It is estimated that around 6 million Italians use cannabis. The European Drug Report stated around 1.8 per cent of adults in the European Union used cannabis daily. A recent poll has also shown that 47.8 per cent of those who participated are in favour of legalising cannabis in Italy.

Divorce and abortion legalisation in Italy was also achieved through the referendum process.

Cannabis cultivation

In 2021, it was announced that Italy could legalise the cultivation of up to four cannabis plants at home as part of reforms approved by the Lower House’s Justice Committee. While it legalised small-scale cultivation, the penalties for selling may increase from six to ten years.

Speaking with Cannabis Wealth about the prospect of cultivation in the home being legalised, Guido Silvestri, a board member for Volt Italia explains the reality of medical cannabis in Italy. Volt is a pan-European party that supports cannabis legalisation in all 30 countries where it is active.

“In principle in Italy, since 2006, doctors have been able to prescribe magisterial preparations containing cannabis-based active substances for medical use. The practice is unfortunately very different and cumbersome for patients.

“Doctor is never obliged to prescribe this therapy and many refuse even to consider cannabis as a therapeutic option because they do not know it. Even when the patient finds one of the few pharmacies ready to prepare cannabis (only 600 out of 19,000 total in Italy), they will likely experience the continuous cannabis shortage linked to very high demand and little supply.”

He added: “Many patients are therefore forced to buy cannabis on the illegal market or to self-cultivate it, with the risk of criminal investigation and trial, or administrative sanctions. In September, a proposal of law to decriminalise the home cultivation of a limited number of plants was eventually approved by a commission of the Parliament.”

He explains that there is already a backlash to the proposals to legalise: “Prohibitionist politicians have announced an avalanche of amendments to immediately and definitively crush the proposal. At this point, about a year and a half after the dissolution of the Houses, there is a high risk that Parliament will not be able to approve a text definitively, leaving patients unprotected and 6 million cannabis consumers in the hands of the Mafia.”

Guido commented on the petition: “Associations like Meglio Legale, Antigone, “Luca Coscioni”, together with few small and new parties, like Volt, Possibile, that supported cannabis legalisation in Italy, decided to try to collect the 500,000 signatures needed to set a referendum that eliminates the crime of cultivation and cancels administrative sanctions. For the first time in Italy, it is possible to collect signatures digitally; this is an innovation introduced only a few weeks ago.”

He concluded: “This is likely the consequence of the strong potential of the digital signature and the large distance between the sentiment of the population and the perception of the traditional political parties that seat in the parliament. The Italian population will eventually have the possibility to be informed and vote on cannabis-based on facts and not old ideologies.”

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