Banking on Weed a Risky Business

Oct 13, 2015   

By James Whittaker
October 13, 2015

Providing banking services to a growing number of legitimate marijuana operations in the U.S. would still be considered money laundering in the Cayman Islands, an international expert warned Friday.

Speaking at the AML/Compliance and Financial Crime Conference on Friday, Miami lawyer Andrew Ittleman outlined the regulatory nightmare facing banks that offer financial services to marijuana businesses – legal in certain states, but technically still considered drug trafficking under federal law.

As Jamaica moves toward legalization of cannabis, Mr. Ittleman believes other Caribbean countries will follow suit. The anti-money laundering specialist said they should look to the U.S. as an example of how not to do it.

The conflict between U.S. state and federal laws on marijuana is creating issues for growers and sellers, as well as for banks that do business with them.

The federal government still technically considers the profits from marijuana business to be the proceeds of crime.

While banks are permitted to offer services to such businesses, many are shying away from doing so because of the strict regulatory environment.

The conflict is also an issue for any Cayman Islands banks or investment funds that want to move into the legal marijuana business.

“Because the sale and consumption of cannabis is still a crime in the Cayman Islands, a bank providing financial services to [a] licensed marijuana business would be deemed to be money laundering,” Mr. Ittleman, a partner at Fuerst Ittleman David & Joseph, told the Cayman Compass.

“Whether there is going to be enforcement of that is a whole different issue,” he said.

He believes the impasse is creating more problems than it solves, putting an unreasonably high cost of business on legitimate marijuana startups and forcing them to the black market for financing.

Answering questions at the event, organized by Global Compliance Solutions, at the Marriott resort, Mr. Ittleman said governments and financial services regulators needed to find a better way of dealing with such high-risk businesses.

He said the marijuana trade was big business with $3 billion in legal sales last year and a further estimated $40 billion in black market sales. As more of that business becomes legitimate, he says there will be huge opportunity for financiers.

But draconian “know your customer” requirements, including the filing of suspicious activity reports, are holding back banks from getting involved.

“There is huge opportunity here for somebody,” Mr. Ittleman said. “The cannabis phenomenon is not going away. It is developing a foothold in Jamaica. It is fair to assume, given the popularity of the drug in the Caribbean, that other countries are going to start seeing what is happening in Jamaica and saying, ‘us too.’

“There is an opportunity to build an industry that will create jobs, but there are legal issues that governments will have to be mindful of.”

Mr. Ittleman drew comparisons with current issues around money transfer services in Cayman, where the cost of compliance with a toughening regulatory environment has been cited as one of the reasons banks are pulling out of the business.

He believes banks and regulators need to build programs for high-risk businesses as opposed to kicking them out.

“It is not enough just to throw out high-risk business and allow the black market to take over.” 

Providing a full suite of banking services, from payroll to credit, and charging to do so would allow banks to have the inside information required to meet compliance requirements and recoup some of the costs, he predicted. 

While cannabis remains a Schedule I drug in the U.S., the environment will be “uncomfortable” for banks, he said. But once the smoke clears and the protocols for handling investments and profits in the legal marijuana industry become clear, he says there is enormous opportunity.

“Someone is going to get very rich,” he said.

To view original article, click here.