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.
Article Source: jdsupra.com