California man convicted of bank fraud for hiding pot transactionsBy robertslaw, In White Collar Crimes, 0 Comments
It’s not easy selling the green. Marijuana is legal, at least for medical use, in most U.S. states (it’s not yet allowed here in North Carolina), but it’s still illegal federally. That has gummed up the banking system for cannabis companies. Banks are afraid of being linked to illegal drug transactions or accused of helping with money laundering, so they refuse to provide any services for companies selling marijuana or its derivatives.
Banks’ refusal to open accounts for so-called “cannabusinesses” means that these companies must operate entirely on a cash basis. That means having a lot of cash on hand, paying bills and taxes with cash and going without the conveniences of electronic transfers and automatic payment processing.
Unfortunately, that puts cannabusinesses at great risk for burglary and robbery. According to one report, Oregon cannabis dispensaries have suffered at least 135 robberies and armed burglaries since May 2020. In Montana, two medical marijuana dispensaries got burglarized on the same day in March.
That has prompted lawmakers to introduce the SAFE (Secure and Fair Enforcement) Banking Act, which would create safeguards for banks for any marijuana-related business they do. They’ve been introducing it every year since 2013.
California cannabusiness man gets 2-1/2 years
Recently, one California cannabusiness man was sentenced to 2-1/2 years in federal prison for one count of conspiracy to commit bank fraud. He apparently organized an elaborate scheme involving fake websites, paper companies and even fake customer service centers in an effort to convince banks and credit unions to process cannabis sales.
The California man, along with a German co-defendant, worked as consultants for a marijuana company called Eaze Technologies. According to prosecutors, the pair disguised cannabis purchases as purchases of other types of goods ranging from dog products and carbonated drinks to face creams and even diving gear. These goods, being federally legal, are not problematic for banks.
Unfortunately for the two consultants, Eaze Technologies cooperated with prosecutors, which apparently led to the detection of the complex fraud scheme. Eaze’s former CEO pled guilty to one count of bank fraud conspiracy. He testified at the California man’s trial.
“This is not simply a matter of banking. The inability of these state-legal entities to bank their significant cash reserves is an issue of public safety,” wrote a bipartisan pair of senators recently as they urged their colleagues to schedule a markup for the SAFE Banking Act.
No one is suggesting that cannabusinesses should attempt to hide the nature of their transactions from the banks they use. Still, it’s worth noting that the California man was trading in a product that is perfectly legal in California. And, he wouldn’t have needed to invent such a scheme if the SAFE Banking Act were law.