In July 2018, Home Secretary, Sajid Javid, announced that certain cannabis-derived medicinal products would be rescheduled under the Misuse of Drugs Regulations 2001 (‘the MDA Regulations’). This followed the widely reported cases of Billy Caldwell and Alfie Dingley who were granted Home Office controlled drug licences, enabling them to access cannabis oil to reduce epileptic seizures. The Government’s plans are progressing with this week seeing the NHS issue guidance to clinicians in anticipation of the rescheduling taking place, and the laying of regulations in Parliament, which subject to annulment by either of the Houses of Parliament, will come into force on 1 November 2018.
While the stories of Billy and Alfie may have been the catalyst behind the Government’s move, the picture internationally is of an industry that is growing at an exponential rate, with experts estimating that the global market in cannabis-derived products could be worth over $140 billion by the end of 2025. The market in medicinal products in particular is set to be truly international, with major players in the pharmaceutical and financial industries making moves to consolidate their positions in anticipation of what has been dubbed the ‘green rush’. Against this backdrop, these developments will undoubtedly be good news for UK investors, keen to support this exciting and progressive industry both at home and abroad. However, despite recent developments, the UK’s anti-money laundering regime looms large.
Controlled drugs and the law
A casual observer could be forgiven for thinking that the UK is heading in the same direction as Canada, where from 17 October 2018 it has been legal to produce, distribute, sell and possess cannabis, subject to complying with the provisions of the Canadian Cannabis Act. This is far from the case. Under the UK’s Misuse of Drugs Act 1971 (‘the MDA’) cannabis is, and will remain, a Class B controlled drug, which means it is an offence to cultivate, supply or possess cannabis without a controlled drug licence issued by the Home Office or the Medicines and Healthcare products Regulatory Agency. However, with the announcement that certain cannabis-derived medicinal products will be moved from Schedule 1 of the MDA Regulations to Schedule 2 – which lists drugs that have therapeutic value, but are highly addictive – it should become significantly easier for healthcare professionals to prescribe a wide-range of new or previously inaccessible products. There is already precedent for this; in 2010, GW Pharmaceuticals was granted a licence for the sale of their cannabis-derived medicine, Sativex, which is listed in Schedule 4 of the MDA Regulations.
Proceeds of crime
Where a controlled drug licence has been issued, any property generated as a result of associated commercial activities will not constitute criminal property within the meaning of the Proceeds of Crime Act 2002 (‘POCA’), the UK’s principal anti-money laundering legislation. The regime therefore provides a level of certainty for those who wish to do business and invest in the UK’s own domestic cannabis industry. The position is not as straightforward when dealing with property generated through overseas cannabis industries.
Sections 327-329 of POCA prohibit virtually any action in respect of criminal property, from concealing, converting and transferring to merely acquiring or possessing. Each section also includes a defence where a person knows or believes that the relevant criminal conduct occurred in a particular country outside of the UK, and the relevant criminal conduct was not unlawful under the criminal law in that country. This is known as the overseas conduct defence. However, with a few exceptions, the Proceeds of Crime Act 2002 (Money Laundering: Exceptions to Overseas Conduct Defence) Order 2006 (‘the 2006 Order’) effectively removes the overseas conduct defence for all conduct that would constitute an offence punishable by imprisonment for a maximum term in excess of 12 months if it occurred in the UK. The rationale behind the UK’s policy is that it is a money laundering offence to deal with ‘property’ which represents the proceeds of activity which would be a crime in the UK, even if that activity is lawful in the country in which it is carried out. ‘Property’ in this sense, includes income or revenue and any property traceable to that income or revenue.
The implications of the 2006 Order for UK investors hoping to do business in relation to overseas cannabis industries – such as in Canada, Uruguay and Jamaica – are far from straightforward. Taking the imminent change in the law in Canada as an example, as possession of cannabis for recreational use would be criminal conduct in the UK (punishable by up to 5 years’ imprisonment), any benefit derived from the same conduct in Canada would constitute criminal property if that property were to find its way onto the UK’s shores. Therefore, an individual or corporate entity in the UK undertaking any of the activities set out at sections 327–329 of POCA in relation to any such criminal property would be at risk of committing a money laundering offence.
In cases where lawful conduct overseas could also be lawful in the UK because it could be carried out under the UK’s licensing regime, careful consideration must be given to whether the respective licensing regimes correspond closely enough to avoid criminal liability. A ‘like for like’ comparison of the UK’s controlled drug licensing regime with that of another country is unlikely to be straightforward, with issues unique to the respective jurisdictions complicating the process. Equally, the question of how closely the two regimes would have to correspond to avoid criminal liability is far from clear. The recent announcement by the major insurance market, Lloyd’s, that it was satisfied that providing insurance for cannabis-related business in Canada would not breach POCA suggests that this is an issue experts are already considering in some detail.
Amber to green light
In the event of uncertainty as to whether property emanating from overseas represents criminal property, a suspicious activity report, or ‘SAR’, can be submitted to the National Crime Agency with a request for consent to proceed with a particular transaction (such consent amounting to a defence to the section 327-329 offences). However, the process of obtaining consent can be a lengthy and risks stifling business. On the other hand, the consequences of committing an offence under POCA are serious, with money laundering offences carrying sentences of imprisonment and the risk of freezing orders and confiscation proceedings. In view of these risks, it is inevitable that the impact of the Home Secretary’s announcement will be slower to take effect in relation to international trade and investment than in relation to trade and investment within the UK’s own domestic licensed cannabis industry. Despite this, and whatever the pace of change, it is clear that this humble plant is going to be big business.
David Hardstaff is an associate solicitor at BCL specialising in serious and general criminal litigation, motoring law, extradition, regulatory law and public law. He has particular experience in advising and representing individuals accused of sexual offences, drugs offences and offences involving violence. He is an experienced police station representative and advocate and represents clients in a broad range of proceedings at the Magistrates’ Court, Crown Court and Court of Appeal. David acts for professionals and high-profile individuals and has a reassuring appreciation of the pressures and strains that clients face when subject to investigation. David also advises witnesses and other individuals involved in criminal proceedings in relation to issues concerning reputation management and public relations.
Daniel Jackson is an associate solicitor at BCL specialising in serious and general criminal litigation. He has considerable experience of acting for individuals being investigated and prosecuted for sexual, dishonesty, violence, drugs and road traffic offences. He defends professional clients facing high-profile and complex criminal matters. Daniel regularly provides expert legal advice and assistance to those being interviewed under caution by the police and other investigatory bodies. He is effective at making representations, which avoid prosecution and result in no further action or lead to the case being discontinued during the court proceedings. Daniel also furnishes legal advice to potential prosecution witnesses. As a litigator and an advocate, he is tactically astute when it comes to case preparation.