Can the UK Solve its ‘Money Laundering” Problem with the Proceeds of Medicinal Cannabis? – John Binns and David Hardstaff write for IPI Magazine

Can the UK Solve its ‘Money Laundering” Problem with the Proceeds of Medicinal Cannabis? – John Binns and David Hardstaff write for IPI Magazine

BCL partner John Binns and Associate David Hardstaff’s article ‘Can the UK Solve its ‘Money Laundering” Problem with the Proceeds of Medicinal Cannabis?’ has been published by International Pharmaceutical Industry Magazine.

Here’s an extract from the article:

The manufacture, marketing and supply of medicinal cannabis products raise complex regulatory issues in the jurisdiction where those activities take place. These go beyond the issues applicable to medicines in general, even some whose potential harms are far greater, due to the cultural and moral judgements that have been applied to cannabis for many years. Inevitably, there is a large and growing variation in the level and nature of regulation that applies in various jurisdictions, with some countries having gone as far as to legalise cannabis in general (including for recreational use), and others being slow even to allow medicinal products in which cannabis is an ingredient.

A Restrictive Environment

The UK is, broadly speaking, at the more conservative end of that spectrum for the moment, allowing some bespoke and restrictive exceptions for medicinal cannabis products, while keeping its general prohibition in place. Just as important, however, given its importance as a global financial centre, is its regulatory approach to those who invest and trade in the shares of overseas businesses that sell cannabis products. There, thanks to a quirk in its notoriously restrictive money laundering laws, the UK has cast a dark and discouraging shadow over the prospects for major investment in the medicinal cannabis industry. Now, however, an announcement from its Financial Conduct Authority (FCA) has hinted at a potential way forward, and at the time of writing, the first listing of a cannabis company on the London Stock Exchange has taken place, with several other following closely behind.

The starting point for the UK, as for many countries, is that cannabis, and certain derivatives of cannabis such as THC, are controlled drugs, so that various actions in relation to them (including possession, supply, import, export, and cultivation of the cannabis plant) are criminal offences, punishable with imprisonment, unless done in accordance with licences. The primary legislation, which creates the offences, is the Misuse of Drugs Act 1971 (MDA), while the detail of licensing arrangements is contained in secondary legislation, including the Misuse of Drugs Regulations 2001 (MDRs), and in guidance issued by a division of the Home Office, the Drugs and Firearms Licensing Unit (DFLU). It is by way of changes to the MDRs and the guidance that the approach to medicinal cannabis has changed over recent years, as attitudes towards the therapeutic value of cannabis have become more favourable.

The POCA Problem

The problem with the UK’s money laundering laws, and how they apply to the proceeds of overseas cannabis business, comes from the provisions of the Proceeds of Crime Act 2002 (POCA), which prohibit as ‘money laundering’ virtually any dealings with the proceeds of ‘criminal conduct’, and go on to define that term to include conduct overseas that would breach UK law, if it occurred here. There are exceptions where that conduct was lawful where it occurred, but these have been disapplied for most offences that carry a maximum penalty of over 12 months’ imprisonment, which include the principal offences under the MDA. So, taking the MDA and POCA together, it would seem that to deal with the proceeds of (even lawful) overseas cannabis products overseas would constitute money laundering under UK law.

This has all sorts of impacts beyond the merely theoretical (the prospect of a UK investor in Canadian cannabis being arrested, let alone prosecuted or convicted, for that conduct being very remote), principally because of the way the financial sector has been co-opted into the UK’s anti-money laundering (AML) systems. For a UK bank, the regulatory risks of operating an account that might contains the proceeds of ‘criminal conduct’ are severe, which in turn means that it can be strongly in their interests to rule out such risks by turning away customers, submitting covert reports on them to the NCA, or even freezing accounts. Some banks have precautionary policies that prohibit the receipt of funds from (even purely medicinal) cannabis business.

This article was originally published by IPI Magazine. You can read the full article on their website here.

John Binns is a partner at BCL specialising in all aspects of business crime, with a particular interest in confiscation, civil recovery and money laundering under the Proceeds of Crime Act 2002 (“POCA”). His business crime experience includes representing suspects, defendants and witnesses in cases invoking allegations of bribery and corruption, fraud (including carbon credits, carousel/MTIC, land-banking, Ponzi and pyramid scheme frauds), insider trading, market abuse, price-fixing, sanctions-busting, and tax evasion. He has coordinated and undertaken corporate investigations and defended in cases brought by BEIS, the FCA, HMRC, NCA, OFT, SFO and others.

David Hardstaff is an associate solicitor at BCL specialising in criminal and regulatory law. He advises individuals and companies in relation to controlled drug licensing and AML/Proceeds of Crime considerations in the context of the domestic and international cannabis market. 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.