John Binns writes for Thomson Reuters discussing cannabis and money laundering

John Binns writes for Thomson Reuters discussing cannabis and money laundering

Public attitudes toward cannabis have changed in recent years, however the UK law, has lagged, which paired with the requirements imposed by the UK’s money laundering laws on the regulated sector may result that the legitimate transactions may be turned away or blocked unnecessarily. BCL partner John Binns writes for Thomson Reuters discussing the challenges the cannabis and cannabidiol industry may present for those charged with identifying and reporting money laundry.

Here is a short extract from the article*. If you wish to read the full article, please visit Thomson Reuters website.

The cannabis and cannabidiol industry can present a problem for those charged with detecting and reporting money laundering, but the risks can be overstated.

Failure of common sense?

Public attitudes toward cannabis have shifted in recent years, to the extent that the international industry in both medicinal and recreational products containing cannabis — and its non-psychoactive component, cannabidiol (CBD) — is increasingly recognised as legitimate and lucrative. UK law, despite some relaxation on the medicinal side, has lagged significantly behind, however.

This, paired with the notoriously strict requirements imposed by the UK’s money laundering laws on banks and others in the regulated sector, means there is a risk that lawful, legitimate transactions may be turned away or blocked unnecessarily, for no obviously good reason. Is there a way through the legal risks to approach something more like common sense?

Controlled drug prohibitions

The starting point is the prohibitions under the Misuse of Drugs Act 1971 on various acts, including the import, export and supply of controlled drugs, which include cannabis itself and its psychoactive component, tetrahydrocannabinol (THC).

Those prohibitions can be disapplied by exemptions and licences under the Misuse of Drugs Regulations 2001, which:

  • define “exempt products” by criteria including a maximum THC level of 1 mg in each product; and
  • establish a licensing route via the Home Office, which now enables (subject to stringent restrictions) the prescription of cannabis-based
    products for medicinal use (CBPMs).

Money laundering laws

The Proceeds of Crime Act 2002 (PoCA) prohibits various acts — broadly, handling and entering into arrangements in connection with the proceeds of “criminal conduct”, which includes conduct overseas that would breach UK law if it occurred there, subject to exceptions including:

  • where consent is granted (or “deemed”, if not refused within a notice period of seven full working days), in practice by making a
    suspicious activity report to the National Crime Agency (NCA); and
  • where the conduct took place overseas and was lawful when and where it occurred, although this has been disapplied by a Home
    Office order in 2006, where the maximum sentence for the conduct in the UK exceeds a threshold of 12 months’ imprisonment.

Banks and others in the regulated sector, including solicitors, when conducting corporate or transactional work, are also obliged to report where they have reasonable grounds to suspect someone is money laundering (in the UK, or equivalent conduct abroad).

CBD, medicines and novel foods

To add to the complications:

  • While CBD is not itself a controlled drug, Home Office guidance says that CBD products often contain THC, in which case they would be controlled. In practice, although not without some ambiguity, retailers of CBD products have relied on the exempt product provisions in the Misuse of Drug Regulations, although, because the threshold is 1 mg, rather than a percentage as in other jurisdictions, these are less useful for importers and manufacturers.
  • CBPMs, like all medicines, are subject to various restrictions in the Human Medicines Regulations 2012, enforced by the Medicines and Healthcare Products Regulatory Agency (MHRA).
  • CBD food supplements, which traditionally steer clear of making medical claims, so that the Human Medicines Regulations do not apply, are subject, thanks to the Novel Foods (England) Regulations 2018, to a process of authorisation by the Food Standards Agency (FSA), which has been somewhat controversially applied.

*This article was first published by Thomson Reuters on 06 May 2022. If you wish to read the full article, please visit Thomson Reuters website.

Please note that you will need a subscription with Thomson Reuters to access the article.

 

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.

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