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Thailand, Weed and Banking (2)

Yesterday we looked at how we got where we are. Today we look at how we deal with where we are as money from the cultivation and trade in marijuana becomes legal in Thailand.

Some of Thailand's near neighbours have the most severe of penalties for possession of drugs: while Malaysia has recently removed mandatory death penalties (they remain an option open to the Judge at trial), Singapore has recently enraged many around the world by executing a man of limited intellectual capacity: in Singapore possessing a quantity of a drug such that it might indicate dealing does not require proof of intent and so capacity is not relevant.

In Laos possession of cannabis can result in a sentence of 20 years in jail and dealing with a sentence of death. Bizarrely, some possession of some other illegal narcotics have a maximum jail sentence of 12 years. In Myanmar, the principle producer in the Golden Triangle, the penalty for possession is a minimum of five years and for trafficking a minimum of ten years, says Frontier Myanmar.

The article says that in Myanmar the Dark Web is a step too far and that the trade "largely plays out in open groups on Facebook – much like every other aspect of the country’s online life". Some 45,000, more than half of the total prison population, are in jail on drugs offences. It is the move towards methamphetamines that is currently driving the country's drugs trade, the article says.

Surprisingly, the Frontier says that online weed dealers are often selling product grown in Thailand or Laos. It also says that FinTech WaveMoney is at the centre of the payments system for weed transactions because it can be used anonymously. But it's real money, not crypto. This is relevant because it demonstrates that, even when growing cannabis was a crime in Thailand, and despite the crop replacement schemes mentioned yesterday, there was nevertheless a thriving illegal trade. Making domestic possession and use legal does nothing to reduce that trade and increases the supply available for export.

In the "arrivals hall" at Singapore Immigration there are signs reminding citizens and permanent residents that it is illegal for them to consume, anywhere in the world, drugs which are illegal in Singapore. When the Netherlands relaxed its laws on marijuana, British customs were almost aggressive in stopping passengers arriving from there and special attention is paid to their luggage and pockets even today. Will arrivals from Thailand be subject to similar attention? There seems to be no good reason why they should not. Even a small amount smuggled and sold in e.g. Malaysia, can cover the costs for a short trip to pretty much anywhere in Thailand.

The three situations

There are three basic situations to be considered when looking at the inter-jurisdictional approaches to money legally acquired in one jurisdiction relating to conduct that is illegal in another jurisdiction.

The first is that in the USA. In the USA, the states have considerable autonomy over what happens within their own borders. There are, in many areas of law, conflicts between the laws in one state and the laws in another and, in addition, with federal law. It's not only drugs: age of consent for sex, for marriage, divorce laws, gun laws, driving licences and, as we now know, abortions. Mostly, these matters remain under the exclusive jurisdiction of the states so long as the conduct remains in the state. But in relation to financial crime, things get muddy. Each state has some kind of law relating to money laundering. They are not consistent with each other and several are not consistent with Federal Law. Yet, where there is inter-jurisdictional movement of money or messages relating to the crime that becomes a federal matter. Where the federal authorities want to obtain jurisdiction over an offence, they add money laundering and/or wire fraud charges to the indictment and that elevates a state-only matter to federal. So any inter-jurisdictional banking arrangements (and these days that's most of them) gives federal authorities a reason to look at any financial crime.

This is where the trouble begins: if a cannabis grower in Denver sells to a shop in the town, there is no problem - until a bank transfer is made. There's no point in trying to use crypto because by definition all crypto-transactions are recorded outside the state and that's (under the very wide interpretation of the term that the US courts have adopted) wire fraud even though there is no element of one party defrauding the other. The scale of the lack of access to financial services by cannabis growers and legal retailers is explained by Bespoke Financial. "State-compliant cannabis businesses cannot accept credit cards, access loans, set up deposit accounts, write cheques, pay taxes, or operate payroll without a cannabis-friendly bank." But, the article says, despite attempts by state politicians to create an environment that enables such banks, " efforts have been unsuccessful due to worried bankers." In the USA draft legislation is called an Act, not a Bill. So while you might read about the Secure and Fair Enforcement Act, intended to protect bankers providing services to legal marijuana businesses, it's not actually legislation. It's often called the SAFE Act or the SAFE Banking Act. It has a lot of support: 180 at last count. It was introduced in 2019 and it's still making progress - but slowly. It passed the House in Mid April 2021.

That Bill, if eventually passed in more or less its present form, is described by its sponsors thus:

"This bill generally prohibits a federal banking regulator from penalizing a depository institution for providing banking services to a legitimate cannabis-related business. Prohibited penalties include terminating or limiting the deposit insurance or share insurance of a depository institution solely because the institution provides financial services to a legitimate cannabis-related business and prohibiting or otherwise discouraging a depository institution from offering financial services to such a business.

Additionally, proceeds from a transaction involving activities of a legitimate cannabis-related business are not considered proceeds from unlawful activity. Proceeds from unlawful activity are subject to anti-money laundering laws.

Furthermore, a depository institution is not, under federal law, liable or subject to asset forfeiture for providing a loan or other financial services to a legitimate cannabis-related business.

The bill also provides that a federal banking agency may not request or order a depository institution to terminate a customer account unless (1) the agency has a valid reason for doing so, and (2) that reason is not based solely on reputation risk. Valid reasons for terminating an account include threats to national security and involvement in terrorist financing, including state sponsorship of terrorism.

It means "reputational risk." For the purposes of this article, we don't need to go into the detail of the Bill. Suffice it to say that the purpose is to produce a federal law that says that inter-jurisdictional activity relating to the proceeds of the legal marijuana trade will not be subject to action as money laundering under federal law. It also provides that any financial institution, etc. that provides financing from the legal marijuana trade will not be subject to federal action for financing a criminal activity. While this provides an interesting perspective for other jurisdictions to follow there remains the fact that it's been stalled in Congress for more than a year. In fact, it's been sitting in the Senate since 20 April 2021 where it has been read twice and referred to the Committee on Banking, Housing and Urban Affairs - the Committee that is most famous, in money laundering terms, for the work of the late Senator Carl Levin. The Bill's record has not been updated since that date.

But it is due for a hearing on 26th July, 2022. That's going to be an interesting meeting.

While we wait for that, it's worth considering whether such a law can operate across the other two situations. See Part Three on Monday.

Further Reading. here

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Nigel Morris-Co...