Banking

Eaze Case Puts Financial Institutions on Notice

On March 24, 2021, Defendants Hamid (Ray) Akhavan and Ruben Weigand were found guilty of defrauding banks as part of a scheme they had set up to help cannabis company Eaze accept credit card payments for marijuana purchases. During the trial, former Eaze CEO James Patterson testified that he and other Eaze employees, Eaze board members, and even the dispensaries they served, knew that they were disguising the payments to appear as if they originated from non-cannabis businesses because banks and the major credit card networks did not allow credit cards to be used for marijuana. The Defendants argued that although banks may claim that they do not want nor allow marijuana transactions, they, in fact, know they are facilitating marijuana-related payments and profit from doing so.

Although a prosecution witness from Bank of America testified that the bank’s policies strictly prohibit doing business with cannabis-related companies, he also admitted that Bank of America profits from marijuana credit card purchases when customers maintain balances on their cards. Bank of America stated that it monitors for cannabis-related transactions by screening merchant names and if an investigation reveals that a merchant is a cannabis-related business, it reports the merchant to Visa … Keep reading

Eaze Criminal Case Underscores the Importance of Transparency in Cannabis Cashless Payment Transactions

This week, federal prosecutors in the Southern District of New York will try their case against Defendants Ruben Weigand and Hamid “Ray” Akhavan for one count each of bank fraud in violation of 18 U.S.C. § 1349 related to the purchase of marijuana through Eaze, a California cannabis delivery platform. Specifically, the indictment alleges that Defendants Weigand and Akhavan – along with co-conspirators – created a transaction laundering scheme that facilitated over $100 million of credit and debit card payments to licensed cannabis operators by disguising the transactions to appear as if they were unrelated to cannabis. Prosecutors allege that the scheme was executed due to the fact that most banks are unwilling to facilitate electronic payment transactions related to cannabis, even if those transactions are legal under state law.

Weigand and Akhavan have pleaded not guilty and are set to begin trial on March 1, 2021. However, on February 19, 2021, the former CEO of Eaze Technologies, LLC, James Patterson – who resigned from Eaze in 2019 – pleaded guilty to one count of conspiracy to commit bank fraud and agreed to assist prosecutors with their case against Weigand and Akhavan. In doing so, Patterson told the court … Keep reading

Exclusion of the SAFE Banking Act in Coronavirus Relief Doesn't Mean It Won't Pass in 2021

Despite best efforts by the U.S. House of Representatives in 2020, provisions related to the SAFE Banking Act were not included in the $900 billion Coronavirus relief bill passed on Monday in the U.S. Congress. Supporters of the banking reform legislation included, among others, a group of bipartisan Attorneys General, state treasurers, and a majority of the members of the House. Unfortunately, those opposing any form of marijuana policy reform prevailed, and depending on the outcome of the Georgia Senate race in January, those same leaders may continue to impede reform efforts if the Republicans retain control of the U.S. Senate.

Nevertheless, the cannabis industry and financial institutions serving or considering serving the cannabis industry remain hopeful that the SAFE Banking Act may still pass in 2021 when the President-elect Joe Biden is in office and if Pennsylvania Republican Pat Toomey becomes the new chair of the Senate banking committee. In an interview with Politico, Senator Toomey said that he is “sympathetic to the idea that people who are involved in the cannabis industry—in an entirely legal fashion, in the state in which they operate– ought to be able to have ordinary banking services.” Toomey will become the chair … Keep reading

Now is the Time to Change the Downward FinCEN Cannabis Banking Trend

Despite the “green wave” America experienced on Election Day, and the increased success the legalized U.S. cannabis industry has experienced in 2020, the number of financial institutions providing banking services to cannabis-related business (“CRBs”) appears to be decreasing. In fact, this was the third quarter in a row that FinCEN’s quarterly report has shown that fewer banks and credit unions filed requisite suspicious activity reports (“SAR”s) indicating that they service cannabis clients.

While one of the reasons for the steady decline may be attributable to FinCEN’s June guidance that removed mandatory SAR filing for hemp-related businesses and therefore those financial institutions that only serve hemp customers are no longer reflected in the report, another factor may be that cannabis-related SARs are being filed late due to staffing constraints brought on by the COVID-19 pandemic. Regardless, the troubling downward trend supports the contention that not enough financial institutions are entering into the cannabis banking space to meaningfully change the landscape for cannabis business operators.

With new states legalizing medicinal cannabis and more states legalizing cannabis for adult-use, the need for cannabis banking that provides robust service offerings and competitive pricing is only going to grow.  The expanding market will provide … Keep reading

Does the SAFE Banking Act Still Have a Chance?

FinCEN’s most recent information regarding financial institutions providing services to cannabis-related businesses (“CRBs”) indicates a slight decline in the overall number of depository institutions providing such services during the first quarter of 2020. FinCEN speculated that the decline might be short-term and attributable to late Suspicious Activity Report filings. Regardless, the number of financial institutions actively banking cannabis has stayed steady for over a year. Although there may be many reasons preventing new entrants from coming into the space, one of the biggest hesitations relates to the Senate’s failure to pass the SAFE Banking Act, or some version of it. As the November elections near, it may seem even more unlikely that the SAFE Banking Act will finally become law; however, with the GOP controlled Senate preparing its own version of a second coronavirus stimulus package, there is still a chance that the Senate could include provisions of the SAFE Banking Act similar to those included in the HEROES Act passed by the House in May. Strategically and practically, it would make sense.

Since it passed in September 2019, the SAFE Banking Act has been stalled in the Senate’s banking committee led by Sen. Mike Crapo of Idaho. In … Keep reading

New FinCEN Due Diligence Guidance for Hemp-Related Businesses

On June 29, 2020 (“June Guidance”), the Financial Crimes Enforcement Network (FinCEN) issued additional guidance for financial institutions providing, or considering providing, financial services for hemp-related businesses. The June Guidance supplements the interagency statement issued on December 3, 2019, and provides clarity on what steps a financial institution can take to conduct due diligence on hemp-related businesses in order to comply with BSA requirements. The new guidance is detailed enough that FinCEN should easily accomplish its goal of making transparent financial services readily available to hemp-related businesses.

Specifically, FinCEN directed financial institutions to conduct customer due diligence (“CDD”) of hemp-related businesses in accordance with their current risk-based policies and procedures, including those that apply to ongoing account monitoring. Rather than mandate specific due diligence requirements, FinCEN said that the information sought by a financial institution should depend on the risk attributed to each type of customer after conducting an appropriate risk assessment. Nevertheless, FinCEN did provide several examples of types of information that may be gathered to help ensure that a financial institution knows its hemp-related business customers and that it can identify and report suspicious activity, including those red-flag activities outlined in the June Guidance.

Notably, the June … Keep reading

FDIC Chairwoman McWilliams Remains Consistent Regarding Cannabis Banking

Financial institutions considering implementing cannabis banking programs should take comfort in recent comments made by FDIC Chairwoman Jelena McWilliams during virtual meetings held with bankers in Michigan and Arizona. While McWilliams said she could not “give blanket immunity” to banks or “bless them and say ‘go ahead and do it’” because marijuana remains illegal at the federal level, McWilliams stated that she thought bankers would be “OK” with regulators if they conduct due diligence that ensures licensed entities comply with state regulations and follow the 2014 FinCEN guidelines, including the filing of suspicious activity reports (SARs).

The direction provided by McWilliams and the FDIC remains consistent and echoes that of other regulatory agencies that continue to await comprehensive marijuana reform, or the passage of the SAFE Banking Act that stalled in the Senate after passing in the House last year. Despite not sharing any new insights, McWilliams’ unchanged position, coupled with FDIC efforts to support cannabis banking by educating its examiners, may mean that entering the cannabis banking space now is the least risky it has ever been, or will be, until the federal government changes its marijuana policy. Likewise, acting now may create business opportunities that will … Keep reading