By: Lola Abdulai
In an ongoing case against a consultant, Hamid Akhavan, the United States District Court for the Southern District of New York will determine whether Akhavan’s argument that banks had knowledge of online debit and credit card transactions for cannabis holds any water against his charge for bank fraud.[1] While Akhavan’s case is complicated by the allegation that he and fellow consultant, Ruben Weigand, hid transactions from banks through shell companies, the fascinating question is how knowledgeable banks have been about online cannabis transactions all along.[2]
Online business for the cannabis industry is anything but uncomplicated. Although states are gradually legalizing cannabis recreationally and medicinally, the federal prohibition against the sale and use of cannabis has limited what businesses can do online.[3] Businesses have managed to establish their presence to prospective consumers online by advertising what they sell in store.[4] However, online sales tread the line of illegality since regulations around cannabis business banking has been unclear, and cannabis business transactions are considered automatically suspect.[5]
The Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) mandates that financial institutions file suspicious activity reports (“SARs”) if they have knowledge that a financial transaction involves illicit activity.[6] Due to cannabis’s continued classification as a Schedule 1 controlled substance under federal law, transactions by cannabis businesses are naturally suspect, and banks must file SARs for all transactions by such businesses.[7] Hence, banks have had to continue filing SARs for all cannabis businesses despite legalization in some states.[8] However, banks that have officially refused to bank with cannabis businesses have flown under the radar of the filing requirement.[9] Such banks are involved in Akhavan’s case.
Bank of America and Citigroup, the institutions concerned in Akhavan’s case, have been found to have providedbanking services for cannabis businesses before.[10] Despite claims of opposition to working with cannabis businesses due to federal law, the institutions housed accounts held by well-known firms.[11] Although, it’s no wonder that the banks made accommodations given that many times these cannabis businesses operated in states that legalized marijuana, the banks’ deception is eye-opening in light of the current prosecution.[12] While Akhavan is alleged to have concealed cannabis transactions from the banks, he may have a good argument that the banks knew all along.
[1] See Bob Van Voris, Banks Happy to Have Cardholders Buy Weed Online, Lawyers Say, Bloomberg L. (Mar. 22, 2021, 4:44 PM) https://www.bloomberglaw.com/product/blaw/bloomberglawnews/bloomberg-law-news.
[2] See id.
[3] See 21 U.S.C. § 802 (44) (classifying use of marijuana as a felony offense); Michael Hartman, Cannabis Overview, Nat’l Conf. of State Legislatures, https://www.ncsl.org/research/civil-and-criminal-justice/marijuana-overview.aspx (last updated Mar. 23, 2021) (stating that seventeen jurisdictions within the United States have legalized recreational marijuana); April Berthene, How Cannabis is Growing Online, Dig. Commerce 360 (Apr. 19, 2017) (explaining that cannabis businesses can advertise online but cannot sell products containing cannabis over the internet due to federal laws prohibiting cannabis) https://www.digitalcommerce360.com/2017/04/19/cannabis-growing-online.
[4] See Berthene, supra note 3.
[5] See Fin. Crimes Enf’t Network, BSA Expectations Regarding Marijuana-Related Businesses 3 (Feb. 14, 2014), [hereinafter Fin. Crimes Enf’t Network, Marijuana-Related] https://www.fincen.gov/sites/default/files/guidance/FIN-2014-G001.pdf.
[6] See Fin. Crimes Enf’t Network, Marijuana-Related, supra note 5. But see Fin. Crimes Enf’t Network, FinCEN Guidance Regarding Due Diligence Requirements under the Bank Secrecy Act for Hemp-Related Business Customers 3 (June 29, 2020), [hereinafter Fin. Crimes Enf’t Network, Hemp-Related] (amending the SAR filing requirement only for businesses engaged with hemp) https://www.fincen.gov/sites/default/files/2020-06/FinCEN_Hemp_Guidance_508_FINAL.pdf.
[7] See Fin. Crimes Enf’t Network, Marijuana-Related, supra note 5 (“Because federal law prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity.”).
[8] See id.
[9] See id. (directing requirement to “financial institutions seeking to provide services to marijuana-related businesses”); Kevin Wack, Big Banks Worked With Pot Industry, Despite Denials, Records Show, Am. Banker (Jan. 11, 2017, 3:07 PM EST), (discussing banks that have made statements against banking with cannabis businesses) https://www.americanbanker.com/news/big-banks-worked-with-pot-industry-despite-denials-records-show.
[10] See Van Voris, supra note 1; Wack, supra note 9 (discussing how “well-known cannabis firms” obtained bank accounts in their names at four of the largest U.S. banks, including Bank of America and Citigroup).
[11] See Wack, supra note 9.
[12] See id.
