The JFSC issued the results of its thematic review of designated service providers (“DSP’s”) in ensuring a Jersey Private Fund’s (JPF’s) compliance with the JPF Guide and the DSPs responsibilities …
Inconsistency over cannabis in the crown dependencies causes confusion for compliance officers
With increased interest in the economic contribution from a cannabis industry, all three Crown Dependencies have embarked on creating an environment to encourage direct industrial and related financial activity. However, there is a lack of consistency in the way each jurisdiction has approached the related matter of source of funds and the definition of proceeds of crime, creating confusion that could lead to inadvertent money laundering offences.
Despite working from the same core international UN Conventions on Narcotic Drugs of 1961, 1971 and 1988, there are interesting differences in approaches that have contributed to a confusing picture for compliance professionals to unpick.
Jersey’s recent Proceeds of Crime (Amendment of Law) (No 2) (Jersey) Regulations which cleared a States vote on 30th June this year amended the definition of ‘criminal conduct’, within the jurisdiction’s Proceeds of Crime Law 1999, to exclude the activities of production supply, use, export and import of cannabis and any of its derivatives from criminal activity.
In essence, Jersey has ensured that property derived from lawful conduct in an overseas jurisdiction is not treated as a proceed of crime when handled by any Jersey business, opening up financial and professional service businesses to working with the cannabis industry.
The Regulations introduce a further limb to the test of legality by way of a list of countries that are specified by Order of the Minister for External Relations, based on outcomes of mutual evaluation reports from FATF and regional bodies such as MONEYVAL against FATF Standards concerning money laundering. That list is of 26 countries and includes Canada, Cyprus, Netherlands, Portugal, South Africa and the United States of America.
In June 2020, Guernsey’s Policy and Resources Committee provided guidance to the Island’s finance industry on the issue of the application of Guernsey’s anti-money laundering legislation to property derived from lawful cannabis related activity in overseas jurisdictions. Guernsey’s legislation in this regard is split between its Proceeds of Crime and Drug Trafficking laws and the Proceeds of Crime legislation specifically excludes drug trafficking conduct and therefore does not impose a dual criminality test – a test of requiring an offence to have been committed in both the overseas jurisdiction and Guernsey. The Notice from the Committee concluded that with no dual criminality test, property derived from lawful overseas cannabis related recreational activities would not be captured by Guernsey’s anti-money laundering legislation.
Subsequent to that Notice, Guernsey’s HM Procureur, as the prosecuting authority within Guernsey and equivalent to the Isle of Man’s and Jersey’s Attorney General confirmed, in February 2021, that proceeds of cannabis cultivation or production where lawful overseas are not subject to money laundering legislation when brought to Guernsey.
Isle of Man
While the Channel Islands have, albeit individually in different ways, followed the same paths in establishing the acceptance of property derived from overseas lawful cannabis related activities as not proceeds of crime, the situation in the Isle of Man is contrary to this. The Isle of Man legislation is made up of its Proceeds of Crime Act and the associated Proceeds of Crime (Money Laundering – Exceptions to overseas conduct defence) Order which together establish a dual criminality test, requiring property derived from overseas cannabis related activity to be lawful both overseas and domestically on the Isle of Man.
Therefore, property derived from overseas lawful cannabis cultivation and production for recreational use which, domestically is outside of the newly introduced licence regime on the Isle of Man, remains a proceed of crime if handled by island finance and professional service businesses.
What should you be considering?
Many affected island businesses are part of groups that have footprints across all three Crown Dependencies. Establishing procedures and controls that deal with the different legislation and approaches to the treatment of property derived from cannabis activity is critical to allow regulated businesses to support this new industry.
Can Boards and Risk Committees be certain that the right procedures are in place? Will they allow business development teams to engage with the industry, comfortable in the knowledge that the proceeds of crime risks are addressed?
Where business groups have feet in more than one jurisdiction, how do their remuneration policies work if profits are pooled and there is lawful engagement and payment from cannabis related clients? How can they work to group wide compliance and AML/CFT policies and procedures in this area when the underlying legislative references are different? Can there be cross jurisdictional business development undertaken, more predominantly in the area of collective investment schemes marketed across multiple jurisdictions?
The landscape for the cannabis industry and for the related financial and professional services supporting it, as the sector develops across all three Crown Dependencies, will continue to develop and alter. The international view of cannabis and all its derivative products in medical use cases is changing and with it international consensus, at the global level such as by the United Nations and regionally, such as the EU, on how the products are classified.
The Governments, legislatures, regulators and businesses alike must remain vigilant and cognisant of those future developments to ensure that, where necessary, they each react in a constructive manner to ensure that the economic potential of this new sector is not diminished through poor legislation and regulation drafting and enforcement.
Trouble in knowing just how to draft the required policies and procedures? What does this inconsistency mean for your Business and Client Risk Assessments? Oben’s experience in the sector through working with the Isle of Man Government in establishing its licensing framework means it is well placed to support Crown Dependency businesses and to keep interested stakeholders aware of developments as they occur.
Please do not hesitate to contact Steve or your usual Oben contact should you require any further information.