In light of the legalisation of drugs in other jurisdictions, Thomas Daniel considers the application of the UK’s money laundering offences in relation to lawful activities performed overseas.
The ambit of sections 327-329 of the Proceeds of Crime Act 2002 (“POCA”) is intentionally a wide one, designed to capture all manner of dealings concerning the use of criminal property.
Putting aside the opinions held by prominent figures on the desirability of legalising and regulating cannabis in the UK, cannabis remains a Class B drug and the proceeds derived from the supply of this in the UK will clearly amount to money laundering.
The global position on the legalisation of cannabis, however, is far from unanimous. Many countries draw a distinction between cannabis use for medicinal purposes and recreational purposes, as well as taking a different view of the legality of its cultivation and supply. There is also a difference between countries decriminalising or declining to prosecute minor offences and those jurisdictions where its recreational use or cultivation has been legalised.
In 2013, Uruguay was the first country to legalise marijuana, although this was not without limitation. The Uruguayan law requires that the person must be eighteen or older, a resident of Uruguay and must register with the authorities. The specific exception in relation to foreign nationals is an interesting one, even if UK law does not make any such distinction in relation to the subsequent use of the proceeds.
In Europe, the Netherlands is often the country referenced during debates on the approach to the legalisation of cannabis, however it should be made clear that the general rule is that possession of cannabis remains illegal, with the well-known exceptions being that its use and sale in licenced coffee shops is decriminalised, as is possession of under 5g.
On 30 July 2018, the Constitutional Court in Georgia ruled that it was legal to possess and consume cannabis for recreational purposes; however consumption which puts a third party at risk remains unlawful, as does the sale and cultivation of cannabis.
The global position was brought into sharper focus when, on 17 October 2018, Canada became the first G7 country to give recreational cannabis the green light.
From a money laundering perspective, it is important to note that Canada is one of the 37 members of the Financial Action Task Force (“FATF”), which is an inter-governmental body with its objectives being to:
“set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.”
Canada is also a member of the Asia/Pacific Group on Money Laundering (“APG”).
The question to be considered in light of this legal shift is whether so-called “ganjapreneurs” who benefit from lawful cannabis supply in Canada or elsewhere would be liable to prosecution under sections 327-329 if they were to use the proceeds of their cannabis supply in the UK.
What is “criminal conduct” under POCA?
Sections 76 and 413 of POCA state that “criminal conduct” for the purpose of the Act is conduct which constitutes an offence in England and Wales or would constitute such an offence if the conduct occurred in England and Wales. Importantly, the Act does not require the activity to be unlawful in the country where it occurred.
It must also be remembered that if the property is regarded as “criminal property” under UK law, section 340(3) states it is enough if the person “suspects” it to be criminal property. There is no strict requirement for knowledge.
There is an additional defence applicable to section 329 if the person acquired, used or possessed criminal property for ‘adequate consideration’; however section 329(3)(b) makes plain that the provision of goods or services which the person knows or suspects may help another to carry out criminal conduct is not regarded as consideration under the Act.
Is there an overseas conduct defence?
The dilemma when an activity is illegal in the UK but lawful in the country in which it occurred is often referred to as the “Spanish Bullfighter” problem, which is a hypothetical situation highlighting what the position would be if a Spanish Bullfighter spends money earned bullfighting in Spain when visiting the UK.
Sections 327(2A), 328(3) and 329(2A) provide in identical terms that a person does not commit an offence if:
(1) he knows, or believes on reasonable grounds, that the relevant criminal conduct occurred in a particular country or territory outside the United Kingdom; and
(2) the relevant criminal conduct was not, at the time it occurred, unlawful under the criminal law then applying in that country or territory; and
(3) is not of a description prescribed by an order made by the Secretary of State.
In relation to (3), the relevant order by the Secretary of State is the Proceeds of Crime Act 2002 (Money Laundering: Exceptions to Overseas Conduct Defence) Order 2006.
Article 2 of the order provides that this defence is only available when the maximum sentence is 12 months or less.
In light of this order, this statutory exception would not apply to any of the offences in sections 327-329 of POCA as section 334 provides that the maximum sentence for these offences is 14 years’ imprisonment.
In addition, Schedule 4 of the Misuse of Drugs Act 1971 provides that the maximum penalties for supplying and cultivating Class B drugs is 14 years’ imprisonment and for possession the maximum on indictment is 5 years’ imprisonment.
Can ‘consent’ be obtained?
Sections 327(2), 328(2) and 329(2) provide a defence to a money laundering offence if a person makes an ‘authorised disclosure’ under section 338 and has the appropriate consent.
This method of ‘obtaining a defence to a money laundering offence’ (the National Crime Agency no longer uses the term ‘consent’) is safest when requested before doing the act in question, but section 338 provides for circumstances in which the person becomes aware or starts to suspect the property might be criminal property during or after the act is performed.
If an authorised disclosure is made to the National Crime Agency and a ‘granted letter’ is received or no reply is received within seven working days from the day after the disclosure is made, the person will have a defence if they then deal with the property in the manner they disclosed. Whilst these time limits appear short, the National Crime Agency may trigger further moratorium periods, depending on the circumstances of the case.
Is there reciprocity in terms of regulation?
On 31 October 2018, the NHS published guidance on the prescription of cannabis-based products for medicinal use, in light of the regulations rescheduling certain cannabis-based products with effect from 1 November 2018.
This document provides guidance to clinicians listed on the Special Register of the GMC and Annex 1 to the guidance states that:
“regulations prohibit both the prescription and self-administration of a cannabis-based product for medicinal use in humans by way of smoking other than for research purposes”
Other countries also have laws relating to the medicinal use of cannabis. For example, in 2018, the first legal medical marijuana dispensary was opened in Jamaica, following legal reforms in 2015.
It is unlikely that the UK’s regulations for the prescription of cannabis-based products will be perfectly replicated in other countries, which leaves uncertainty over how the owners of such businesses are to approach the issue of dealing with their lawfully earned proceeds on a global scale.
Although one can readily see the arguments against the public interest in prosecuting anyone using the proceeds of a regulated business abroad, such as medicinal dispensaries, there is no distinction within POCA between dealing with the proceeds of a foreign cannabis dispensary, the type of cannabis supply that is lawful in Canada and large-scale illegal drug dealing.
The only consideration POCA provides for is whether the conduct would be an offence in England and Wales and whilst the public interest factors might carry some weight, the contrary argument is that POCA was specifically drafted to exclude consideration of the laws adopted by other jurisdictions.
Given the supply of cannabis is now lawful in a G7 country, which is also a member of FATF and APG, it might be time to consider amendments to the 2002 Act, to give comfort to those wishing to participate in a lawful commercial marketplace without having to look over their shoulders if the proceeds are returned to the UK.
Whilst it is expected that the position may ultimately be that amendments to POCA are not workable, amidst fears that a relaxation of the wording will create unintended consequences, it might be that prosecutorial guidance would assist on this particular issue, as it has in respect of other offences, by stating which factors will be considered when weighing up whether the case should be prosecuted.
In the absence of any definitive guidance, and given that institutions are generally encouraged to take a “risk based approach” towards their money laundering obligations, the early signs are that a similar attitude has been taken towards the law on this area. Lloyd’s of London has announced that it will allow its member firms to underwrite cannabis-related business in Canada, provided they meet local and international laws.
Blog | 12 Nov 18