Update on proceeds of crime and legal overseas cannabis

Many financial services companies have gotten into trouble in recent years because of working with clients who have direct or indirect exposure to the cannabis sector in foreign jurisdictions where recreational cannabis has been legalized, which usually results in the assets of those clients being frozen in Jersey.

background

The particular difficulty arises from the fact that the Jersey legislation on Proceeds of Crime has always applied a “single crime test”, meaning that “criminal conduct” is only determined by reference to Jersey law, regardless of the law of the place, occurred in the behavior.

Any direct or indirect involvement in the legal cannabis sector abroad has consequently resulted in reporting requirements for suspicious activity, reporting restrictions and asset freezes. This has created tension where doing business is legal where it was done and is part of a fast growing economic sector in countries like Canada and the United States, but is still illegal in Jersey. For the same reasons, it was difficult or impossible for the JFCU to give its consent to trade in cannabis proceeds from overseas, resulting in assets held in Jersey being frozen indefinitely.

suggestion

New regulations passed today by the state of Jersey have addressed this issue by proposing to change the definition of “criminal conduct” in the Criminal Investigation Act to include “the manufacture, supply, use, export or importation of cannabis and of any kind “exclude its derivatives, which is lawful where and when it occurs and in [specified] Jurisdiction Outside Jersey ”.

The Minister for External Relations also intends to adopt a regulation defining the jurisdictions to which this change will apply, based on the results of the mutual evaluation reports prepared in accordance with FATF standards.

Points to be aware of

Whatever you think about cannabis, this is a positive change that will allow Jersey to continue working with certain jurisdictions that take a different approach than ours to determining which economic activities are criminal and which are legal in their country.

However, there will be a few more points that Jersey’s financial services company should review before concluding that the overseas cannabis sector’s revenue does not come from “criminal conduct” under Jersey’s law, as follows:

• the cannabis activities from which the income was obtained must have been lawful in the place where and when they took place; and

• These activities must have taken place in one of the specified legal systems.

Because these cannabis-related activities have multiple components, from production to import, which are likely to take place in different jurisdictions and at different times, financial services companies in Jersey need to verify that each of the revenue-generating activities was lawful where and to what time they took place, as well as ensuring that no indefinite jurisdiction was involved.

However, this means that once these tests have been determined to have passed, cannabis proceeds will cease to be the proceeds of crime under Jersey law, even if they were made before the regulations came into effect.