Two Businessmen Convicted of Bank Fraud Conspiracy for Assisting Cannabis Company With TransactionsMarch 26, 2021 – Alerts
Two businessmen have been convicted in U.S. District Court for the Southern District of New York of helping a California-based cannabis company avoid bank flags for illegal cannabis-related transactions. A New York jury found the men guilty of bank fraud conspiracy in violation of 18 U.S.C. § 1349.
Eaze, a cannabis product delivery app developer, aimed to let customers purchase cannabis products with their credit cards. Federal prosecutors alleged that the two men, who served as Eaze consultants, concealed these cannabis-related transactions from anti-money laundering and fraud detection tools through a variety of methods.
The men used shell companies and payment processing businesses, among other methods, prosecutors said. They concealed cannabis shipments as dog food, face cream and beverages.
While cannabis is legal in some states — including California where Eaze operates — the drug remains illegal under federal law and as such banks and payment processors are prohibited from doing business with cannabis companies. For this reason, major credit card companies like MasterCard and Visa do not have merchant codes for cannabis transactions.
Defense attorneys argued unsuccessfully that the banks were complicit in processing these cannabis-related purchases by credit and debit cards.
As more cashless payment applications, such as Venmo, enter the market, cannabis businesses must be conscious of whether the services are the proper solution to their payment processing needs. Going forward, companies in the cannabis industry should be mindful of these financial services transactions to remain in compliance with federal regulations.
For more information or questions about this alert, please contact Patrick Egan of the White-Collar Criminal Defense & Regulatory Compliance Practice Group at [email protected] or Joshua Horn, Co-Chair of the Cannabis Law Practice Group at [email protected].