A relatively new practice has emerged to bypass federal restrictions on banking institutions working with cannabis companies: tricking banking institutions into believing that the company is not actually involved in cannabis.
Benjamin William Perry and Alex McFall of the law firm Bradley Arant Boult Cummings LLP warned current cannabis companies trying to circumvent federal restrictions.
Perry and McFall highlighted the high profile case of Eaze, which offered customers in California and Oregon the option to pay with a debit card. However, it turned out that they had no legal way to do this.
Last month a jury in New York convicted two Eaze Technologies advisors, Hamid “Ray” Akhavan and Ruben Weigand, of conspiracy to commit bank fraudWhen they discovered that the two men tricked US banks into using an ingenious scheme to process cannabis transactions worth around $ 150 million between 2016 and 2019. Former Eaze CEO James Patterson also pleaded guilty to a bank fraud conspiracy prior to the March 1 trial of Akhavan and Weigand.
Perry and McFall routed the transactions through shell companies, offshore bank accounts, and payment processing companies, and the transactions were disguised as dog food, scuba gear, face cream, drinks, etc. so as not to be spotted by major credit card companies like Visa. MasterCard, Bank of America. The dealer category codes (MCCs) did not match.
Eaze Technologies was and is one of the top delivery services –Seven million cannabis shipments were recorded as of March. If large companies like Eaze Technologies use this method, so are other companies. It is important to note that Eaze Technologies cooperated throughout the trial and no other were charged.
“For the cannabis industry, this case shows the significant risk associated with day-to-day transactions and the high cost of trying to circumvent the guidelines of credit card and debit card companies,” said Perry and McFall wrote. “Cannabis companies must remain aware of the harsh federal penalties associated with making untrue statements of any kind to government-regulated banking institutions.”
It is important that companies working with debit and credit card machines are aware of all possible legal ramifications, including serious federal fees.