Dr. Christopher P Malcolm, FCIArb, FAiADRSecretary General, Jamaica International Arbitration Centre Limited; Senior Lecturer & Director, Mona Law Institutes Unit, Faculty of Law, The University of the West Indies, Mona

© CP Malcolm 2018. All rights reserved. Email: malcolm@jaiac.org

SMOKIN’ HOTGanja in the compliance spotlight

Me nah goa jail fi ganja no more …Peter “The Bush Doctor” Tosh

• https://www.youtube.com/watch?v=ABc8ciT5QLs

• https://www.youtube.com/watch?v=G2o4lvvVFsA

• https://www.youtube.com/watch?v=2WsbbiAorEc

… And then there was prohibition I

• Three audio/video clips have been included in the previous slide– Legalise it released by Jamaican Peter Tosh in

1976

– Nah go a jail released by Peter Tosh in 1987

– Ganja Farmer released by Trinidadian Marlon Asher in 2006

• What’s the relevance?

… And then there was prohibition II

• Ganja called by any other name, and including any derivative, is a natural plant-based product

• In its natural state, ganja is without genetic tampering

• It has been a part of the plant ecosystem from time immemorial

… And then there was prohibition III

• Prior to the 1920s, ganja was grown and consumed without prohibition

• This is included in the US, where farmers were required to grow hemp/ganja

• The use of ganja included for intoxication as well as for therapeutic and medicinal proposes James H Mills, Cannabis Nation: Control and Consumption in Britain,

1928-2008 (Oxford University Press 2013)• What changed? How did change elsewhere come to

affect the Caribbean? What now?

… And then there was prohibition IV

• The short of a long prohibition story, spearheaded by the US, includes that: – Ganja/cannabis was debated at the League of Nations in the 1920s– The British delegates led opposition to the proposal for ganja/cannabis to be

included for international controls that were to be considered at the Second Opium Conference at Geneva in 1924/25

– The opposition failed, and the United Kingdom was obliged to ratify agreements to regulate access to cannabis products that its representatives had opposed

James H Mills, Cannabis Nation: Control and Consumption in Britain, 1928-2008(Oxford University Press 2013), 5

• The English-speaking Caribbean countries were all then colonies of the United Kingdom

• Without a voice at the table, these countries then became subject to the international regulatory controls that were agreed in Geneva

Blind eye sighted I

• In relative terms, the period of prohibition has been short

• Prohibition has, however, been brutal and its implications have been questioned at several levels

https://www.vox.com/cards/war-on-drugs-marijuana-cocaine-heroin-meth/war-on-drugs-international-treaties

• The financial sector has not been immune

• What’s the ‘scope’ there?

Blind eye sighted II

• Until the last two or so decades, business dealings between financial intermediaries and their customers were relaxed

• Dedicated compliance officers were the exception

• Compliance officers then essentially functioned as operations officers

• Cash transactions were normal, and detailed source of funds declarations were abnormal

Blind eye sighted III

• Weh eye nuh see heart nuh leap – see no evil and stay calm

• Financial and other intermediaries in the ‘good old days’ were not gate-keepers and de factostate investigation officers

• Intermediaries then were dedicated bankers, insurers, securities dealers, real estate practitioners, lawyers, etc

• That was then. This is now

Blind eye sighted IV

• No there is an era of enhanced due diligence that has become the norm

• The unequivocal areas of focus in the new dispensation are:– Prevention of moneylaundering– Countering of terrorism financing

• Now:– Compliance officers are the norm– Source of funds declarations are mandated– The compliance function includes what is in substance unpaid

by and for the state crime monitoring and investigation

Blind eye sighted V

• This new dispensation has been ‘cheer-led’ by the OECD countries

• The compliance function now requires enhanced KYC, and increasingly KYD, without a discernable tail end

• The Financial Action Task Force, supported in this region by the Caribbean Financial Action Task Force, has become the standard setter and enforcer

• Their recommendations are to be read by regional policy-makers and compliance functionaries as gospel

The message that was I

• Failure to implement ‘established requirements’ has had serious implications in the Caribbean region

http://www.fatf-gafi.org/countries/d-i/guyana/documents/cfatf-public-statement-haiti-suriname-guyana-nov2016.html

• Peer determined ‘unacceptable’ conduct or rate of Action Plan progress impedes the capacity of the state, and by extension institutions operating in it, to participate, as they must, in the global economy

The message that was II

• The impact of the OECD, through FATF and other such mechanisms, has been indirect for institutions

• More directly, institutions are impacted by:– Their capacity to establish and maintain

correspondent banking relationships – Opportunities in the grey – Global market conditions and attidudes

• Where is the ganja talk?

New day dawning I

• From midnight 17 October 2018, the post Geneva 1924/25 use of recreational ganja became legal in Canada

https://www.bbc.com/news/world-us-canada-45806255• Prior to this Canadian move, Uruguay had with effect

from 23 December 2013 become the first country to legalize recreational ganja

https://money.cnn.com/2018/09/16/news/world/uruguay-cannabis-industry/index.html

New day dawning II

• There is a decriminalization move across the Caribbean region

• It has not yet embraced Canadian or Uruguayan styled legalization

• Instead, the Caribbean countries have moved or indicated their intention to:– Decriminalize small quantities of recreational ganja– Substantively legalize medicinal ganja

• What’s the deal?

New day dawning III

• Jamaica enacted the Dangerous Drugs (Amendment) Act in 2015, and with effect since 15 April 2015 the possession of two ounces or less of recreational ganja has been decriminalized

http://moj.gov.jm/sites/default/files/Dangerous%20Drugs%20Amendment%20Act%202015%20Fact%20Sheet_0.pdf• A Cannabis Licensing Authority has been established to regulate the use,

cultivation, processing, importation, exportation, transit, manufacture, sale, possession and distribution of medical marijuana/ganja and hemp

http://cla.org.jm/• The first shipment of medical marijuana/ganja extracted oils from

Jamaica to Canada was completed in September 2018 http://jamaica-gleaner.com/print/727214

New day dawning IV

• The decriminalization of ganja in Jamaica has been considered a key step toward international legalization

Saptarishi Bandopadhyay, under supervision of Charles R Neeson, “The Decriminalization of Marijuana in Jamaica: A Key Step toward International Legalization” (Harvard Law School, The Case Studies, September 2015)

• Since decriminalization in Jamaica, there has been a buzz of national level activity across the Caribbean region, including: – Authorised importation of CBD oils for medical purposes into Cayman Islands since 2016– Decriminalization in Bermuda in December 2017 – Decriminalization in Antigua and Barbuda in February 2018 – Decriminalization Bills now being considered St Vincent and the Grenadines – Active ongoing decriminalization consultations in Barbados, St Kitts and Nevis, Dominica,

British Virgin Islands, the Bahamas

• It is instructive that in 2012, the Attorney General of Dominica had declared that ganja is illegal and will be into the foreseeable future

The message that is

• The horse has bolted, and the return gate is closed

• The maple syrup is sweet, and the queen bee has signalled her workers

• The Caribbean region is Maple Leaf institutions dominant, while Uncle Sam systems reliant: – How will the prevailing wind blow?

– How will the money flow?

– Is there a lesson to be learnt from Uruguay?

– Is Canada on the frontline a game changer?

Ganjanomics I

• Legal ganja in the US has an estimated sales value of US$9 Billion• 70% of the business is without a bank accounthttps://www.forbes.com/sites/kevinmurphy/2018/09/06/legal-marijuana-the-9-billion-industry-that-most-banks-wont-touch/#1a3591483c68• The Canadian market sales value is projected to be CDN$2.8 Billion by

2020 https://www.statista.com/statistics/587655/marijuana-market-size-sales-price-in-canada-full-legalization/• By 2025, it is projected to be CDN$9.2 Billion https://globenewswire.com/news-release/2018/04/26/1487935/0/en/Canadian-Cannabis-Market-Projected-to-Reach-CAD-9-2-Billion-by-2025.html

Ganjanomics II

• Canada is a ganja growing country, but supply outstrips demand• In any event, Canadian demand for Jamaican ganja. That market

for Jamaican ganja is then for the taking, and at a premium price• Capital market activity in Canada is trading high on ganjahttps://globenewswire.com/news-release/2018/04/26/1487935/0/en/Canadian-Cannabis-Market-Projected-to-Reach-CAD-9-2-Billion-by-2025.html• The most aggressive Canadian bank for ganja has been Bank of

Montreal https://www.bloomberg.com/news/articles/2018-05-14/bmo-muscles-into-pot-m-a-by-advising-aurora-in-biggest-deal-yet

Ganjanomics III

• Support for the Canadian industry has included strong market leader consulting and audit work by PWC

https://www.pwc.com/ca/en/industries/cannabis.html• The PWC Toronto team has an active ongoing interest in the

Caribbean region. This indicates forecasted viability• The Canadian market and what is happening there is clearly a

game to watchhttps://www.vice.com/en_ca/article/evw99z/canada-is-already-experiencing-cannabis-shortages?utm_medium=vicenewsfacebook• Legal ganja players in Jamaican are alive to the importance of

Canada, and are already aligning themselves to that market

What now for compliance I?

• Compliance is a requirement in support of the underlying business • Insofar as banks are concerned, it functions in a space where banks:

– Exist to provide financial services to the community they serve– Are granted licences under which they operate– Are continuously monitored by regulators to ensure that they fill the needs of

their communities

• What should compliance do when ganja is legal and compliant with domestic laws but to provide bank accounts will negatively affect operations?

• Should banks then serve community needs and risk the wrath of Uncle Sam?

• If not the banks, who will store the wealth created by the ganja industry? • If a Canadian-influenced change is coming, what should the now

approach be?

What now for compliance II?

• Compliance is a process of responsible risk control

• The operational side of compliance then requires budgeting to either prevent or defend against risk

• The conundrum for regional compliance is one of local needs v de-risking

• Even if disagreed with, the Privy Council decision in Olint v NCB has settled that banks must first protect their operations

What now for compliance III? • The odds favour that the global change to favouring legal ganja will come sooner rather than later • However, even with change banks will be required to have strong controls in place• As compliance prepares for change, the following non-exhaustive guidance should be considered:

– Secure good domestic legal advisers– Learn the local law, and how it is intended to operate– Follow industry developments, and also international law and relations developments – Secure good legal advisers where the bank settles foreign transactions – Learn about the ganja business, including from seed to market requirements and operations– Secure that customers implement and maintain good safety and security systems – Implement reliable systems for monitoring and audits– Recall that in Olint v NCB the Privy Council decided that the bank must protect its operations – Adopt a well considered project finance approach when dealing with ganja customers – risk identification, risk allocation, risk

mitigation, conflict resolution

h1ttp://3hl3hg1lvfpa2qxgq62uw69x-wpengine.netdna-ssl.com/wp-content/uploads/2018/03/NCIA-LBC-Banking-White-Paper-Final-Draft.pdf

http://www.acams.org/wp-content/uploads/2015/08/Weeding-Through-The-Challenges-of-Banking-the-Marijuana-Industry-L-Kohr.pdf

Contemplating the slippery slope

• With the legalization of ganja, the chorus in support of the legalization of all drugs will get louder

• Compliance cannot ever be blinkered and should be alive to the fact that the prohibition journey could end at some point

• Until then, the challenge will include ensuring that monies derived from still illegal activities are not let in

• Continuing challenge will be to ensure that established controls protecting against money laundering and terrorism financing are robust

• Such controls must also be capable of accommodating timely corrective adjustments when required

Conclusion

• Questions to ponder, might include:– Should Tosh in death be hailed as a visionary and superb advocate?– Can the Caribbean region reliably bank on ganja?– What should a bankable ganja proposal include? – How will long-term viability and value be sustained? – What should the next steps be?

• The journey of a thousand miles does begin with a single step• Upwards now to higher heights• Watch and be inspired https://www.bbc.com/reel/video/p06p225v/this-is-what-500m-of-pot-looks-like