Pot Banking Goes on Trial

March 2, 2021 at 9:03 am Leave a comment

Even as New York debates legalizing recreational cannabis, a case commenced in federal district court in Manhattan underscores the complexities of providing banking services and engaging in a business which remains very much illegal as a matter of federal law.  The case has been extensively reported by the Law360 Blog.

In U.S. v. Weigand and Akhavan, the defendants stand accused of facilitating marijuana purchasing by providing an App, Eaze ,referred as the “Uber of pot sales” that allowed users to buy marijuana in California and Oregon with their credit and debit cards.  What’s gotten Messrs. Weigand and Akhavan in trouble is not that they sold Cannabis in Oregon and California, but that they deceived financial institutions into processing these purchases by establishing dummy merchant corporations.  Judge Rakoff, in rejecting a motion to dismiss the case, noted the defendants used fictitious companies selling dog products, diving gear, carbonated beverages and face creams to deceive banks about the actual merchandize they were selling.  According to the prosecution, more than $100 million in debit and credit card transactions were attributed to the business between 2016 and 2019.

In unsuccessfully moving to dismiss the indictment, the defendants argued, among other things, that the deception could not be considered bank fraud because it wasn’t material to the banks’ operation.  As the defense stated in its opening argument yesterday, “[t]he banks just didn’t care so long as the credit card holders got what they paid for … and the fees associated with the transactions went to the banks and to the credit card companies.”  The problem is the fact that some of the banks would have willingly processed these transactions doesn’t change the fact that others were deceived into taking actions they would not have otherwise chosen. 

No matter who wins or loses the case, it does underscore how important it is going to properly document a credit union or bank’s relationship with businesses that offer marijuana related products in New York State, assuming that a law is passed by the end of this session.  What got the business in trouble in this case was its willingness to deceive.  Furthermore, while there are reasons both for and against engaging in cannabis related banking, this decision should be made knowingly following thorough due diligence.

Entry filed under: Legal Watch, New York State. Tags: , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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