Kidnap, torture, body cameras: The unintended impact of AML/KYC Compliance on marijuana industry


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All-cash businesses face risks unique to split between state legality and federal criminality

AML/KYC Compliance requirements put non-stop pressure on financial institutions to weigh their risk appetites carefully. And even though marijuana is legal in several states now, its federal status as a Class 1 drug makes state-legal marijuana businesses too risky for most financial institutions. The consequences of such limited access to formal banking services have piled up, however.

Orange County (CA) Superior Court is currently trying one of the most heinous and high-profile cases related to the absence of banking for marijuana businesses. According to an LA Times story,prosecutors allege that illegal-pot dealer Hossein Nayeri in October of 2012 led a small group of attackers in the kidnap, torture, and sexual mutilation of a 28-year-old owner of a legal marijuana dispensary.

Prosecutors have detailed allegations of months of the attackers’ surveillance of the dispensary owner prior to the kidnapping. The purpose of the surveillance, according to prosecutors, was to determine where the dispensary owner was stashing proceeds from his legal but all-cash marijuana business in 2012.

If convicted, Nayeri may get a maximum sentence of life in prison. Charges include kidnapping, aggravated mayhem, and torture. Nayeri, who this week took the stand in his own defense, admitted to spending nine months surveilling the dispensary owner via GPS trackers and monitoring of the owner’s residence. Nayeri denies participation in the kidnap, torture, and mutilation.

Jurors began deliberating on the verdict of that case this week. One co-defendant has alredy been convicted, and two others have yet to go to trial.

Body cameras for pot purchases?

While California has been wrestling with the challenges of the all-cash marijuana business for several years, Massachusetts only recently legalized marijuana, first medical and now recreational. But settling on laws and policies of the cash-flush industry has proven to be a rocky road.

A Boston Globe story this week details a proposal to make pot delivery people wear body cameras in order to film transactions with purchasers. Proposed by the Massachusetts Cannabis Control Commission, the proposed measure calls for filming of each delivery and full access by law enforcement to all footage captured on mandated body cameras.

Some industry advocates in Massachusetts have pushed back against the proposal, calling such surveillance an invasion of purchasers’ privacy. They also criticize the proposal for emphasizing what they call a false narrative of criminality in legal marijuana.

Some marijuana business operators favor elevated security due to the all-cash nature of the business and the various elements of transitioning to legalized marijuana.

Commission members expect to make a final decision on the policy proposal next month.

The Boston Globe reported in late July that banks and credit unions in the state have begun offering more services to marijuana-related businesses, but are doing so “quietly.” The GFA Federal Credit Union is even exploring offering loans to marijuana businesses.

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