Was alleged ‘transaction laundering scheme’ bank fraud?


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Trial begins in NY: Did pair deceive banks into processing $160 million in marijuana transactions?

Banking services for legal marijuana services remains fraught. And now two defendants are facing accusations in a Manhattan courtroom that they tricked banks into approving around $160 million in marijuana transactions. Experts predict results of the trial, which started yesterday, may have far-ranging implications for banking services for marijuana transactions.

A Wall Street Journal report detailed the accusations. An American businessman and a German e-commerce consultant have pleaded not guilty to charges related to conspiracy to commit bank fraud.

Federal prosecutors are not focusing on the drug sales themselves but rather on “alleged subterfuge” in the banking transactions to purchase the cannabis products. Federal prosecutors are arguing that the accused engaged in a “transaction laundering scheme” meant to disguise purchases so that banks and credit-card companies would process them.

The charges filed in the summer of 2020 accuse Hamid Akhavan and Ruben Weigand of conspiring with principals of the Online Marijuana Marketplace Company, from whom customers could order marijuana for on-demand delivery, using one of a variety of payment methods including credit or debit card.

Most U.S. banks, however, will not process electronic payments involving the  purchase of marijuana, which while legal in various states remains illegal on a federal level.

Allegations of bank fraud include phony merchants, Merchant Category Codes to disguise transactions

The indictment charges that to solve this problem, the defendants and others “worked with third-party payment processors and offshore acquiring banks to create a series of ‘Phony Merchants,’ complete with seemingly-legitimate websites advertising non-marijuana-related goods and services, and to open bank accounts in these Merchants’ names. The members of the conspiracy then applied fraudulent ‘Merchant Category Codes’ to the credit and debit card purchases from the Online Marijuana Marketplace Company in order to create the appearance that these transactions were not for the purchase of marijuana.”

Lawyers for the defendants argued at the trial’s opening that banks have not made substantial efforts to block debit-card transactions for marijuana.

The Wall Street Journal report said that “the trial could offer insight into financial-technology companies and their role in online commerce, particularly as middlemen in gray-market areas such as marijuana, gambling and pornography.”

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