Sun | Jul 5, 2020

Letter of the Day | Not so fast on Ja cannabis, US banking

Published:Saturday | October 5, 2019 | 12:00 AM


From what has been reported in Jamaica media over the past week, there appears to be a good deal of premature exuberance regarding the ability of Jamaican firms to transfer funds through the United States banking system.

While the US House recently passed the Secure and Fair Enforcement (SAFE) Banking Act, there still remain several important hurdles:

n The US Senate has not yet voted on their version of the SAFE bill, and when it does, a joint House-Senate version has to be developed and approved by both chambers.

n President Trump has to sign the legislation, and many of the states that he must carry in the 2020 election have not legalised cannabis – medical or recreational.

nThe SAFE legislation pertains to US-based companies wanting to do business within the US banking system. The bill makes no provision for foreign-owned companies, or for foreign banks representing depositors.

A good place to start is how Canadian cannabis companies currently do business in the US. The first obstacle the Canadian companies have is that the Canadian banks will not correspond with US banks on the cannabis companies’ behalf.

To circumvent this financial transactions obstacle, the Canadian cannabis companies generally set up US-based subsidiaries in cannabis- legal states, and with state (not federal) chartered banks. These moves basically remove the ‘Canadian’ component, and the companies can operate within the state-regulated banking system.

The public-interest purpose is to get cannabis monies off the street, and into a regulated banking system. So, in the case of Jamaica, it is not as simple as, say, Sagicor in Kingston transferring funds on behalf of a client to, say, Chase in the US. The hurdles for Jamaica get even higher.

The US House has moved the Corporate Transparency Act (HR-2513) to the floor for a vote. The bill is sponsored by Representative Carolyn Maloney (D-NY), a senior member of the Financial Services Committee, and coincidentally has close ties to Jamaica.

The legislation would require small companies and their lawyers to disclose information about the businesses’ beneficial owners –defined as those who directly or indirectly own, control, or benefit from a company – to the US Treasury.

The legislation further tightens the banking regulatory ‘know your customer’ guidelines put into place after the September 11, 2001 attacks, where funds to finance the terrorist operation flowed through the US banking system.

Issues of transparency

The word that jumps out for Jamaica in the aforementioned legislation is ‘transparency’. Without making any comment on the Holness administration’s record on transparency and corruption, it is a safe assumption that the US government (Treasury and Congress) will carefully scrutinise the parties behind the Jamaica cannabis companies before funds from Jamaica are allowed to flow into the US.

The Jamaican banks will have to assure the US regulators that the former is carefully scrutinising the parties behind the cannabis-related deposits.

The Holness Government and the Jamaican banks are going to need respected parties that will vouch for their integrity before they get approval to move cannabis funds.

A safe assumption the Jamaican cannabis industry can bank on for now is to keep the champagne corked a while longer.