JERSEY UP IN SMOKE - Cannabis amendments to the Proceeds of Crime Law in Jersey
On 30 June 2021, the States of Jersey debated, and passed, certain amendments to the Proceeds of Crime (Jersey) Law 1999 to amend the current definition of criminal conduct. This will facilitate investment and structuring in the cannabis sector. This change follows the recently legalised on-island growing of cannabis for medicinal purposes and the island is positioning itself as a key player in this field, which was valued at £5.64 billion in 2020. (Growing and supplying cannabis for recreational use remains very much illegal as a matter of Jersey law.)
- For FSBs in Jersey, the difficulty has always been that Jersey applies a "single criminality test".
- This means that if the conduct undertaken in another jurisdiction is unlawful in Jersey, it is deemed to be criminal conduct even if it is perfectly lawful in the original jurisdiction.
- Article 1(2A) of the Proceeds of Crime (Jersey) Law 1999 (the Law) states:
- "A person benefits from any criminal conduct if that person obtains property as a result of or in connection with the conduct, and a person benefits from criminal conduct if the person receives any payment or other reward in connection with such conduct, whether carried out by that person or another".
At the moment,
- Any involvement with the overseas cannabis sector (regardless of it being perfectly legal in that jurisdiction) which results in proceeds derived from such involvement are treated as proceeds of crime, such that Suspicious Activity Reporting requirements are triggered and are filed with the States of Jersey Police.
- This may result in assets being frozen in Jersey and FSBs finding themselves in the unenviable position of being unable to process those proceeds and divest themselves of the asset, which in turn can cause significant operating issues for the FSB.
The proposed amendments
- The new regulations passed on 30 June 2021 pursuant to the Draft Proceeds of Crime (Amendment of Law) No.2) (Jersey) Regulations 202- (the Regulations) have sought to clarify which investments should not be treated as proceeds of crime by FSBs.
- It proposes an amendment to the definition of "criminal conduct" under the Law to provide that the production, supply, use, export or import of cannabis or any of its derivatives is no longer considered criminal conduct provided that:
- It is lawful where and when it occurs; and
- It occurs in a jurisdiction outside of Jersey that the Minister for External Relations and Financial Services may specify by Order.
- It is proposed that the Order as to which jurisdiction will be an "approved jurisdiction" will be those countries which apply equivalent money laundering controls to Jersey and reflect FAFT standards; these are the international standards concerning money laundering, terrorist financing and financing of proliferation.
- In addition, it is anticipated there will be guidance to sit alongside the law to deal with the position of directors and other officers involved with cannabis related companies.
The test - investors beware
- Whilst clearly a step in the right direction, it should be noted that the Regulations do not provide blanket approval. As such, when considering whether their investment complies with the Regulations, FSBs will be required to conduct a two stage due diligence test. They will need to ensure that:
- The cannabis related activities that generated the proceeds were lawful in the place where and when they took place; and
- The jurisdiction is on the approved list and there are no unspecified jurisdictions involved in the supply chain (production, distribution etc.).
- Once the FSB has established that the tests are met,
- The cannabis proceeds will no longer be the proceeds of crime under Jersey law.
- This will apply even if the proceeds were generated prior to the Regulations coming into force.
- Proceeds which are generated from conduct which is not lawful where and when it occurred do not benefit from the exemption of criminal conduct and remain proceeds of crime under the Law.
- If the jurisdiction does not feature on the approved list, then even if the proceeds are legal in that jurisdiction, they would also remain proceeds of crime.