An update and expansion upon our blog yesterday: US Attorney Prosecutes MRB for Making False Statements to Open Bank Account
Per Law360 article Pot Co. Exec Admits Duping JPMorgan To Open Bank Account (nb, subscription required):
An Oklahoma medical marijuana business principal has pled guilty to federal charges, after federal prosecutors alleged he opened an account with JPMorgan Chase Bank NA under false pretenses to launder proceeds from marijuana sales.
According to an information document filed earlier this month, Ngo used Friendly Management Group to open a Chase bank account that the bank otherwise wouldn't have opened so he could launder proceeds from his medical marijuana business Cannabless. He laundered more than $770,000, according to the filing.
The article goes on to note that "Federal lawmakers have proposed a bill that would shield from legal liability banks and other financial institutions that do business with state-legal cannabis entities, as well as ancillary companies that service the federally illegal industry. The Secure and Fair Enforcement, or SAFE, Banking Act was passed by the U.S. House of Representatives in April."
However, even passage of the SAFE Banking Act would (A) NOT diminish marijuana-related business KYC / enhanced due diligence requirements and/or costs associated to attaining the accounts (hence, many MRBs will still be disincentivized from being upfront with their banks) and (B) NOT allow for MRBs to "make false statements" to attain bank accounts. There are multiple banks in Oklahoma openly and knowingly serving the marijuana industry that likely would have loved this account, yet this particular business and its entire executive team decided it best to lie to JPMorgan Chase to open an account under false pretenses. Speculation would indicate that desires to avoid fees, avoid taxes, avoid turning over beneficial ownership and/or to avoid FinCEN reporting as being some of the reasons why this cannabis-related business chose to do so.
Presumably, Chase's marijuana-related screening procedures may not be entirely "effective" , if the bank did not notice that Mr. Ngo was linked to so many known marijuana-related businesses. According to CRB Monitor's industry-leading database of MRBs and UBOs, Mr. Ngo is linked to at least 27 MRBs in Oklahama as either the "Primary Contact" and/or "Owner". If Chase had simply screened for known UBOs of MRBs, they very likely would have made the connection. It is also possible that Mr. Ngo's colleage, Kevin Pham, who is listed on the company's Secretary of State registered agent was the name on the account (although Mr. Ngo should presumably have been listed as a UBO), but Mr. Pham is ALSO listed as a Primary Contact to at least one direct MRB in Oklahoma (of which Mr. Ngo is an Owner).
It's worth noting that American Banker wrote an article Big banks worked with pot industry, despite denials, records show, based on CRB Monitor's data, back in 2016 pointing out that all four big banks were (are?) banking Marijuana-Related Businesses, despite claims of policies not to do so and/or "not knowing." What continues to be the case is that the big banks -- and ALL financial institutions are very and increasingly likely to be "unknowingly" banking marijuana-related businesses.
The ONLY effective way to mitigate this risk is proactively screening for known MRBs and their know UBOs -- the exact same "common sense best practice" that these very same banks use to identify other illicit and high-risk clientele. Yet, most don't do so when it comes to marijuana ... presumably in large part due to regulators (and politicians) implicit "OKing" of what is otherwise wilfull blindess at its most blatant.
Very often, during demos, webinars, and presenations (including with sophisicated, educated compliance officers), I am asked "Why would we want to know and/or screen for the beneficial owners of marijuana-related businesses?" THIS is why. A classic money laundering typology is, if the MRB owner KNOWS you may be screening for the company(ies) name(s), open up an "seemingly unrelated business" -- to borrow from FinCEN's prescient 2014 Marijuana-Related Business banking guidance -- to hide the true nature and activity of the underlying MRB(s).
The 27 Tier 1A Marijuana-Related Businesses to which Mr. Ngo is linked:
- Cannabless Cultivation 1, LLC
- Cannabless Cultivation 2 LLC
- Cannabless Cultivation 3 LLC
- Cannabless Cultivation 3, LLC
- Cannabless Cultivation 4 LLC
- Cannabless Cultivation 5 LLC
- Cannabless Processor 1 LLC
- Cannabless Processor 2 LLC
- Cannabless Processor 3 LLC
- Cannabless Retail 1, LLC
- Cannabless Retail 10 LLC
- Cannabless Retail 11 LLC
- Cannabless Retail 12 LLC -- Kevin Pham is the "Primary Contact"
- Cannabless Retail 16 LLC
- Cannabless Retail 19 LLC
- Cannabless Retail 2, LLC
- Cannabless Retail 3 LLC
- Cannabless Retail 4 LLC
- Cannabless Retail 5, LLC
- Cannabless Retail 6, LLC
- Cannabless Retail 7 LLC
- Cannabless Retail 8 LLC
- Cannabless Retail 9 LLC
- Hope And Kindness Management, LLC
- Organic Remedies, LLC
- Thc The Healing Cannabis, LLC
- The Smelly Cloud, LLC