The three situations

There are three basic situations to be considered when looking at the inter-jurisdictional approaches to money legally acquired in one jurisdiction relating to conduct that is illegal in another jurisdiction.

The first is that in the USA. In the USA, the states have considerable autonomy over what happens within their own borders. There are, in many areas of law, conflicts between the laws in one state and the laws in another and, in addition, with federal law. It's not only drugs: age of consent for sex, for marriage, divorce laws, gun laws, driving licences and, as we now know, abortions. Mostly, these matters remain under the exclusive jurisdiction of the states so long as the conduct remains in the state. But in relation to financial crime, things get muddy. Each state has some kind of law relating to money laundering. They are not consistent with each other and several are not consistent with Federal Law. Yet, where there is inter-jurisdictional movement of money or messages relating to the crime that becomes a federal matter. Where the federal authorities want to obtain jurisdiction over an offence, they add money laundering and/or wire fraud charges to the indictment and that elevates a state-only matter to federal. So any inter-jurisdictional banking arrangements (and these days that's most of them) gives federal authorities a reason to look at any financial crime.

This is where the trouble begins: if a cannabis grower in Denver sells to a shop in the town, there is no problem - until a bank transfer is made. There's no point in trying to use crypto because by definition all crypto-transactions are recorded outside the state and that's (under the very wide interpretation of the term that the US courts have adopted) wire fraud even though there is no element of one party defrauding the other. The scale of the lack of access to financial services by cannabis growers and legal retailers is explained by Bespoke Financial. "State-compliant cannabis businesses cannot accept credit cards, access loans, set up deposit accounts, write cheques, pay taxes, or operate payroll without a cannabis-friendly bank." But, the article says, despite attempts by state politicians to create an environment that enables such banks, " efforts have been unsuccessful due to worried bankers." In the USA draft legislation is called an Act, not a Bill. So while you might read about the Secure and Fair Enforcement Act, intended to protect bankers providing services to legal marijuana businesses, it's not actually legislation. It's often called the SAFE Act or the SAFE Banking Act. It has a lot of support: 180 at last count. It was introduced in 2019 and it's still making progress - but slowly. It passed the House in Mid April 2021.

That Bill, if eventually passed in more or less its present form, is described by its sponsors thus:

"This bill generally prohibits a federal banking regulator from penalizing a depository institution for providing banking services to a legitimate cannabis-related business. Prohibited penalties include terminating or limiting the deposit insurance or share insurance of a depository institution solely because the institution provides financial services to a legitimate cannabis-related business and prohibiting or otherwise discouraging a depository institution from offering financial services to such a business.

Additionally, proceeds from a transaction involving activities of a legitimate cannabis-related business are not considered proceeds from unlawful activity. Proceeds from unlawful activity are subject to anti-money laundering laws.

Furthermore, a depository institution is not, under federal law, liable or subject to asset forfeiture for providing a loan or other financial services to a legitimate cannabis-related business.

The bill also provides that a federal banking agency may not request or order a depository institution to terminate a customer account unless (1) the agency has a valid reason for doing so, and (2) that reason is not based solely on reputation risk. Valid reasons for terminating an account include threats to national security and involvement in terrorist financing, including state sponsorship of terrorism.

It means "reputational risk." For the purposes of this article, we don't need to go into the detail of the Bill. Suffice it to say that the purpose is to produce a federal law that says that inter-jurisdictional activity relating to the proceeds of the legal marijuana trade will not be subject to action as money laundering under federal law. It also provides that any financial institution, etc. that provides financing from the legal marijuana trade will not be subject to federal action for financing a criminal activity. While this provides an interesting perspective for other jurisdictions to follow there remains the fact that it's been stalled in Congress for more than a year. In fact, it's been sitting in the Senate since 20 April 2021 where it has been read twice and referred to the Committee on Banking, Housing and Urban Affairs - the Committee that is most famous, in money laundering terms, for the work of the late Senator Carl Levin. The Bill's record has not been updated since that date.

But it is due for a hearing on 26th July, 2022. That's going to be an interesting meeting.

While we wait for that, it's worth considering whether such a law can operate across the other two situations

The US model is, therefore, relatively straightforward, at least in principle.

The European Union is a very different model. First, it's important to realise that the EU is not a country. It is, arguably, not even fully a jurisdiction. It tries to be so and it has created some of the institutions that we expect to see in a country. For example, it has - on the face of it, an apex court. But on examination, that court is a political, not a legal court and, as a political court, it has jurisdiction only in relation to those matters that are, or have at some time been, a priority of the then dominant political view. When people talk about "The European Court" they almost invariably mean "The European Court of Human Rights." While the Court constantly extends its influence by finding that human rights exist where others don't see those rights or who see the ECHR (as it is often called) as prioritising vocal minorities or even individuals over the rights of society as a whole, the fact is that its remit is limited.

There is a European Parliament and there is a President. This is, itself, a cause for annoyance because several members are constitutional monarchies but the EU is attempting to set itself above those and to operate as a republic. However, the President does not have the authority of the President of the USA, for example. The EU does not have citizens in the sense that term is usually understood: individuals remain citizens of their individual states and, through them, are citizens of the EU. Because of this, the EU does not, historically, make laws that directly affect individuals or corporations: EU Directives, which are, supposedly its most powerful legislative measure, are actually instructions to member states to pass and implement laws in accordance with the Directive. But those laws are rarely passed and implemented in exactly the form that the European Parliament passed them leading to as many variations as there are member states.

As a response to the global financial crisis, the EU began to make more use of a device called "Regulations." It first used them extensively in relation to the financial sector, using the argument that the European Central Bank needed to take control of financial stability and that to do that it required control over the operations of the financial sector in general and banking in particular. Regulations sidestep the (already deeply flawed) democratic process to which Directives are subject. Critics argued that it was the latest step in the long war between Frankfurt, Paris and London for supremacy over financial markets and it is difficult, if one looks at history since the 1990s, to say that they are wrong.

Having established that Regulations can be used in relation to the financial sector, the EU decided that its next primary target would be money laundering. It announced that there would be a reduction in reliance on Directives and that in future Regulations would be used. Recently it has announced the creation of The Anti Money Laundering Authority (which therefore gets to redefine the long-used acronym AMLA). However, the result is not as we might expect. The Authority is an EU institution that will "contribute to the harmonisation and coordination of supervisory practices in the financial and non-financial sectors, the direct supervision of high-risk and cross-border financial entities and the coordination of financial intelligence units." It will therefore usurp the powers of supervision of national regulators and have the authority to define the regulatory regime across the whole of commerce and finance. It is truly federal law but law made by bureaucrats not elected officials. It appears to relate to all financial crime, not only money laundering. It follows, then, that once the Authority is set up that we can expect to see something that is notionally similar to the position in the USA.

In fact it is fundamentally different to the USA because there is no pan-European law to combat drugs or the proceeds of the drugs trade, be it legal or illegal. The EU's proposed Regulations relating to money laundering do not relate to the predicate crimes except insofar as money laundering is a predicate crime for money laundering purposes.But the Regulations relating to the supervision, for financial crime purposes, of the commercial and financial sectors, is a land-grab similar to that imposed in relation to the financial sector in response to the global financial crisis/ However, in this case it goes into the regulation of non-financial sector businesses and will create a European enforcement regime in relation to e.g. bribery and corruption where there is cross-border activity. It will also, at least on the face of it, provide jurisdiction over activity by EU businesses outside the EU.

This, then, creates a complex position in relation to money earned from trade with is legal in one member state but illegal in another.

The basic position is that money is laundered in jurisdiction A when it arises from criminal conduct in jurisdiction B when the conduct would also be criminal conduct in jurisdiction A. It's called "commonality of offence." Therefore, using the Netherlands as an example, lawful trade in cannabis in the Netherlands generates profit which can be legally exported to e.g. the UK. Note: the profit not the cannabis can be imported into the UK.

Possession and small-scale distribution of cannabis has long been largely ignored in the Swiss city of Zurich, even though both are actually illegal. Indeed, the smoking of weed in public parks in Zurich has for at least 20 years been commonplace. Cannabis oil and other products are openly on sale, including over the internet, and are legal so long as they have less than 1% THC. Others sell products which are high in cannabidiol which does not cause the "high" created by THC. It is the cannabidiol, or CBD, that is widely regarded as having many health benefits. Low THC hemp products are, depending on interpretation, legal or decriminalised, for possession and use. On some reports, out of a population of some 8 million, an estimated 500,000 are regular, if not frequent, cannabis users. Other reports put that figure at about 200,000. Switzerland is therefore reviewing its law and Zurich has a plan: like Thailand, perhaps it's best to accept that the war on some drugs is lost. In September 2020 both Houses of the Swiss National Parliament voted to allow cities to undertake "scientific studies on the effects of the controlled use of cannabis to be carried out. This is intended to help evaluate the effects of new regulations on the recreational use of cannabis and ultimately, combat the black market distribution of cannabis." (SwissInfo). The Zurich "study" will start in the autumn of 2022. Interestingly, in two referenda, the vote has gone against the legalisation of cannabis but non-state sponsored surveys are in favour of legalisation provided minors are protected. But the numbers involved mean that a quiet form of civil disobedience is underway - and again there is a part of the political spectrum that says that growing cannabis will be a positive benefit to agriculture.

In Thailand some have argued that as a rapidly growing crop, cannabis will make good animal feed. It's hard not to laugh at the prospect of cows fed on cannabis producing the milk that ends up in Swiss Chocolate.

Switzerland is a single country with "Cantons" which have a degree of autonomy but far less than states within the EU. The reason for looking at Zurich and the Netherlands together is this: no one yet knows the position relating to direct flights between the two. Will carrying personal quantities be legal? Will it depend on what airlines are used - because airlines in flight are, in law, the jurisdiction of their jurisdiction of registration. Will Zurich become a banking destination of choice for Dutch pot dealers? Will Swiss banks become subject to additional levels of suspicion or due diligence in the international banking arena?

That has not happened to Dutch banks and money in a Dutch bank is not, generally, regarded as potentially more subject to suspicion than money in, say, a German bank. In Germany, recreational use of cannabis is illegal - but in June this year, Germany's Health Minister Karl Lauterbach started a series of hearings with a view to presenting a Bill within a short period to "liberalise" the recreational use of weed. It's a ship that sailed long ago in Berlin which has been a destination for pot users for decades - but much of the rest of the country being much more straight-laced the move to a national liberalisation policy is something of a surprise.

There is no EU-wide policy on the use, possession or dealing in cannabis and while there is a general collective tut-tutting, it is clear that insofar as there might be a widely held view, it is far from unanimous. There is a clear opportunity for cross-border trade outside the EU.

But it is the open borders under the Schengen Agreement that will be the real reason that the legalisation juggernaut will gather speed: quite simply, with no border controls, unless there is a specific reason for checks, once weed is legal in one state that is a member of the Schengen area, it will spread in a more or less uncontrolled manner leaving enforcement to be a matter for local law enforcement in those countries which maintain a ban - and to take action in relation to proceeds of the illegal import and distribution of cannabis and cannabis products.

Which brings us to the third situation: that in ASEAN. See Part 3.