JERSEY’S CANNABIS INVESTMENT RULES FOR MEASUREING MONEY LAUDERING RISK

Many clients are looking to move away from traditional investments and investment strategies and instead looking to invest directly and indirectly in the lucrative recreational and medicinal cannabis sectors.

In this event the following is important to understand.

THE BASICS

• Growing and supplying cannabis for recreational use remains illegal as a matter of Jersey law.

JERSEY SINGLE CRIMINALITY TEST

• For financial services businesses in Jersey, the difficulty had always been that Jersey applied a ‘SINGLE CRIMINALITY TEST’ –
• If the conduct undertaken in ANOTHER JURISDICTION was UNLAWFUL IN JERSEY, it was deemed to be criminal conduct,
• EVEN IF IT WAS PERFECTLY LAWFUL IN THE ORIGINAL JURISDICTION.
• Article 1(2A) of the Proceeds of Crime 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.”
• Extract from the law below

BEFORE 2021

• Prior to 2021 any involvement with the overseas cannabis sector – regardless of it being perfectly legal in that jurisdiction – that resulted in proceeds derived from such involvement were treated as proceeds of crime, such that Suspicious Activity Reporting requirements would be triggered and filed with the JFCU.
• This may have resulted in
• Assets being frozen in Jersey, and
• The FSB finding themselves in the unenviable position of being unable to process those proceeds and divest themselves of the asset –causing significant operating issues for them and their clients

JERSEY LAW CHANGE 2021

1. On 30 June 2021, the Government of Jersey passed Amendments to the Proceeds of Crime (Jersey) Law 1999 to amend the current definition of criminal conduct.
2. The new regulations clarify which investments SHOULD NOT BE treated as proceeds of crime in Jersey.
3. It also amended the definition of ‘CRIMINAL CONDUCT’ under the law to provide that CERTAIN ACTIVITIES ARE no longer considered criminal conduct – these being:-
• It is lawful where and when it occurs, and
• It occurs in a jurisdiction outside Jersey that the Minister for External Relations and Financial Services may specify by order.
4. The production, supply, use, export or import of CANNABIS OR ANY OF ITS DERIVATIVES are NO LONGER CONSIDERED CRIMINAL CONDUCT – provided 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 FATF (Financial Action Task Force) standards – the international standards concerning money laundering, terrorist financing and financing of proliferation.

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 FATF (Financial Action Task Force) standards – the international standards concerning money laundering, terrorist financing and financing of proliferation.

THREE-STAGE DUE DILIGENCE TEST.

When considering whether an investment [or other arrangement] complies with the regulations, financial services businesses will be required to conduct a three-stage due diligence test.

1. Ensure that the cannabis-related activities that generated the proceeds were LAWFUL IN THE JURISDICTION THEY TOOK PLACE and
2. THE JURISDICTION IS ON THE APPROVED LIST AS FOLLOWS

• Showing the law from 19 May 2023 to MAY 2024  https://www.jerseylaw.je/laws/current/Pages/08.780.40.aspx
• 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.
• Proceeds generated from conduct that 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.

3. Further to stage two there are no UNSPECIFIED JURISDICTIONS involved in the supply chain (production, distribution and so on).

NO LONGER BE THE PROCEEDS OF CRIME

Once the financial services business has established that the tests are met, the cannabis proceeds will no longer be the proceeds of crime under Jersey law.

RETROSPECTIVE

The above rules apply even if the proceeds were generated prior to the regulations coming into force.

NOTES AND SOURCES

POCL = https://www.jerseylaw.je/laws/current/Pages/08.780.aspx

https://statesassembly.gov.je/BriefingPapers/Pages/Cannabis-Industry-in-Jersey.aspx#:~:text=2)%20(Jersey)%20Regulations%202021,in%20a%20jurisdiction%20outside%20of