Regulatory & Marketplace
Can the UK Solve its ‘Money Laundering’ Problem with the Proceeds of Medicinal Cannabis? The manufacture, marketing and supply of medicinal cannabis products raise complex regulatory issues in the jurisdiction where those activities take place. These go beyond the issues applicable to medicines in general, even some whose potential harms are far greater, due to the cultural and moral judgements that have been applied to cannabis for many years. Inevitably, there is a large and growing variation in the level and nature of regulation that applies in various jurisdictions, with some countries having gone as far as to legalise cannabis in general (including for recreational use), and others being slow even to allow medicinal products in which cannabis is an ingredient. A Restrictive Environment The UK is, broadly speaking, at the more conservative end of that spectrum for the moment, allowing some bespoke and restrictive exceptions for medicinal cannabis products, while keeping its general prohibition in place. Just as important, however, given its importance as a global financial centre, is its regulatory approach to those who invest and trade in the shares of overseas businesses that sell cannabis products. There, thanks to a quirk in its notoriously restrictive money laundering laws, the UK has cast a dark and discouraging shadow over the prospects for major investment in the medicinal cannabis industry. Now, however, an announcement from its Financial Conduct Authority (FCA) has hinted at a potential way forward, and at the time of writing, the first listing of a cannabis company on the London Stock Exchange has taken place, with several other following closely behind. The starting point for the UK, as for many countries, is that cannabis, and certain derivatives of cannabis such as THC, are controlled drugs, so that various actions in relation to them (including possession, supply, import, export, and cultivation of the cannabis plant) are criminal offences, punishable with imprisonment, unless done in accordance with licences. The primary legislation, which creates the offences, is 20 INTERNATIONAL PHARMACEUTICAL INDUSTRY
the Misuse of Drugs Act 1971 (MDA), while the detail of licensing arrangements is contained in secondary legislation, including the Misuse of Drugs Regulations 2001 (MDRs), and in guidance issued by a division of the Home Office, the Drugs and Firearms Licensing Unit (DFLU). It is by way of changes to the MDRs and the guidance that the approach to medicinal cannabis has changed over recent years, as attitudes towards the therapeutic value of cannabis have become more favourable. The POCA Problem The problem with the UK’s money laundering laws, and how they apply to the proceeds of overseas cannabis business, comes from the provisions of the Proceeds of Crime Act 2002 (POCA), which prohibit as ‘money laundering’ virtually any dealings with the proceeds of ‘criminal conduct’, and go on to define that term to include conduct overseas that would breach UK law, if it occurred here. There are exceptions where that conduct was lawful where it occurred, but these have been disapplied for most offences that carry a maximum penalty of over 12 months’ imprisonment, which include the principal offences under the MDA. So, taking the MDA and POCA together, it would seem that to deal with the proceeds of (even lawful) cannabis products overseas would constitute money laundering under UK law. This has all sorts of impacts beyond the merely theoretical (the prospect of a
UK investor in Canadian cannabis being arrested, let alone prosecuted or convicted, for that conduct being very remote), principally because of the way the financial sector has been co-opted into the UK’s antimoney laundering (AML) systems. For a UK bank, the regulatory risks of operating an account that might contain the proceeds of ‘criminal conduct’ are severe, which in turn means that it can be strongly in their interests to rule out such risks by turning away customers, submitting covert reports on them to the NCA, or even freezing accounts. Some banks have precautionary policies that prohibit the receipt of funds from (even purely medicinal) cannabis business. A Pragmatic Approach In the few years since this issue first arose, some interesting grey areas have emerged. First, because of the criminal liabilities that underpin the regulation of medicines in the UK, and the role of its Medicines and Healthcare products Regulatory Agency (MHRA), a pragmatic approach to the interaction of POCA and overseas medical products is needed. Applying a strict interpretation to the question of whether overseas manufacture, sale, brokering etc. of medicines breaches the Human Medicines Regulations 2012 (the HMRs) quickly runs into problems: because other jurisdictions’ regulatory schemes and authorities are different, there are myriad UK entities that handle the proceeds of selling medicinal products that do not strictly comply with the HMRs, and in which the MHRA has had Spring 2021 Volume 13 Issue 1
