Canada’s legal weed sparks Cayman money laundering claims

| 18/06/2018 | 19 Comments

Cayman News Service(CNS): While the prospect of legal cannabis for recreational use in the Cayman Islands is not expected anytime soon, Canada is just a couple of months away from full legalisation. As that date approaches, legislators have raised concerns that the multi-billion dollar legal weed market could be taken over by organised crime, with proceeds laundered offshore in places like Cayman. 

On 7 August marijuana becomes fully legal in Canada, having been allowed for medical purposes since 2001, opening up a market worth billions — the country’s population is believed to have spent some $6.7 billion on illicit recreational marijuana last year alone.

As Canada’s licensed growers and the many existing retail dispensaries prepare to take advantage of the change in law as the black market goes legitimate, national legislators have forced an amendment to the law to prevent organised crime moving in on the action and diverting proceeds to what they called tax havens.

According to reports in Canada, an amendment to the legislation legalising marijuana, proposed by Conservative Senator Claude Carignan, gained considerable support among Liberal independents and independent senators.

“The Senate wants to ensure that organised crime doesn’t use offshore tax havens to wind up secretly controlling the recreational marijuana market in Canada once cannabis is legalised,” Carignan said.

Senators voted by a 45-29 majority to require that any company licensed to grow marijuana must publicly disclose all its shareholders or executive members who are not based in Canada.

Liberal independent Senator Serge Joyal said police have confirmed that organised crime has already infiltrated the medical marijuana market in Canada and he stated that that 35 of 86 licensed producers are financed in part by unknown investors using tax havens to keep their identities secret. Furthermore, Joyal said, more than $250 million has been invested in Canadian cannabis companies from the Cayman Islands alone.

On the face of it this activity may well be perfectly legitimate investment in Canadian companies earmarked for some extraordinary growth in the current circumstances by investment funds based in the Cayman Islands, which is a highly popular international fund domicile.

However, Canadian lawmakers have seized on the opportunity to highlight a perceived lack of transparency in Cayman’s offshore industry. It also brings into focus the current debate on the public beneficial ownership register that the UK intends to force on its overseas territories.

Local financial services gatekeeper Cayman Finance fired back at the accusations by the Canadian senators, highlighting Cayman’s strong record on both transparency and anti-money laundering.

“The Cayman Islands has anti-money laundering and verified ownership regimes in place that are as strong or stronger than those of G20 countries and we share that information with tax and law enforcement authorities around the world. That’s why in 2017 the OECD gave Cayman the same rating for its commitment to the international standard for transparency and exchange of information that it gave to Canada,” Cayman Finance told CNS in a statement.

Although the legal weed market in Canada has brought this attention as a source of potential money laundering activity through Cayman, the cannabis market in the US also raises similar questions. The issue with the US, where various states have legalised marijuana for recreational use, notably Denver and California, which went legal at the turn of the year, is that marijuana is still illegal on a federal level, which means that otherwise legal operations in certain states are unable to use the US banking system.

As further states come on stream, where the green rush could potentially be worth many more billions, Cayman will no doubt come under the microscope again.

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Category: Business, Crime, Financial Services

Comments (19)

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  1. James Bond says:

    Most Canadian dispensary money is laundered through Turks and Caicos.

  2. Anonymous says:

    If it’s a legal Canadian business what is the relevance that its product is weed? How is it different to any other business regarding tax evasion, money laudering and ownership?

  3. Anonymous says:

    Just legalize this stuff here already. Why Cayman needs to be trapped in the past on this is beyond me. This would create jobs and business opportunities for Caymanians!

  4. Anonymous says:

    The Coke ‘problem’ in EE is long over due to be addressed.
    All know…

  5. Anon says:

    Whenever I see the legalization (and taxation) of a vice such as drugs, alcohol, or gambling it occurs to me that it is about time that the poor and stupid contribute their fair share!

  6. Jotnar says:

    The issue is nothing to do with money laundering, despite the headline. It’s to do with the ultimate beneficial owners of Cayman entities investing in and controlling the marijuana business in Canada. In short the Canadians are worried organized crime may control the business by investing through a Cayman entity. It’s a fair observation since whilst we say that ownership details are a available to tax and law enforcement authorities making enquiries, it would require the Canadian authorities to make enquiries each and every time a Cayman entity took a stake. Requiring and Canadian business trading in Ganga to declare its UBO is a simple way of cutting through that problem, which is no doubt why they are doing it.

  7. Anonymous says:

    Why do huge countries/ governments like Canada and the U.S. consistently expect the Cayman Islands to manage their problems. All of you need to bring your citizens in line by obeying your own laws and stop expecting the Cayman Islands to do the policing for you. Get off your butts and control your citizens investments and leave us alone.

    • Anonymous says:

      All the Canadian government needs to do, is if there is a legit question of shareholder identity, is to contact the commercial crime dept. our registers are not to be open so that every tom, dick and harry, who could be cyber thieves to pry into the share registers then perhaps into the shareholders bank accounts. Do not expect us to police the world on behalf of Canada or any other country. Otherwise Canada or any other country can prevent their people from opening up Cayman Islands exempt companies and you all can go ahead and try running these businesses through a domestic company. or you can accept exempt companies and charge the companies a higher onshore fee which in the case of Canada will be a very high percentage. These countries want the benefits of having a business in a tax free/ low tax jurisdiction to build their wealth and the onshore jurisdiction benefits hugely from these offshore investments. I believe the time is right to charge them a percentage fee on their profits locally. We have been taking the blame and getting very little except registration and annual fees which goes to the registrar’s office and the administration fees which goes to the Cayman company. The local fees are minimal in comparison to the benefits to the shareholder which subsequently benefits the onshore jurisdictions in their infrastructure, charities, educational etc.

      • The senators are not asking the banks in the Cayman Islands to divulge any information, but are asking the Licensed producers, who cannot have organized crime involved in their corporations to divulge any shareholders investing over a certain amount of money, born from a secret bank account that is not transparent to them, by law, to report this themselves, so that the Canadian federal government can make sure that organized crime is not involved in the legal Cannabis industry. This has nothing to do with your banking secrecy, but has to do with organized crime hiding behind your banking secrecy laws to get a strong foothold in the industry. As for organized crime being able to get around the checks and balances that are out in place, they are adept at doing that, by one example, not putting the money directly in the offshore banks in their names. The federal government doesn’t want to know who everyone is that has an offshore bank account (although I think that they would probably like to). They only want to know who has an off shore bank account and is investing heavily in the legal Cannabis business, in Canada. They are not asking the banks for this information, but are asking the legal licensed producers that have these investors amongst their midst. Carry on with your banking as before. No worries!

    • Anonymous says:

      Yeh, leave us pirates alone to wallow in our own skullduggery.

  8. Anonymous says:

    If pot is legitimized then what makes it any different than any other legitimate business? Organized crime organizations can do the same thing with any legal business so why single out marijuana? Makes no sense.

    Once this door is opened, it will be open to every business eventually.

  9. Anonymous says:

    Just had to check my calendar to make sure it wasn’t 1st April.

  10. Anonymous says:

    Just legalize it so Cayman can get in on the billions of tax dollars for the personal coffers.

    • Edjyakayted Caymanian says:

      If you knew how many tourists have asked why we don’t have a dispensary in town. Imagine a licensed and taxed outlet for legal marijuana. The tax money would be glorious for our coffers.

      Rather, we stick to ruining 20 year old lives by giving them a record for a spliff while we can smoke tobacco cigs freely in from of a police station. We spend thousands on enforcement that is futile (one boat caught means five got through).

    • Anonymous says:

      Some of our middle class can make an investment and get some returns, like all the other countries. Canada has opened the flood gates and the horses are all on the outside. Cover your own ax.

    • Anonymous says:

      not likely unfortunately….just look at the mlas that the people elect (eden, miller, mclean,ju-ju…..etc). remember we live in a place where we can’t buy groceries on a sunday!

  11. Anonymous says:

    Goooooo-oh Canada!

  12. Anonymous says:

    Less than 2 weeks to go, though it’s up to each province to set up their own regimes. It’s not an open market. For example: there will be only 4 licensed recreational use Ontario Cannabis Stores initially, and those won’t open their doors until sometime in the Sept/Oct. The RCMP are also frantically trying to roll out their “high-driving” saliva detection kits and train provincial traffic depts on their use. A failing saliva leads to a mandatory blood test. The largest companies in the sector are already exchange-listed with public filings – and some trading at eye-watering valuations, with a glut of production capacity and supply, against zero retail sales todate. Caveat empor…

  13. Anonymous says:

    Remember kids, the government does not care about what drugs you do, it cares about whos drugs you do.

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