Friday, August 26, 2022
A March 4, 2022 post in FINCANN, titled "Are Cashless ATMs The Next Target of Federal Enforcement?" referenced legal action against Jim Patterson, the CEO of California-based cannabis delivery service Ease Technologies Inc., who pleaded guilty to charges of conspiracy to commit bank fraud.
"For the sake of avoiding legal consequences and bolstering your cannabis business's brand, there has never been a better time to review the sufficiency of compliance practices to avoid winding up in a prosecutor's crosshairs," FINCANN reporters wrote. "To do so, though, it's important to understand why many of these payment workarounds for THC licensees, including cashless ATMs, are illegal and risky despite being presented as benign."
A similar complaint against Online Marijuana Marketplace Co. resulted in the 2016 indictment of its owners, Hamid Akhavan and Ruben Weigan, for transaction laundering. In the ruling, U.S. Attorney Geoffrey S. Berman stated that Akhavan and Weigan were aware that most U.S. banks were reluctant to onboard cannabis-related businesses, and those with higher risk tolerances charged excessively high interchange rates. Defendants solved for this issue by establishing phony merchant accounts linked to offshore bank accounts, Berman contended.
"These fraudulent companies were used to open offshore bank accounts with merchant acquiring banks and to initiate credit card charges for marijuana purchases made through the Online Marijuana Marketplace Company," Berman wrote in the sealed indictment. "Because of the high risk associated with processing transactions that involved unlawful activity (i.e., the sale of marijuana), employees at some of the acquiring banks charged high fees for the acquiring banks to process these transactions."
Berman further noted that fronts were established with websites designed to look and feel like purveyors of legitimate consumer products—including, for example, pet products, face creams, cosmetics, carbonated drinks, stenographic services, music, and dive gear—that were actually facilitating marijuana transactions totaling more than $100 million.
In a similar context, a December 2021 Visa bulletin issued to cannabis businesses advised against POB practices at dispensaries and retail stores. Visa warned that POS devices posing as legitimate ATMs and routing transactions over ATM debit card rails are illegal and non-compliant.
As previously reported in The Green Sheet on Dec. 15, 2021, Visa claimed the practice violates Core Rules and Product and Service Rules for both its payment card and debit card networks.
"Acquirers miscoding POS purchase transactions as ATM cash disbursements are in violation of these requirements," the Visa bulletin stated. "Additionally, any obfuscation of information from transactions to further this scheme also violates these requirements. This includes non or misidentification of a merchant outlet (as these are POS purchase transactions) or using altered or fictitious location information."
Bruce Renard, executive director of the National ATM Council Inc., noted that legitimate ATM solutions are available to cannabis retailers through NAC's national network of compliant independent ATM deployers. The business owners are required to use third-party service providers, he stated, and not have an ownership stake in ATMs placed on their premises.
Renard recently spoke on this issue at WeedTechUS, in an Aug. 25, 2022 fireside chat with Green Sheet journalist Dale Laszig. During the interview, Renard mentioned that NAC has reached out to the Cannabis Regulators Association (CANNRA), for assistance in reviewing and enforcing ATM compliance throughout the cannabis, CBD and hemp industries.
In an Aug. 19 letter to CANNRA executives Gillian Schauer, executive director, and Andrew Brisbo, president, NAC leaders stated that retail ATM companies across America provide lawful and authorized ATM financial services in licensed dispensaries, as currently permitted by the rules of Visa and the other applicable payment networks.
"Because all the financial institutions and ATM deployers involved are currently subject to some form of federal regulation, while cannabis remains a criminally prohibited substance under present federal law," NAC representatives wrote. "Cashless ATMs have come about as a 'workaround' that seeks to evade network rules and hide the actual nature of the transactions involved, thereby constituting Bank Fraud under federal law."
Noting that similar schemes have resulted in guilty pleas and hefty settlements, NAC asked that CANNRA request that members issue alerts to their licensed dispensaries to promptly cease and desist further deployment and use of "cashless ATM" systems in their dispensary businesses. 
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