Notice - Cannabis Related Risk (2019-11-13)

Summary

This notice sets out the BMA's position on Supervised Entities conducting business with participants in the cannabis sector, following legalisation of cannabis in Canada. It clarifies when such business will not attract BMA objection and what due diligence and reporting obligations apply under the Proceeds of Crime Act 1997 and related regulations.

• No objection condition: The BMA will not object to Supervised Entities dealing with a licensed cannabis cultivator, processor or seller provided the business would not amount to criminal conduct under a foreign jurisdiction's laws within the meaning of section 3 of the Proceeds of Crime Act 1997.
• Statutory defence: A statutory defence may be available under section 45B of the Act for offences under sections 43, 44 or 45 where there is knowledge or reasonable belief that the conduct occurred outside Bermuda and was lawful there at the time; the onus is on the Supervised Entity to raise this defence.
• Federal legality test: Compliance requires that cannabis activity be legal at all levels including federal level in the foreign country; this excludes activity originating from US states where cannabis is legal at state but not federal level.
• Canada specific caution: Because of Canada's proximity to the US, Supervised Entities must ensure the US or any other jurisdiction where cannabis is not federally legal is not the true origin of activity conducted through a Canadian operation.
• Due diligence obligations: Supervised Entities must fully understand applicable cannabis laws in the jurisdiction of business activity, including jurisdiction of origin, and apply appropriate precautionary measures including client risk assessment.
• CDD/EDD for Regulated Financial Institutions: Entities defined as Regulated Financial Institutions under section 42A of the Proceeds of Crime Act must apply customer due diligence or enhanced due diligence under the Proceeds of Crime Regulations 2008, including source of funds enquiries to confirm funds do not predate legalisation in the customer's jurisdiction.
• Suspicious Activity Reporting: Supervised Entities must file Suspicious Activity Reports with the Financial Intelligence Agency where behaviours indicating criminal activity are observed.

Key obligations

• Supervised Entities must assess whether cannabis-related business would constitute criminal conduct under foreign law before proceeding.
• Supervised Entities bear the onus of establishing any statutory defence under section 45B of the Proceeds of Crime Act if relying on it.
• Supervised Entities must confirm that cannabis activity is legal at the federal level in the relevant foreign jurisdiction, not merely at a state or provincial level.
• Supervised Entities must fully understand applicable cannabis laws in the jurisdiction of business activity, including the jurisdiction of origin of funds or operations.
• Supervised Entities must conduct a risk assessment of clients involved in cannabis-related business.
• Regulated Financial Institutions under section 42A of the Proceeds of Crime Act must apply customer due diligence or enhanced due diligence per the Proceeds of Crime Regulations 2008, including source of funds enquiries.
• Supervised Entities must file Suspicious Activity Reports with the Financial Intelligence Agency upon observing behaviours indicating criminal activity.

Applies to

BMA-supervised entities, Regulated Financial Institutions