A father and son in Washington have been sentenced to five years in prison for running an illegal $13 million marijuana business alongside a lucrative Bitcoin-for-cash money laundering scheme.
The 28-year-old Kenneth Warren Rule was first discovered laundering money through an unlicensed crypto exchange back in 2018 after he met with an undercover agent in Starbucks and offered to swap his cash for Bitcoin.
It was later revealed that Warren, along with his 47-year-old father, Kenneth John Rule, was also selling marijuana products, including hash oils, for crypto. The pair racked up $13 million in sales and $2.5 million in net profits all without applying for a state license or paying taxes.
In a statement, US attorney Nick Brown described the operation and what could have been an explosive end to the case:
“Not only did this pair produce and distribute marijuana products on the dark web, in violation of the state’s regulatory scheme, they also illegally laundered immense amounts of bitcoin that their enterprise earned,” he said.
“When law enforcement moved in there were more than a dozen firearms — some loaded and ready to be used to protect their drug trade.”
Based on the sheer firepower at the pair’s disposal and the scale of the operation, presiding District Judge John C. Coughenour said he felt justified in handing them a five-year prison sentence.
Rule ran his Bitcoin for cash scheme from Starbucks
Warren’s laundering operation involved frequent trips to Starbucks. He used the cafe as a spot where he could meet the undercover agent who, at the time, was posing as a human trafficker.
The two of them would discuss laundering cash in exchange for Bitcoin and Warren even shared tips with the agent on how to hide your money using crypto. In the end, Warren exchanged $142,000 worth of Bitcoin for cash with the agent despite believing him to be involved with organized crime.
Last year a similar case was concluded when one California resident was sentenced to three years in jail after laundering $13 million worth of Bitcoin.
Like the Rules, Hugo Mejia operated his own unlicensed crypto exchange through which he laundered Bitcoin for cash between May 2018 and September 2020. Mejia was caught after he laundered more than $250,000 worth of Bitcoin for an undercover agent. Interestingly, the two also met in a coffee shop.
Prosecutors working on the father and son case said, “Perhaps, as is so often true in fraud cases, they were motivated by simple greed. But in running their business in this way, they put a lot of people at risk, and disadvantaged others in the industry who chose to play by the rules.”
Courtesy of Protos.com
(Sept. 24, 2021) Saule T. Omarova, a Cornell University law professor, is President Joe Biden’s (D) pick as nominee to a five-year term for Comptroller of the Currency, the White House announced Thursday. A former special advisor for regulatory policy in the Treasury Department’s office of domestic finance (from 2006-07), Omarova has spent most of her career as an academic and lawyer studying and practicing financial regulatory law, according to a biography published by the White House … NCUA did not always pursue enforcement actions aggressively enough with regard to failed credit unions with concentrations in taxicab medallions, or conduct post-mortem reviews of failed credit unions as required, the Government Accountability Office (GAO) said in a report issued Thursday. The report, the congressional watchdog said, was aimed at analyzing the causes of failure and observed opportunities for NCUA to enhance its oversight. The report takes particular focus on the failure in 2018 of three credit unions with loans concentrated in taxi medallions with declining values. GAO said it recommended that the agency enhance its tracking of enforcement data, act earlier on indications of future problems, and complete post-mortem reviews in a timely manner … Credit unions and banks serving legal, cannabis-related businesses would receive a “safe harbor” and other protections under legislation that was added this week to the House version of must-pass FY22 National Defense Authorization Act (NDAA), which annually funds the nation’s military, among other things. The House passed the bill – Secure and Fair Enforcement (SAFE) Banking Act — as a standalone measure earlier this year, but it has not advanced in the Senate. Including it in the NDAA helps the SAFE Banking Act’s chances for final enactment, but is still subject to change in the Senate.
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President Biden Announces Key Nominations for Financial Regulation and Investor Protection
NCUA: Additional Actions Needed to Strengthen Oversight
(April 23, 2021) The House passed NASCUS-backed legislation this week (again) aimed at providing a safe harbor for financial institutions seeking to serve legitimate cannabis-related businesses in states where the activity is legal. The Secure and Fair Enforcement Banking Act (SAFE Banking Act) of 2021 (H.R. 1996), adopted on a 321-101 vote, is similar to legislation that made its way through the House in the last Congress, but ultimately did not come up for a vote in the Senate. Senate Majority Leader Chuck Schumer (D-N.Y.) has indicated the Senate would consider the bill as part of broader legislation addressing marijuana use … Implementation of the new current expected credit losses (CECL) accounting standard – particularly technical issues related to purchased financial assets with credit deterioration (PCDs) and troubled debt restructurings (TDRs)– will be the subject of a three-hour virtual event scheduled for May 20, the Financial Accounting Standards Board (FASB) said this week. The virtual roundtable on CECL will be webcast live from 9 a.m. to noon ET. FASB said the roundtable – which it also termed a “listening session” – is aimed at helping FASB members and staff gather additional feedback on implementation for the CECL standard … Businesses and tax-exempt organizations with less than 500 employees — including credit unions — can receive a tax credit toward Medicare taxes they pay for providing paid time off for each employee receiving an anti-COVID-19 vaccination and for any time needed to recover from the injection, the Treasury and the IRS said this week. The announcement came after comments earlier in the day by President Joe Biden (D) outlining the program in a televised address. The Treasury and tax agency said that, as an example of use of the program, if an eligible employer offers employees a paid day off to be vaccinated the employer can receive a tax credit equal to the wages paid to its workers for that day (up to certain limits).
LINKS:
FASB to Host Virtual Credit Losses Roundtable on May 20, 2021
(Nov. 20, 2020) After some fits and starts over the last 12 months, there are signs that marijuana banking legislation in the Senate may receive at least a hearing, and perhaps even go further than that.
Late last week, Sen. Pat Toomey (R-Pa.) and expected to be elected the chairman of the Senate Banking Committee when the new Congress organizes early next year (assuming the Republicans keep the majority) voiced his interest in seeing legislation move forward.
“I am sympathetic to the idea that people who are involved in [the] cannabis industry — in an entirely legal fashion… ought to be able to have ordinary banking services,” he told reporters. He admitted that there are many details to work out, but he voiced some optimism for doing so.
In late 2019, current Banking Committee Chairman Mike Crapo (R-Idaho) – in the wake of House passage of legislation giving legal cannabis-related businesses access to financial institution services, among other things – held hearings on marijuana banking legislation. However, later in the year, Crapo said he would not support the legislation, citing concerns over the impact of the availability of marijuana on children and drug cartel use of banks.
NASCUS has consistently supported legislation that addresses the conflict between federal and state law on the provision of products and services for legitimate marijuana enterprises. The association supported the House’s Secure and Fair Enforcement (SAFE) Banking Act (H.R. 1595), which passed last year on a 321-103 bipartisan vote.
The bill – likely to be re-introduced in the next Congress, and a model for Senate action – would prohibit penalizing or discouraging a credit union or bank from providing financial services to a cannabis-related legitimate business or to a state (and its political subdivisions or Indian Tribe) that exercises jurisdiction over cannabis-related legitimate businesses.
(Nov. 6, 2020) While the presidential election contest remained too close to call days after the election, legalizing marijuana for personal or medical uses in five states was a different story: initiatives passed or were leading in each state by relatively healthy margins.
Voters in Arizona, Mississippi, Montana, New Jersey and South Dakota are giving or have given the green light to statewide ballot measures asking them to legalize marijuana for personal or medical use (or both in one case).
In Arizona, voters approved – by 59.8% (with 89% of votes reported as of Thursday) – a measure legalizing possession and use of marijuana for persons who are at least 21 years old, enacting a tax on marijuana sales, and requiring the state to develop rules to regulate marijuana businesses.
Montana voters agreed (with 57.8% in favor) to a state constitution amendment allowing for the legislature or a citizen initiative to establish a minimum legal age for the possession, use, and purchase of marijuana, similar to the regulation of alcohol under the state constitution.
In New Jersey, voters are giving the thumb’s (by 66.9%, and 63% of votes reported as of Thursday) to a measure legalizing the possession and use of marijuana for persons age 21 and older and legalizing the cultivation, processing, and sale of retail marijuana.
South Dakotans had two marijuana-related measures to consider: one legalizing the recreational use of marijuana and another requiring the state legislature to pass laws providing for the use of medical marijuana and the sale of hemp by April 1, 2022. The former was approved by 54.2% of voters, the latter by 69.9%.
Finally, Mississippi voters have given approval handily to medical use of marijuana, despite a relatively convoluted process. First, voters were asked to give the OK to either (or both) of measures advanced by state citizens (through an initiative process), or an alternative of that version advanced by the state legislature (as allowed under state law). In the first stage, voters could choose “either” or “neither.” Voters said OK to “either’ by 67.8%.
Second, those voters who chose “either” were asked to select which one of the “eithers” they supported. The citizens’ measure won overwhelmingly, with 73.9% of the vote. That version would amend the state constitution to create a medical marijuana program administered by the state health department for persons with qualified debilitating medical conditions.
NASCUS has been a leader in the credit union system to call for clarity in federal law regarding financial institutions’ ability to serve legal marijuana businesses. The federal government continues to classify marijuana, also known as cannabis, as an illegal controlled substance, which complicates the ability of credit unions to serve legal marijuana-related businesses within their states. To date, 44 states and the District of Columbia have legalized marijuana use and possession for either recreation or medical use.
There is more to Tuesday’s national election than who or which party controls the White House and Congress – there are also questions, in four states, as to whether marijuana can be legalized for personal use, and in two others about legalizing marijuana for medical use.
NASCUS – since at least 2014 — was among the first organizations representing state regulators, credit unions or financial institutions to call for clarity in federal law regarding financial institutions’ ability to serve legal marijuana businesses. The federal government continues to classify marijuana, also known as cannabis, as an illegal controlled substance, which complicates the ability of credit unions to serve legal marijuana-related businesses within their states.
Nevertheless, states continue to consider legalization for personal or medical use. Voters in Arizona, Montana, New Jersey and South Dakota have statewide ballot measures asking voters to legalize marijuana for personal use. More specifically, by state, the measures would:
In Arizona: legalize possession and use of marijuana for persons who are at least 21 years old, enact a tax on marijuana sales, and require the state to develop rules to regulate marijuana businesses.
In Montana: amend the state constitution to allow for the legislature or a citizen initiative to establish a minimum legal age for the possession, use, and purchase of marijuana, similar to the regulation of alcohol under the state constitution.
In New Jersey: legalize the possession and use of marijuana for persons age 21 and older and legalize the cultivation, processing, and sale of retail marijuana.
In South Dakota: legalize the recreational use of marijuana and require the state legislature to pass laws providing for the use of medical marijuana and the sale of hemp by April 1, 2022.
Meanwhile, in addition to the South Dakota effort, medical marijuana use is up for consideration in Mississippi too – but with a much more complicated procedure. Two versions of a medical marijuana amendment are under consideration in the Magnolia State, one advanced by citizens (but subject to state legislature consideration), and the other advanced by the state legislature. The former measure is known as a “indirect initiated constitutional amendment.” The latter is the alternative developed by the state legislature after its consideration.
Thus, voters have choices: They may select “either measure” or “neither.” If they select the latter, they can move on in their voting – or select one of the medical marijuana versions just in case the “eithers” outpoll the “neithers.”
On the other hand, if a voter selects “either” at the start of this process, the voter must then answer the second question: that is, “which one?”
The “indirect” version (advanced by citizens) would allow medical marijuana treatment for more than 20 specified qualifying conditions, allow individuals to possess up to 2.5 ounces of marijuana at one time, and tax marijuana sales at the current state sales tax rate of 7%.
The state legislature’s version would restrict smoking marijuana to terminally ill patients; require pharmaceutical-grade marijuana products and treatment oversight by licensed physicians, nurses, and pharmacists; and leave tax rates, possession limits, and certain other details to be set by the legislature.
To date, 44 states and the District of Columbia have legalized marijuana use and possession for either recreation or medical use (11 for recreational, 33 and D.C. legalizing or decriminalizing medical marijuana).