The importance of diligence

CCI attended a compliance conference organized by non- profit organization Maria Moñitos and experienced compliance consultants.

In recent months the CCI legal team has fielded an increasing number of inquiries from clients concerned about their local operations. Disappearing money, partners going AWOL, head-scratching shell companies and falsified documents have all made an appearance. While the industry has attracted some of the country’s boldest and brightest entrepreneurs, it’s hardly surprising – given the history of the illegal marijuana industry – that it has also attracted some less salubrious characters.

In order to create a long-term sustainable industry and to invest safely and responsibly, you need to know where the individuals, enterprises and, ultimately, the money came from. Anti-Money Laundering/Counter Financing Terrorism (AML/CFT) protocols are just a fraction of the necessary compliance and risk management assessment, which involve international entities, internal procedures and operational reports.

CCI identified the most important tips to help cannabis companies navigate the compliance seas:

AML/CFT: The establishment and implementation of AML/CFT protocols are often dismissed as being simple instruction manuals. Nevertheless, rigorous background checks for employees, providers, distributors and investors are crucial to prevent both government sanctions and criminal liability.

According to the Termination of Ownership Unit of the Colombian Prosecutor’s Office, individuals who don’t follow due diligence procedures are co-authors of the transnational crime of money laundering, thus at risk of potential extradition. The Prosecutor’s Office expects companies to actively work to prevent of money laundering activities and protect the overall financial system. Companies need to do everything in their power (and within legal limits) to protect the financial system.

EMPLOYEES: Whether it’s hiring senior executives or day laborers in rural areas, compliance protocols will entail serious background checks and due diligence processes on every individual participating in the operation.

At a minimum, companies should consult the United Nations’ Terrorism and Money Laundering lists, the European Anti-Fraud Office list (OLAF) and Clinton List (OFAC) as a first filter before even offering a position.

Once an employee passes the initial filter, the company should carry out due diligence to answer the four W’s: Who is this person? What does he/she do? What does he/she own? Is he/she Walking on a dubious path?

There are two particular considerations when it comes to employees hired in rural areas: FARC reintegrated personnel and day laborers. Because the crime of rebellion is a transnational crime, companies must be careful to only hire FARC reintegrated personnel registered as such with government entities, instead of FARC demobilized individuals who have not been subject to restorative justice procedures yet.

Regarding day laborers, rigorous documentation checks are crucial to avoid ties with outlawed labor forces, as Colombia is considered a transit country in the context of immigration law.

PROCEDURES: Not only are companies obligated to prevent money laundering and counter financing terrorism activities, they must also report any suspicious activity to the Unit of Financial Information and Analysis (UIAF).

Companies must either file an Unusual Operation Report (ROI), or a Suspicious Operation Report (ROS) to alert the UIAF if they find any questionable activities or transactions.

If a transaction seems suspicious, for example it exceeds the amount for industry standards and/or lacks justification of origin, the appropriate path is a ROS. On another hand, ROIs are required when the amount or transaction is not related to the client’s economic activity or seems particularly unusual due its amount.

Common unusual operations to watch out for are frequent refunds from the same enterprise, fake clients and deliberate mistakes in checks and allocation invoices. By presenting these reports rigorously, LPs are contributing to trust in an already highly regulated and monitored industry.