Eaze Case Puts Financial Institutions on Notice

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On March 24, 2021, Defendants Hamid (Ray) Akhavan and Ruben Weigand were found guilty of defrauding banks as part of a scheme they had set up to help cannabis company Eaze accept credit card payments for marijuana purchases. During the trial, former Eaze CEO James Patterson testified that he and other Eaze employees, Eaze board members, and even the dispensaries they served, knew that they were disguising the payments to appear as if they originated from non-cannabis businesses because banks and the major credit card networks did not allow credit cards to be used for marijuana. The Defendants argued that although banks may claim that they do not want nor allow marijuana transactions, they, in fact, know they are facilitating marijuana-related payments and profit from doing so.

Although a prosecution witness from Bank of America testified that the bank’s policies strictly prohibit doing business with cannabis-related companies, he also admitted that Bank of America profits from marijuana credit card purchases when customers maintain balances on their cards. Bank of America stated that it monitors for cannabis-related transactions by screening merchant names and if an investigation reveals that a merchant is a cannabis-related business, it reports the merchant to Visa or Mastercard. Bank of America did not testify that it shut card holders’ accounts, nor forgive the amount owed for the marijuana purchases. The Defendants argued that banks reasonably overlooked and continue to overlook such transactions because federal authorities have not enforced federal marijuana laws against state legal cannabis businesses. However, in the Eaze case, federal prosecutors did take action by utilizing the bank fraud statutes.

In the aftermath of the Eaze case, it may not be as easy to prove that banks unwittingly participate in the facilitation of marijuana-related credit card transactions. Financial institutions throughout the country now have notice that such transactions are being conducted and simply monitoring for cannabis-related merchant names may not be enough to convince a jury that a bank was defrauded because of such transactions. More importantly, the Eaze case provides banks with notice that marijuana-related financial transactions are becoming more and more commonplace, especially as new states legalize cannabis. Now, even financial institutions that have decided not to do business with marijuana companies know or should know that they need to implement more robust compliance programs to identify marijuana-related transactions, and they need to adopt new policies that outline what to do with those customers and merchants who are conducting them.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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