Cannabis in Colombia and the banking industry05/11/2019
It is well known that Colombia is one of the most desired and “in vogue” destinations for the development of cannabis cultivation and extraction projects. It is also well known, unfortunately, that the banking sector has, for the most part, rejected opening any financial product for the common cannabis company.
Only very few companies, compared to the total amount of licenses out there, have managed to have bank accounts opened. How to be one of them? Well, understanding the concerns of the banks is a good start.
Banks are concerned about the origin of funds and knowing the identities of the stakeholders, up to the ultimate control. Also, banks are concerned about the security protocols of the company, to make sure flower, oils or residues, are being accounted for. Finally, banks are very concerned about foreign banks and jurisdictions that are part of the corporate structure.
Well, if those are the main concerns, what can a cannabis company show banks, so as to make them trust and open financial products? A very good first step would be, an anti-money laundering and terrorism protocol (SARLAFT or SAGRLAFT as known in Colombia).
What is a SARLAFT protocol, and how could it increase the possibilities of companies obtaining bank accounts?
A SARLAFT protocol is basically a real, live operating system, ensuring that a certain company has put in place prevention measures, to minimize the possibilities that money laundering and terrorist activities, happen within, or with the favour of the company.
So how do you implement one of these protocols? The first key, and banks will look for this, the protocol must not be a piece of paper. It must be a real, working methodology that is alive in the company. If you look at the company as an organism, each organ must have its own controls, according to the level of exposure it has, to drug money. For example, human resources must have controls for the selection of personnel, procurement must have mechanisms to screen every single supplier, local or international, financial department must of course, track the origin of resources it receives.
Those examples are very typical of any industry. What is particular about Cannabis? The protocol must be very sophisticated and efficient, for controlling every phase of cultivation or production. From the purchase of seed, to the sale of finished product. The license application process in Colombia requires cultivation, fabrication and security protocols. These protocols need to harmonize with the SARLAFT protocol and make one solid piece.
Once the protocol is designed, you need to make sure every person in the company works according to it and knows their role in the big picture. Finally, the protocol must be reflected in many different company documents. Its labour contracts, its usual commercial agreements, its share offering documents, any transaction documents that instrument a total or partial acquisition, and the like. Then, and only then, you have a SARLAFT that does the job, and that is convincing for banks.