In August, the FBI announced that it would be focusing on public corruption in state marijuana licensing. In September, the Mayor of Fall River, Massachusetts was indicted for extorting more than $250,000 in bribes from cannabis businesses in return for assistance with licenses.  In October, alleged Rudolph Giuliani associates Lev Parnas and Igor Fruman were indicted for, among other things, a scheme to make illegal campaign finance donations in connection with a planned recreational marijuana business in Nevada.  Last week, the US Department of Justice announced charges against two officials of the city of Calexico, California (a small city about 120 miles east of San Diego) for soliciting $35,000 in cash bribes from an undercover FBI agent whom they believed represented investors seeking to open a cannabis dispensary.  As far as we are aware, this is the first time that the FBI has used an undercover agent in a case involving corruption in state cannabis licensing.

California law provides local jurisdictions with control over whether to allow cannabis activities and in 2018, Calexico began issuing permits.   According to the charging document, in 2019, the defendants, David Romero, a member of the City Council of Calexico and Mayor Pro Tem, and Bruno Suarez-Soto, a Commissioner on the City of Calexico Economic Development and Financial Advisory Commission, set up a shell company called RS Global Solutions to solicit bribes in exchange for fast tracking applications for those who paid and delaying the applications of their competitors.  In a series of meetings between December 2019 and January 2020, Romero and Suarez-Soto solicited $35,000 in bribes from the undercover, promising, at various times, that they would ensure “processing with the city,” a “top spot in the queue,” to “manipulate” the system, to “pull strings” and to “put everybody else on hold …but you.”  The charging document also suggests that such manipulation has been common in Calexico.   For example, in one meeting, Romero explained that he and Suarez-Soto would need an up-front payment because they had done similar work for other people who had not paid despite getting what they promised.  Suarez-Soto allegedly added “This isn’t our first rodeo.”  At another meeting, Romero explained that in his “line of business” he and Suarez-Soto could not “[expletive] up.”   The investigation was concluded after the undercover agent made an up-front payment of $17,500.

We have previously reported on corruption risks in state licensing and, specifically, the factors that facilitate corruption, red flags indicating that a business may have obtained a license improperly and what honest businesses can do to protect themselves. As federal law enforcement ramps up its efforts to combat corruption in state licensing, businesses would be well advised to evaluate their operations and their business partners in light of this guidance.

Author

Tom Firestone is Co-Chair of the firm's North American Government Enforcement practice and is a member of the Firm's Global Compliance & Investigations Steering Committee. He represents clients in matters involving anti-corruption and the US Foreign Corrupt Practices Act (FCPA), internal investigations and transactional due diligence. He is also a member of the firm's Cannabis Review Committee and has advised clients on compliance issues related to cannabis.