By Peter Hecht
The Sacramento Bee
Published: Friday, Jun. 15, 2012
SACRAMENTO, Calif. — The Internal Revenue Service has seized bank accounts it says took in more than $870,000 in cumulative deposits in recent months, part of a federal probe into alleged money laundering involving a Sacramento marijuana dispensary.
Agents of the federal Drug Enforcement Administration and the IRS presented search warrants earlier this week on the El Camino Wellness Center, considered the largest medical marijuana provider in Sacramento.
The seizure of bank accounts, detailed in a sealed affidavit obtained by The Bee, underscores an effort by federal authorities to crack down on California medical marijuana dispensaries by employing laws traditionally used to target money transfers by narcotics traffickers.
A June 8 IRS seizure warrant cited federal money-laundering statutes and laws against improper reporting of income to seize bank accounts of the El Camino Wellness Center and its officers, Nicholas Street and Suneet Agarwal. No charges have been filed in the case.
IRS Special Agent SoEun Park said in the affidavit that Street and Agarwal, who goes by the name Sunny Kumar, distributed "illegal drugs" from "their illegal marijuana store" and conspired with "co-schemers" to hide profits from a purportedly nonprofit dispensary.
Park alleges that the men registered their dispensary with the state as a nonprofit corporation – the Sacramento Nonprofit Collective – then "concealed the proceeds from their marijuana store."
"The concealment and deposit of drug proceeds was primarily facilitated by false statements to financial institutions to disguise the true nature of their marijuana business," Park wrote.
He alleged that the dispensary operators were "commingling drug proceeds with legitimate funds, utilizing different entity names and bank accounts and frequently transferring funds between accounts to obfuscate the paper trail."
Former Sacramento federal prosecutor Donald Heller said authorities are sending a message that they will use federal drug money-laundering laws to target dispensaries that handle hundreds of thousands of dollars in medical marijuana transactions.
"I don’t think it matters if they’re nonprofit or not" under California law, Heller said "What the government sees is big commercial enterprises and they’re going after them."
James Anthony, an Oakland attorney specializing in medical marijuana regulation, blasted the account seizures as an assault on a legal California business.
"Did that (IRS) affidavit say a darn thing about these being medical marijuana collectives in compliance with state law? No," Anthony said. "There is a total disconnect."
El Camino Wellness Center opened in 2008 and last year became the first Sacramento dispensary issued a permit under a city regulatory program for medical marijuana outlets. The city is still collecting voter-approved taxes on local dispensaries, amounting to $1.1 million between July 2011 and March of this year.
Mark Reichel, the attorney representing Street and Agarwal, said El Camino Wellness Center was "a flagship for compliance" as a city-regulated medical marijuana provider.
Reichel said federal authorities raided the dispensary and the homes of both men, taking computers, cellphones and business records. In addition to the money-laundering probe, a DEA search warrant affidavit said Street and Agarwal are being investigated for conspiracy to distribute marijuana and maintaining a place for distribution.
"We’re going to try to talk to the government and see if we can work things out and explain that these guys were in compliance with state law," Reichel said.
U.S. Magistrate Dale A. Drozd approved the request to seize up to $827,435 from a Wells Fargo business account for the dispensary. The figure was based on IRS accounting of cumulative deposits made between January 2006 and August 2011.
Max Del Real, a spokesman for the dispensary, said the actual account balance was "a minute fraction" of the deposits it had received over time. Park wrote that any deposits from "sale of controlled substances" are subject to seizure.
The IRS also said it would seize up to $44,271 from a Wells Fargo account for Agarwal and deposits from two Golden One Credit Union accounts in Street’s name.
The affidavit includes allegations that El Camino Wellness misleadingly listed its services as "health" – but not marijuana – when it set up merchant services accounts for credit and debit card transactions. It said one credit card company, JPMorgan Chase, stopped doing business with El Camino Wellness upon learning it was a medical marijuana provider.
Joe Elford, legal counsel for Americans for Safe Access, an advocacy group for medical marijuana patients, said the investigation stirs questions over banking rights for dispensaries. He said just because a dispensary has money in the bank doesn’t signal a crime.
"When you deposit money into a bank, you don’t have to explain to the bank where that money came from, typically," Elford said. "And every nonprofit I know of has a bank account."
Last year, a U.S. Treasury Department criminal task force seized more than $80,000 from accounts of another Sacramento dispensary, One Love Wellness Center. The establishment closed on New Year’s Eve with no charges filed.
The latest raid worries Lanette Davies, co-operator of Sacramento’s Canna Care, one of 20 dispensaries still operating in city limits, down from the original 38.
Davies said that in recent years three different financial institutions, all aware Canna Care was a dispensary, initially agreed to service accounts for Canna Care but closed the accounts after deciding not to service medical marijuana businesses. The dispensary has another banking partner, but Davies worries she could be targeted by the government.
"It’s almost like the federal government sets you up to fail," she said. "We are not Mexican drug cartels."
U.S. prosecutors have said they are targeting marijuana businesses "hijacked by profiteers" that they contend are operating in violation of both federal and state laws – though warrants in the El Camino Wellness case make no mention of California’s medical marijuana law.
So far, federal courts have rejected legal challenges by medical marijuana advocates to the crackdown on California dispensaries.
Last year, El Camino Wellness sued U.S. Attorney General Eric Holder and Sacramento U.S. Attorney Benjamin Wagner, charging that federal property forfeiture notices – including one sent to the dispensary’s landlord – violated rights of medical marijuana users and threatened to shut down the "supply chain of medical cannabis."
A federal judge threw out the complaint.