Last week, the Financial Crimes Enforcement Network (FinCEN), issued new guidance (the “FinCEN Guidance”) for monetary establishments working with hemp-related companies. The FinCEN Guidance facilities on due diligence necessities as associated to the Bank Secrecy Act (BSA). This steering follows intently on the brand new National Credit Union Administration (NCUA) steering for federally-chartered credit score unions, which was issued on June 20 (see our take right here).

The FinCEN Guidance isn’t the Network’s first chunk on the apple. Last December, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, FinCEN and the Office of the Comptroller of the Currency, in session with the Conference of State Bank Supervisors, issued a three-page hemp banking statement. The function of that assertion was to to assist monetary establishments take care of BSA and anti-money laundering (AML) compliance in gentle of the truth that hemp is now not a Schedule I managed substance beneath federal legislation. The FinCEN Guidance clarifies and expands upon the 2019 assertion.

Under the 2019 hemp banking assertion, the most important win for monetary establishments was most likely the truth that no particular or enhanced Suspicious Activity Report (“SAR”) filings are required for purchasers “. . . because they are engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations.” Essentially, banking regulators are saying that monetary establishments ought to deal with “hemp-related businesses” like another enterprise when it comes SAR filings (not like state-licensed hashish companies, which have their very own particular SAR submitting system beneath the 2014 tips). Further, the 2019 hemp banking assertion units forth that “When deciding to serve hemp-related businesses, banks must comply with applicable regulatory requirements for customer identification, suspicious activity reporting, currency transaction reporting and risk-based customer due diligence, including the collection of beneficial ownership information for legal entity customers.” No surprises there.

Interestingly, the 2019 hemp banking assertion, very similar to the latest NCUA steering, didn’t handle the legalities round monetary establishments attempting to financial institution hemp-CBD companies. That’s most likely purposeful given the Food and Drug Administration’s (“FDA”) present enforcement place round hemp-CBD and violations of the Food, Drug, and Cosmetic Act. Readers of this weblog know that the 2018 Farm Bill doesn’t take away the FDA’s capability to manage hemp merchandise, together with hemp-CBD. The FinCEN Guidance follows swimsuit on this difficulty. The FinCEN Guidance basically defines “hemp-related business” to solely imply “businesses or individuals that grow hemp, and processors and manufacturers who purchase hemp directly from such growers.” This signifies that the viability and legality of banking hemp-CBD companies beneath federal legislation actually stays murky at greatest.

So, what does the FinCEN Guidance say? Per FinCEN, “This guidance explains how financial institutions can conduct due diligence for hemp-related businesses, and identifies the type of information and documentation financial institutions can collect from hemp-related businesses to comply with BSA regulatory requirements.” Here are the primary highlights to which monetary establishments ought to concentrate when contemplating serving hemp-related companies:

  1. For hemp growers, monetary establishments ought to “confirm the hemp grower’s compliance with state, tribal government, or the USDA licensing requirements, as applicable, by either obtaining (1) a written attestation by the hemp grower that they are validly licensed, or (2) a copy of such license”;
  2. Based on the extent of threat posed by a hemp grower, a monetary establishment can search extra data like crop inspection or testing studies, license renewals, up to date attestations from the enterprise, or correspondence with the state, tribal authorities, or USDA;
  3. Financial establishments have already got to watch their prospects for compliance with BSA and AML. This is not any completely different for hemp-related companies in {that a} monetary establishment goes to wish to come back on top of things (and quick) on the particular ins and outs of a given hemp-related enterprise with a purpose to absolutely assess the client threat profile and to allow efficient compliance monitoring. This in the end signifies that the monetary establishment might want to put money into a deep understanding of the 2018 Farm Bill and particular state legal guidelines round hemp manufacturing, processing, licensing, and registration within the particular states through which their prospects function;
  4. There remains to be no particular SAR submitting system for these companies. However, with simply commonplace SAR observe, the 2020 hemp banking tips state that, when figuring out whether or not to file a SAR, the next conduct ought to pose crimson flags for a monetary establishment: a. A buyer seems to be engaged in hemp manufacturing in a state or jurisdiction through which hemp manufacturing stays unlawful;b. A buyer seems to be utilizing a state-licensed hemp enterprise as a entrance or pretext to launder cash derived from different legal exercise or derived from marijuana-related exercise that will not be permitted beneath relevant legislation; c. A buyer engaged in hemp manufacturing seeks to hide or disguise involvement in marijuana-related enterprise exercise; d. The buyer is unable or unwilling to certify or present ample data to display that it’s duly licensed and working according to relevant legislation, or the monetary establishment turns into conscious that the client continues to function (i) after a license revocation, or (ii) inconsistently with relevant legislation.”; and
  5. If a monetary establishment is serving a buyer that commingles its hemp-related and state-licensed-cannabis associated proceeds and accounts (which is a horrible concept for a number of authorized and business-related causes), the monetary establishment should apply the 2014 FinCEN tips.

All in all, the brand new FinCEN Guidance is extra complete than the 2019 inter-agency hemp banking assertion. For monetary establishments, complying with these directives must be simple in comparison with the 2014 FinCEN tips for marijuana-related companies. That doesn’t imply it’s going to be simple to financial institution hemp-related companies, nonetheless. Hemp will at all times be topic to a broad overlay of state and federal rules, which monetary establishments should know and monitor. At least now they’ve some tips.

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