From the time that the Agriculture Improvement Act of 2018 (2018 Farm Bill) removed hemp from the definition of marijuana within the Controlled Substances Act, the financial services industry has been anxiously awaiting federal guidance on providing traditional financial services to hemp growers and hemp-related businesses. Banks and credit unions have been reluctant to offer services to these potential customers without guidance from the Financial Crimes Enforcement Network (FinCEN) because marijuana and hemp are both subspecies of cannabis, and marijuana remains fully illegal at the federal level. For many financial institutions, the risks of the unchartered territory have been too high to take on without explicit further guidance.
FinCEN Releases Long Awaited Hemp Guidance
FinCEN issued hemp guidance
FinCEN issued the needed guidance on June 29, 2020, encouraging financial institutions to provide banking services to hemp-related businesses and outlining BSA/AML expectations around customer due diligence (CDD) and suspicious activity reporting. This new guidance is the first to enhance the December 3, 2019 interagency statement on providing financial services to customers engaged in hemp-related businesses.
Many banks and credit unions have been waiting to offer services to this growing list of potential customers without specific guidance on what CDD information is needed to ensure that the hemp-related businesses meet the .03% or less tetrahydrocannabinol (THC) requirement of hemp. If THC is above that threshold, the crop or product is considered marijuana, thus federally illegal and risky to bank. How can financial institutions safely provide services to these businesses while meeting all regulatory requirements?
The guidance gives institutions confidence to bank hemp-related businesses
FinCEN’s new guidance clarifies the requirements, and there does not seem to be any surprises. In fact, the guidance should give financial institutions confidence to bank hemp-related businesses. The guidance states the CDD requirements are risk-based and includes the confirmation of the hemp grower’s compliance with state, tribal, or USDA licensing requirements by obtaining a written attestation from the grower that they are validly licensed and/or by obtaining a copy of the license. Further CDD requirements should be risk-focused and written in the institution’s policy and procedures. Additional information which may be obtained for heightened risk customers include:
- Crop inspection or testing reports
- License renewals, updated attestations
- Correspondence with the state, tribal government, or USDA.
SARs should be filed if suspicious activity is detected
The financial institution must be able to fully understand the nature and purpose of the customer prior to providing services. Ongoing monitoring of the customer for possible suspicious activity is also critical. Suspicious Activity Reports (SARs) should be filed if any of the following is detected within the customer relationship:
- Engaging in a hemp-related business in a state that has not legalized hemp
- Hemp business appears to be a front business for marijuana-related businesses or criminal activity of any kind
- Engaged in hemp production to conceal involvement in marijuana-related business activity
- Inability to attest or provide documentation of current license
The 2020 guidance does not rescind or supersede FinCEN’s 2014 marijuana guidance. If hemp businesses are comingled with marijuana-related businesses, continuing SARs should be filed as stated in the 2014 guidance.
Terri Luttrell, CAMS-Audit
Terri Luttrell is a seasoned AML professional and former director and AML/OFAC officer with over 20 years in the banking industry, working both in medium and large community and commercial banks ranging from $2 billion to $330 billion in asset size. She has successfully worked with institutions in developing BSA/OFAC programs, optimizing various automated solutions, and streamlining processes while ensuring all regulatory requirements are met. As the Compliance and Engagement Director at Abrigo, Terri provides insights that contribute and support long-term banking strategies based on analysis of market and industry trends, competitor developments, and financial and regulatory technology changes. She is an audit-certified anti-money laundering specialist and a board member of the Central Texas chapter of the Association of Certified Anti-Money Laundering Specialists (ACAMS). Terri earned her bachelor’s degree in business administration, specializing in business and finance, from the University of North Texas.