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15. July 2020
News North America Regulation

US Treasury Updates Guidance on Hemp Banking Rules

The Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, has recently issued new guidelines for providing banking services to the hemp industry.

The FinCEN update is meant as an extension to previous guidance issued in December 2019 which directed banks seeking to serve the hemp industry. The new update affirms the position that banks are not required to file suspicious activity reports (SARs) solely because their customers are engaged in the growth or cultivation of hemp in accordance with applicable law and regulations.

The updated guidance goes further in providing additional clarity and suggested best practices as to customer due diligence and when SAR reports might need to be filed.

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 [Bank Secrecy Act] regulatory requirements,” FinCEN wrote. “This clarification is intended to enhance the availability of financial services for, and the financial transparency of, hemp-related businesses in compliance with federal law.

They also emphasized that the notice does not “replace or supersede FinCEN’s previous guidance” on banking for marijuana and hemp businesses that was implemented under the Obama administration in 2014.

Under the new guidance, FinCEN notes that for customers who are hemp growers, financial institutions may confirm the hemp grower’s compliance with state, tribal government or U.S. Department of Agriculture (USDA) licensing requirements, as applicable, by obtaining either 1) a written attestation by the hemp grower that they are validly licensed or 2) a copy of such license.

Beyond this basic information, financial institutions are free to design a customer identification program that aligns with the institution’s risk tolerances and the institution’s assessment of the level of risk posed by each customer. Additional information might include crop inspection or testing reports, license renewals, updated attestations from the business, or correspondence with the state, tribal government or USDA.

Regardless of the specifics of the customer identification program, FinCEN expects financial institutions to “understand the nature and purpose of customer relationships for the purpose of developing a customer risk profile, and conduct ongoing monitoring to identify and report suspicious transactions, including, on a risk basis, to maintain and update customer information.”

FinCEN provides several examples of when the banking activities of a hemp industry customer may trigger a SAR filing:

  • a customer appears to be engaged in hemp production in a state or jurisdiction in which hemp production remains illegal
  • a customer appears to be using a state-licensed hemp business as a front or pretext to launder money derived from other criminal activity or derived from marijuana-related activity that may not be permitted under applicable law
  • a customer engaged in hemp production seeks to conceal or disguise involvement in marijuana-related business activity
  • the customer is unable or unwilling to certify or provide sufficient information to demonstrate that it is duly licensed and operating consistent with applicable law, or the financial institution becomes aware that the customer continues to operate 1) after a license revocation or 2) inconsistently with applicable law

The new FinCEN guidance also addresses the application of SAR filing protocols to customers that are engaged in both lawful hemp-related activities, as well as marijuana activities. The guidance notes that to the extent that a customer’s financial transactions of hemp-related business are comingled with marijuana-related activities, the financial institution should apply FinCEN’s 2014 Marijuana Guidance, which sets forth the approach for filing “marijuana limited” and “marijuana priority” SARs.

According to Travis P. Nelson, a lawyer at Holland & Knight, “Although the customer identification program suggestions in the FinCEN guidance are those that most financial institutions have been providing since passage of the 2018 Farm Bill, the new regulatory guidance provides additional evidence that regulators, while open to banks serving the hemp industry, will be watching closely to ensure that banks appreciate the special risks that hemp customers pose due to the close connection between hemp and its more controversial cousin, marijuana.

The guidance will provide welcome clarification for the US banking industry, for those participants already working with, or looking to work with, hemp companies. It also provides a foundation of risk assessment and policy that will provide a framework for the way banks should potentially work with the cannabis industry in the future.

Source | U.S. Department of the Treasury