By: Wilhelmina Wachter, Managing Director – Compliance Services
On June 29th FinCEN released guidance for financial institutions to address questions related to BSA regulatory requirements for hemp-related businesses. The guidance is intended to enhance the availability of financial services for, and the financial transparency of, hemp-related businesses in compliance with federal law. This guidance supplements the December 3, 2019 interagency statement on providing financial services to customers engaged in hemp-related businesses. It is important to note this guidance is for hemp-related businesses and does not replace or supersede FinCEN’s previous guidance on the BSA expectations regarding marijuana-related businesses. With the United States Department of Agriculture having issued an interim final rule regulating hemp production and approving numerous state regulations, financial institutions should expect an influx of inquiries from prospective hemp-related business customers and borrowers. Financial institutions should determine whether they will provide services to these types of businesses and implement appropriate policies and procedures to manage their risk.
All financial institutions should be performing appropriate due diligence for all customers including hemp-related businesses. For those institutions that choose to provide services to hemp-related businesses, FinCEN expects them to confirm that the business is appropriately licensed in accordance with the regulations in their state. In addition to obtaining customer due diligence and adhering to the beneficial ownership requirements, FinCEN also suggests asking for additional documentation as part of initial and ongoing due diligence to determine potential risks. This may include crop inspection or testing reports, license renewals, and updated attestations from the business. A sample testing report will also determine the THC percentage of their plants and products. If the THC percentage exceeds 0.3%, the plant or product is considered “marijuana” by law and therefore could be illegal.
FinCEN emphasizes that by itself, the growth and sale of industrial hemp is legal and does not require Suspicious Activity Report (SAR) filing; however, the guidance details several red flags to consider to identify illegitimate hemp-related businesses. Given the similar appearance of “marijuana” plants and “hemp” plants, the primary risk of servicing these hemp businesses is that they might be an illegal marijuana business. In those circumstances, FinCEN does expect financial institutions to file SARs, and the guidance provides instructions for completing these reports.
A copy of the guidance can be found at https://www.fincen.gov/sites/default/files/2020-06/FinCEN_Hemp_Guidance_508_FINAL.pdf.